When Does a Descriptive Mark Supplemental Registration Improve Branding?
What can be branded? Names of businesses, associated logos, taglines, slogans, names of products, and even product shapes, sounds, smells, and colors can be part of your brand.
Earnings Growth Versus Revenue Growth
v Have a Question? Add it to the bottom of this post! For many entrepreneurs, launching a new business often means walking a fine line between pursuing earnings growth and growing the top-line revenue. A business can’t be successful in the long-term without earning a...
Contribution Margin Formula
Contribution margin is an important method of not only understanding how profitable a business is, but also how its products and services contribute to the bottom line. It’s important to understand that contribution margin is different from profit margin, since profit...
Working Capital Adjustment
v Have a Question? Add it to the bottom of this post! When a business is sold, sometimes an adjustment to the purchase price is needed to make up any difference between available working capital at the time of closing, and the working capital needed to maintain...
Small Business Financing
Without cash flow, a business cannot pay its employees, make debt payments, or invest in its future growth – making cash flow a critical focal point in every business, regardless of size. Yet searching for the correct small business financing can be overwhelming,...
Business Capital Structure
Business debt and equity are central to the operations of any company. The amount of debt and equity a business carries has a major impact on how the business operates, and on how it is positioned for success. Business capital is the money a company uses to purchase...
Loan Covenants Examples
v Have a Question? Add it to the bottom of this post! What Are Loan Covenants? A covenant is simply a fancy term for the word ‘promise’. Banks include covenants in their loan agreements to preserve their position as the lender and to improve the likelihood a loan...
Sole Proprietorship vs LLC
Have a Question? Ask your question below and one of our Advisors will answer. Understanding the differences between a sole proprietorship and an LLC (Limited Liability Company) is essential for any business owner – but especially important for a business owner...
Business Bad Debt
Business bad debt refers to any debt created or acquired in a trade or business (or closely related to a trade or business) that becomes partially or completely worthless and can not be collected. Business bad debt is the result of a customer, another business, or an...
Business Debt Schedule
A business debt schedule is a tool that helps businesses review, assess, and visualize debts. A debt schedule allows businesses to make strategic decisions about paying off debt, acquiring new debt, or creating long-term projections for investors and creditors. It...
Business Debt Consolidation
Business debt consolidation refers to the practice of taking out a new loan to pay off any number of other business debts (generally unsecured debts). Multiple separate debts are combined into one new loan, often with more favorable loan terms and conditions....
Book Value
Book Value is defined as the total value of a company if it were to liquidate its assets and pay back its liabilities, or the value of the company according to the financial statement. Book value (BV) is also sometimes referred to as “shareholder’s equity.” Business...
MVIC (Market Value of Invested Capital)
Have a Question? Ask your question below and one of our Advisors will answer. What is Invested Capital? MVIC (Market Value of Invested Capital) is the amount of money raised by issuing securities to shareholders and bondholders, and typically includes total debt and...
Net Equity Value
v Have a Question? Add it to the bottom of this post! Net equity value is the fair market value of a business’s assets minus its liabilities. This measured value is used to determine a business’s net worth – or the funds that would be left over and available to...
Discount Rate
The discount rate can be defined in several ways. For purposes of this post, the discount rate will be defined as it relates to small and medium sized businesses (SMBs) and the Discounted Cash Flow (DCF) valuation method. As it applies to a business investment...
Determine the Best Type of Business Loan for your Business
Once you’ve successfully assessed your financial needs for a business loan, you’ll want to follow these guidelines to determine what, if any capital funding you may need, and the best type of business loan for your business. What are the best reasons for a small...
How to Assess Your Need for a Business Loan
v Have a Question? Add it to the bottom of this post! As a small business, it is imperative that you understand your financial needs. Knowing your projected annual expenses, having a business plan in place, and assessing your need for funding sets the foundation for a...
American Stock Exchange
The American Stock Exchange (AMEX) is the third-largest stock exchange by trading volume in the United States. AMEX was acquired by the New York Stock Exchange (NYSE) Euronext in 2008, at which time its name was changed to NYSE Alternext US. In 2009 it became the NYSE...
Payback Period for Buying a Business
The payback period for buying a business is defined as the amount of time it takes to recuperate an investment, or to reach a break even point. Generally, the payback period is expressed in years. All other factors held equal, a shorter payback period is more...
Effective Annual Rate
The effective annual rate – also called the effective interest rate, the effective rate, or the annual equivalent rate – describes the amount of interest paid or earned on an investment or loan as the result of compounding over the period of a year or some...
What is a Seller Note?
Have a Question? Ask your question below and one of our Advisors will answer. A seller’s note receivable is an alternative form of business capital. This type of debt financing is often used in small business acquisitions, where the seller agrees to accept a...
Business Value
The term business value is a broad term that refers to any form of business valuation which determines the financial health and potential of a company. While a purchase or selling price is simply an amount that may be asked to be paid for a 100% ownership of a given...
Cap Rate
Capitalization Rate, more commonly referred to as Cap Rate, is the rate of return on a real estate investment based on the income the property is expected to generate. In other words, the Capitalization Rate is used to estimate an investor’s likely return on...
Amortization of Goodwill
Goodwill is defined as an intangible asset that is created as the result of an acquisition of one company by another, at a premium price over its fair market value. The willingness of a buyer to pay a premium for a given business may be due to value built up over time...
EBITDA Valuation
EBITDA Valuation is an industry multiple or ratio method that is used commonly to determine the Enterprise Value of a company operating in the lower-middle or middle market. It differs from the method typically used by small businesses (also referred to as Main...
SDCF – Seller’s Discretionary Cash Flow
Seller’s Discretionary Cash Flow (SDCF), also sometimes referred to as seller’s discretionary income (SDI) or seller’s discretionary earnings (SDE), is a computation often used when valuing a small or medium-sized business. While larger, public companies are often...
Working Capital vs. Change in Working Capital
Have a Question? Ask your question below and one of our Advisors will answer. There is a significant difference between “working capital” and “change in working capital.” Working capital is a snapshot of a moment in time which measures the level of assets a business...
FF&E
Furniture, fixtures, and equipment (or FF&E) is an accounting term used in the process of valuing, liquidating, or selling a company or building. FF&E refers to any fixture, piece of furniture, or piece of equipment that is moveable and is not permanently...
Enterprise Value
v Have a Question? Add it to the bottom of this post! Enterprise Value, also sometimes called “EV,” is a measure of a company’s total business value. EV is the theoretical price for a company if it were to be bought, and because EV accounts for a company’s debt and...
Dry Powder Definition
The term “dry powder” is financial slang and refers to a company’s or investor’s highly liquid securities which are kept on hand to finance future obligations, purchase assets, or invest in opportunities. Such capital also may be kept on hand to provide emergency...
What is an Earn Out Payment?
An Earn Out Payment is additional future compensation paid to the owner(s) of a business after it is sold. The terms and conditions that yield an earn out payment are contained in an Earn Out Agreement which is part of the Agreement of Sale. Typically, this payment is...
Data Room
A Data room may be a physical room or a virtual room and are used for a number of reasons – including data storage, document exchanges, financial transactions, file sharing, and legal transactions. Often, data rooms are used for the sale of a business or when raising...
Lifestyle Business
Have a Question? Ask your question below and one of our Advisors will answer. A lifestyle business is created and typically operated by its founder to serve the purpose of sustaining a particular level of income, and no more. Often founded by an individual,...
Offering Memorandum Definition
An offering memorandum is a legal document that states the objectives, terms, and risks typically associated with private placements for public companies. However, an offering memorandum may also be used by buyers and sellers of private middle market businesses. This...
Buy-Side and Sell-Side
The investment banking market is made up of two sides – the buy-side, and the sell-side, both of which are responsible for researching and assessing stocks and other investments. The buy-side refers to advising institutions concerned with buying investment services....
Middle Market
Middle market or “mid-market” companies or firms are businesses that typically earn between $5 million and $1 billion in yearly revenue. This group of businesses makes up the middle third of the U.S. economy’s revenue and employs 25% of its labor force, with large and...
Non-Solicitation Agreement
Non-Solicitation Agreements (NSAs) are made by two parties to protect one party from a potential loss of income or assets. This type of agreement is warranted and often made when one party is about to become aware of certain important relationships the other party...
Employment Agreement
An employment agreement is a formal contract between an employer and an employee which defines the conditions of employment. This agreement usually will specify major employment details and include everything from compensation to expectations for specific work to be...
Asset-Based Lending
An asset-based loan (also sometimes called “asset-based financing” or “commercial finance”) is a type of business financing secured by an asset (or multiple assets) of the company. Often, these loans are structured to function like revolving lines of credit, allowing...
Buy-Sell Agreement Definition
A buy-sell agreement is a legally-binding agreement between two co-owners that governs any situation in which one co-owner dies, chooses to leave the business, is incapacitated, faces divorce, bankruptcy, retirement, or sells his/her share of the company. The... Exclusivity Agreement Definition
In business, the term exclusivity refers to a party’s sole rights with regard to a certain business activity. This may include business relationships, pricing, products, or sales. Another application of this term in the business world involves relationships between...
Sandbagging Definition
Have a Question? Ask your question below and one of our Advisors will answer. The term sandbagging refers to an intentional lowering of expectations. Sandbagging can apply to anything from sports to business, and is the practice of intentionally deceiving others in...
Rule of Thumb Definition
The term ‘rule of thumb’ generally refers to the idea of a principle with a broad application – something that is not intended to be exact or strictly accurate. In the business world, the term ‘rule of thumb’ refers to a guideline that provides simplified advice about...
Intangible Assets
Intangible assets are those assets in a business which are not physical in nature. Some examples include: intellectual property, (like patents, trademarks, and copyrights), brand recognition, special knowledge, and business methods. Such non-physical assets add value...
Articles of Incorporation
Have a Question? Ask your question below and one of our Advisors will answer. When starting a new business, there are a few steps you’ll need to take in order to officially incorporate the business within its state. Usually the first step is creating and filing...
Pro Forma Definition
Meaning ‘for the sake of form’, the term pro forma refers to a document that is often provided as a courtesy and satisfies predetermined minimum requirements in an effort to best predict the future outcome of a transaction within a business. One of the most common...
Liquidated Damages Provisions in the Sale of a Business
When things go wrong with the sale of a business the parties involved look for remedies in the liquidated damages provisions established in the purchase agreement. Such provisions are included when a purchase agreement has been signed in advance of an actual closing when the business is transferred and a purchase price is paid.
Escrow Agent in the Sale of a Business
When a business is about to be sold, the parties to the sale may find it beneficial to establish an escrow agent to handle the transfer of certain assets and cash between the buyer and seller. Many times the parties agree to use the escrow account held by one of the party’s business attorneys. However, in many cases the parties prefer to hire an independent escrow agent to handle the assets and cash that will change hands.
Business Valuation Formulas
The valuation multiple formulas available to compute the value of a business for sale are numerous and can be confusing to many small business owners. In fact, many professionals can be similarly confused by the various multiple formulas currently in use.
Mezzanine Debt Definition
In its purest form, Mezzanine Debt is a business debt instrument that carries along with it certain rights to convert debt into equity (stock, common shares, partnership interests, LLC membership units, etc.). Mezzanine debt financing is not a pure debt or a pure equity instrument. It is something in the middle. In fact, the word ‘mezzanine’ is derived from the Italian word ‘mezzano’, meaning middle, and is used to describe how this particular form of business capital combines elements of both debt and equity financing into one instrument.
Lehman Scale Formula — How it Works and How to Negotiate It
Business Brokers and M&A Intermediaries may use or reference the ‘Lehman Scale’ when discussing their compensation method with a business owner contemplating the sale of their business. The Lehman Scale was originally developed in the late 1960’s and used by the Lehman Brothers when raising business capital for their clients.
Should You Use a Letter of Intent (LOI)?
Term Sheets or Letters of Intent (LOIs) are commonly used in the buying or selling of businesses. The purpose of LOIs are to state clearly the principal terms that the parties have agreed to as part of the deal and to represent the intent of the parties to pursue the contemplated transaction.
How to Calculate Debt Service Coverage Ratio [Tool]
Debt Service Coverage Ratio compliance often is required or necessitated by covenants in a bank loan agreement. A bank loan covenant regarding the debt service coverage ratio will specify the amount of income a business and/or its guarantor must generate relative to the debt principal and interest payments on an annual basis to remain in compliance with the covenant. The business owner, or his or her CFO or Controller, should monitor this ratio carefully on a monthly basis so the covenant is not unintentionally broken.
Indemnification Provisions of a Purchase Agreement
Indemnification allocates the risk of various post-closing losses between buyer and seller. For this reason, the indemnification provisions of your purchase agreement will very likely be among the most heavily negotiated provisions in your purchase agreement.
Non-Solicitation Agreement | How to Keep Your Best Employees
If you’ve grown a valuable business, there is no doubt your employees are a big part of your success. You also know that hiring, training, and managing a great team of productive employees is a difficult task. And keeping your best employees is yet another accomplishment! But the painful truth is your competition would be very pleased to hire away your best employees.
What a Letter of Intent Expiration Date Means?
When the Letter of Intent (LOI) expiration date and time is defined, the buyer is putting the seller on notice that he or she must either agree to the terms defined in the letter or lose the opportunity to sell the business to the buyer authoring the LOI.
When Should You Have Intellectual Property Licensing Agreements?
An intellectual property rights owner (licensor) authorizes certain rights to another (licensee) in exchange for an agreed payment in the form of either a fee or a royalty, or some combination of both.
What is a Trademark? Trademark Definitions & Considerations
The legal definition of a trademark is a word, phrase, symbol, or design that identifies and distinguishes the source of goods and services. Most commonly we think of names and logos, but marks also include taglines, slogans, and even product shapes, sounds, smells, and colors.
Definition of Alternative Business Capital
Entrepreneurs often face the need for alternative sources of business capital to traditional bank financing but are often unable to find them. Similarly, they can find themselves at a loss to understand how this form of capital differs from traditional bank...IRS Code Section 409A and its Impact on Stock Options
Gone are the days when companies could choose the exercise price and option terms for stock options without thinking about IRS Code Section 409A consequences. Employees and executives, as well as independent contractors and advisors, could face significant taxes... Contract Provisions Checklist
Entering into a new contract is an exciting time for any company. The agreement is signed with the hope that it will grow the business and result in a long, mutually beneficial relationship with the other side. While such optimism is warranted, the importance of entering into a legally sound contract is critical to the protection of your business.
What is a Bank Workout Group?
The Bank Workout Group is a department in a bank that handles what is known as the bank’s special assets. Banks send their troubled loans to this department to handle negotiation and management of the bank’s forbearance agreements.
Asset Sale vs Stock Sale Structures: Which Should You Choose?
During the initial negotiations of a business sale, one of the primary issues is whether to structure the sale as an asset sale or a stock sale. Typically the seller and the buyer have opposing preferences in this regard. The seller generally prefers a stock sale; while the buyer generally prefers an asset sale.
Definition of EBIT
EBIT is an acronym for Earnings Before Interest and Taxes. This is a term Bankers often use as a measure of a business’s earnings from operations. The EBIT reveals operating profitability without non-recurring or unusual income or expenses.
Copyright Law Explained
A copyright protects the particular ways by which people expressed themselves. A copyright gives an owner the exclusive legal right to reproduce, publish, sell, or distribute an original creative work.
Definition of EBITDA
EBITDA is an acronym for Earnings Before Interest Taxes Depreciation and Amortization. EBITDA is often used as a measure of a business’s cash flow. Also it is used frequently in many business valuation formulas, depending on the business’s specific industry.
Do You Need a Design Patent?
In the recent Apple-Samsung case, the jury found that Samsung infringed six of Apple’s patents. While we think of Apple as having such technological superiority, three of the patents that Samsung were found to infringe were design patents. Unlike utility patents which cover any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof; design patents cover any new, original, and ornamental design for an article of manufacture.
What is a Trade Secret and How is it Protected?
Proprietary information such as customer lists and recipes are intellectual property. However they are not formally protected in the same way as are trademarks, copyrights or patents. These and other types of confidential information can only be protected if they are treated as trade secrets.
Intellectual Property Definition & Why You Need to Protect It
Intellectual property is a concept that is not obvious to most people; you probably have heard of it, but what is it really? Intellectual property is the result of human ingenuity and creativity and the law provides mechanisms through which creativity can be protected. Intellectual property can be broken down into three parts.
What Is A Patent & What Are Patent Requirements?
A patent is a governmentally granted monopoly that gives an inventor the exclusive right to make, use, or sell their invention for a limited time, in exchange for disclosure of that invention. There are three types of patents: design patents, plant patents, and utility patents. Generally utility patents are being referenced when you hear the word ‘patent’ and these will be the focus of the rest of this article.
The Importance of a Buy-Sell Agreement
For every entrepreneur, a smooth transition of business ownership will be of importance at some future point. The Buy Sell Agreement deals with a specific exit strategy case. An agreement by and between business owners, it establishes a mechanism for the purchase of ownership interests following the departure of an owner due to a triggering event (i.e., death, divorce, disability, retirement, etc.).
Indemnification Clause in the Sale of a Business
When you sell a business, typically you will find language in the Stock or Asset Purchase Agreement that defines exactly what the Seller and the Buyer agree to do or guarantee as part of the transaction. In other words, each may agree to make the other party not responsible. The term used to identify this particular form of guarantee is indemnification.
Defining the Indemnification Basket: Deductible Baskets & Tipping Baskets
The “indemnification basket” is one of the most important deal terms found in the Letter of Intent and ultimately in the Purchase Agreement and is often misunderstood by both the buyer and seller of a business. Buyers want the basket to be as low as possible and Sellers want it to be as high as possible. Baskets may be one of two types: a deductible basket or a tipping basket.
The Importance of a Business Sale Non Disclosure Agreement (or NDA)
A typical entrepreneur invests a tremendous amount of time, effort and money in building a business. That is why it is so important for entrepreneurs to make sure employees and third parties who work with the business are prohibited from improperly using or disclosing any confidential or proprietary information of the business(e.g. customer lists, trade secrets and financial statements). Similarly, and in connection with the opportunity to sell a business, it is critical for the owner of the business not to provide any confidential information to a prospective purchaser until that party has signed a well-written non disclosure agreement.
