Business Buying & Selling Glossary (Canada)
Every deal comes with its own vocabulary. Here are the 57 terms you'll actually run into when buying or selling a business in Canada — explained in plain English, with the Canadian specifics that matter (CRA treatment, CSBFP limits, BDC, what lenders here expect).
Where we've written a full guide or built a calculator for a term, it's linked underneath the definition. This page is general information, not legal, tax, or accounting advice.
57 terms
- Add-backs
- Amortization period
- Asking price
- Asset sale
- BDC (Business Development Bank of Canada)
- Bulk Sales Act
- Business broker
- Business valuation
- Business valuator (CBV)
- CIM (Confidential Information Memorandum)
- Closing
- Conditions precedent
- Confidentiality agreement
- CRA (Canada Revenue Agency)
- CSBFP (Canada Small Business Financing Program)
- Customer concentration
- Data room
- Deal structure
- DSCR (Debt Service Coverage Ratio)
- Due diligence
- Earnout
- EBITDA
- Employee transfer obligations
- Equity injection (down payment)
- Escrow / holdback
- Exclusivity period
- FF&E (furniture, fixtures and equipment)
- Franchise resale
- Goodwill
- GST/HST section 167 election
- Holdco
- Key-person risk
- LCGE (Lifetime Capital Gains Exemption)
- Lease assignment / landlord consent
- Letter of confidentiality
- Letter of Intent (LOI)
- Management buyout (MBO)
- Multiple
- NDA (Non-Disclosure Agreement)
- Non-compete
- Non-solicitation
- Normalized earnings
- Personal guarantee
- Promissory note
- Purchase price allocation
- Recurring revenue
- Representations and warranties
- SDE (Seller's Discretionary Earnings)
- Seasonality
- Share sale
- Succession planning
- Teaser / blind profile
- Term sheet
- Transition period
- TTM (trailing twelve months)
- Vendor take-back (VTB) / seller financing
- Working capital
Add-backs
Add-backs are expenses put back into the profit figure because they are personal, one-time, or won't carry over to a new owner — the owner's above-market salary, a family vehicle, a one-off legal bill. They are the bridge between the net income on a tax return and SDE. Buyers scrutinize add-backs hard, because an aggressive list inflates the earnings a multiple is applied to. Every add-back should be provable with a receipt, invoice, or general-ledger entry.
Amortization period
The amortization period is the number of years over which an acquisition loan is repaid. Canadian banks commonly amortize goodwill-heavy business loans over 5–7 years, while BDC may stretch to 10 years and real property longer still. A longer amortization lowers the monthly payment and improves DSCR, but costs more interest overall. Lenders often set the term shorter than the amortization, forcing a renewal partway through.
Asking price
The asking price is what the seller has advertised the business for. It is a starting point, not an appraisal — it may or may not be supported by the financials. In Canadian small-business deals the final sale price often lands below the asking price once due diligence, working capital, and deal structure are settled. On BizListings.ca some sellers keep the price confidential and disclose it only after an NDA.
Asset sale
In an asset sale, the buyer purchases specific assets of the business — equipment, inventory, customer lists, goodwill, the brand — rather than the shares of the company. The corporation and most of its history, including many liabilities, stay with the seller. Buyers usually prefer asset sales in Canada because they limit inherited liability and reset the depreciable cost base of the assets. Sellers often prefer share sales for tax reasons.
BDC (Business Development Bank of Canada)
BDC is a Crown corporation and Canada's only bank devoted exclusively to entrepreneurs. It lends for business acquisitions, often with longer amortizations and more flexible structures than a chartered bank, and frequently sits alongside a bank loan or vendor take-back in an acquisition stack. BDC also offers advisory services. Rates are typically higher than prime bank lending in exchange for that flexibility.
Bulk Sales Act
Bulk sales legislation once required sellers of business assets to notify creditors before closing, and it still shapes how older Canadian deals were papered. Ontario repealed its Bulk Sales Act in 2017 and most provinces have followed, but lawyers still run creditor and PPSA searches to make sure no secured claims travel with the assets. Buyers should confirm that liens are discharged at closing. Never assume assets are clean because the seller says so.
Business broker
A business broker is an intermediary who lists and markets a business for sale, screens buyers, manages confidentiality, and helps shepherd a deal to closing. Brokers are usually paid a success commission by the seller, commonly 8–12% on small Canadian main-street deals. A good broker prepares proper financials and a CIM; a weak one just posts an ad. Buyers do not pay the broker, but should remember the broker works for the seller.
Business valuation
A business valuation is an estimate of what a business is worth, most often calculated by applying a multiple to a normalized earnings figure such as SDE or EBITDA. Asset-based and discounted-cash-flow methods are also used, especially for asset-heavy or high-growth companies. For small Canadian businesses, an earnings multiple cross-checked against comparable sales is the practical standard. A valuation is an opinion of value, not a guaranteed sale price.
Business valuator (CBV)
A Chartered Business Valuator (CBV) is a credentialed professional accredited by the CBV Institute in Canada who prepares formal, defensible valuation reports. Their work is used for financing, shareholder disputes, divorce, tax filings with the CRA, and estate planning. A CBV report costs more than a broker's opinion of value but carries far more weight with lenders and courts. For a straightforward main-street sale, a broker opinion is often enough.
CIM (Confidential Information Memorandum)
A CIM is the detailed information package a seller or broker releases after an NDA is signed: history, operations, staffing, customers, financial summaries, and the reason for selling. It is marketing material, so treat its projections as claims to be verified rather than facts. A well-built CIM shortens diligence considerably; a thin one is a warning sign about the seller's records. On BizListings.ca, sellers can gate CIM release behind an NDA.
Closing
Closing is the day the transaction legally completes: funds are released, the purchase agreement takes effect, and ownership transfers. Lawyers handle the closing documents, adjustments for prepaid items, and the working-capital true-up. In Canada closing often coincides with the release of lender funds and any escrow arrangements. Most small-business deals take 60–120 days from accepted LOI to closing.
Conditions precedent
Conditions precedent are the things that must happen before a buyer is obliged to close — satisfactory due diligence, financing approval, landlord consent to the lease assignment, and any required licence transfers. Until they are waived or satisfied, the buyer can walk away. Each condition should have a hard deadline in the purchase agreement. Waiving financing conditions early is one of the most expensive mistakes a buyer can make.
Confidentiality agreement
A confidentiality agreement is the same instrument as an NDA — a contract restricting how a buyer may use and share information about a business for sale. The two names are used interchangeably in Canadian deal practice. Some brokers use "confidentiality agreement" for the broader document that also covers non-solicitation of staff and customers. Read whichever version you're handed before signing.
CRA (Canada Revenue Agency)
The CRA administers federal tax and, in a business sale, cares about how the price is allocated, whether GST/HST applies, payroll account closures, and whether share-sale proceeds qualify for the capital gains exemption. Buyers routinely request CRA statements of account to confirm no payroll, GST/HST, or corporate tax arrears exist. In a share sale, unpaid CRA debts follow the corporation to the new owner. Always get tax advice before signing.
CSBFP (Canada Small Business Financing Program)
The CSBFP is a federal loan-loss-sharing program that lets chartered banks and credit unions lend to small businesses with the government sharing the risk. It can finance equipment, leasehold improvements, and real property — but not goodwill or working capital, which limits its use in acquisition deals. Loans are capped (currently up to $1.15 million, with sub-limits by asset class). It is applied for through your bank, not directly from the government.
Customer concentration
Customer concentration measures how much of the revenue comes from a small number of clients. If one customer is 40% of sales, losing them after closing could wipe out the profit the price was based on. Buyers and lenders discount valuations for high concentration, and may push for an earnout or holdback instead. A common rule of thumb: no single customer above 10–15% of revenue is comfortable.
Data room
A data room is the secure online folder where the seller posts financials, contracts, leases, and other diligence documents for the buyer and their advisors. Access is granted after an NDA and usually tracked, so the seller can see what was reviewed. A well-organized data room signals a well-run business. On BizListings.ca, listing documents can be released to specific buyers with access controls.
Deal structure
Deal structure is how the purchase price is actually paid and secured: cash at closing, bank or BDC debt, vendor take-back, earnout, holdback, and whether the transaction is an asset or share sale. Structure often matters more than headline price — a lower price paid all cash can be worth more to a seller than a higher price spread over five years. Structure also determines tax outcomes for both sides in Canada. Get accounting and legal advice before agreeing to it.
DSCR (Debt Service Coverage Ratio)
DSCR is cash flow available for debt divided by the annual principal and interest payments on that debt. A DSCR of 1.0 means the business exactly covers its loan payments with nothing left over. Canadian lenders typically want at least 1.25x on an acquisition loan, and many prefer 1.35x or better. If the DSCR is below the lender's threshold, the deal needs a bigger down payment, a lower price, or vendor financing.
Due diligence
Due diligence is the investigation period after an LOI is accepted, when the buyer verifies everything the seller has claimed — financial statements against tax filings, contracts, leases, payroll, licences, litigation, and customer records. It typically runs 30–60 days in a Canadian small-business deal. Findings either confirm the price, justify renegotiating it, or kill the deal. Conditions in the purchase agreement usually let the buyer walk away if diligence uncovers material problems.
Earnout
An earnout is a portion of the purchase price paid later, only if the business hits agreed performance targets after closing. It bridges a gap between a seller who believes in future growth and a buyer who will only pay for proven results. Earnouts must define the metric (revenue, gross profit, EBITDA), the measurement period, and who controls the books — vague earnouts are a common source of post-closing disputes in Canada. Sellers should assume they may never collect it.
EBITDA
EBITDA is a measure of operating profitability that strips out financing decisions, tax position, and non-cash accounting charges. It is the standard earnings figure for larger, manager-run businesses — generally those above roughly $1–2 million in earnings where the owner is not working in the business daily. Smaller owner-operated Canadian businesses are usually valued on SDE instead, because EBITDA doesn't add back the owner's own compensation. Comparing an SDE multiple to an EBITDA multiple is an apples-to-oranges mistake.
Employee transfer obligations
In an asset sale the buyer technically hires the staff fresh, but provincial employment standards in most of Canada treat employment as continuous for notice and severance purposes. That means a buyer can inherit years of accrued service without realizing it. In a share sale nothing changes — the employer is the same corporation. Confirm accrued vacation, notice exposure, and any union or employment agreements during diligence.
Equity injection (down payment)
The equity injection is the buyer's own cash contribution to the purchase. Canadian acquisition lenders generally want 10–30% down depending on the asset mix, industry, and buyer experience, and they will want to see where the money came from. A vendor take-back can sometimes count toward the stack, but rarely replaces the buyer's cash entirely. Borrowed down payments are usually disallowed.
Escrow / holdback
Escrow is money held by a neutral third party — usually a lawyer's trust account in Canada — instead of being released to the seller at closing. It secures the seller's representations and warranties, the working-capital adjustment, or unresolved tax matters. Typical holdbacks are 5–15% of the price for 6–18 months. If nothing goes wrong, the funds release to the seller on schedule.
Exclusivity period
Exclusivity — sometimes called a no-shop — is the window in the LOI during which the seller agrees not to market the business or negotiate with other buyers. It is usually 30–90 days and is one of the few genuinely binding parts of an LOI. Buyers want it because diligence costs real money; sellers want it short because the business sits off the market. If diligence drags, the extension is a negotiation of its own.
FF&E (furniture, fixtures and equipment)
FF&E is the tangible operating equipment included in the sale — kitchen line, machinery, vehicles, shelving, computers. An itemized FF&E schedule should be attached to the purchase agreement so there is no argument about what leaves with the seller. Its appraised value matters because lenders (including under the CSBFP) will finance equipment more readily than goodwill. Check condition and remaining useful life, not just book value.
Franchise resale
A franchise resale is the purchase of an existing franchised location from its current franchisee. The franchisor must approve the buyer, will usually charge a transfer fee, and may require training and a renewed franchise agreement on current terms. Provinces with franchise legislation — Ontario, Alberta, B.C., Manitoba, New Brunswick, P.E.I. — give buyers disclosure-document rights. Budget for the transfer fee and any mandated renovations.
Goodwill
Goodwill is the part of the purchase price above the value of the tangible assets — it represents reputation, customer relationships, brand, systems, and trained staff. In most small-business sales, goodwill is the largest component of the price. In a Canadian asset sale, goodwill falls into the eligible-capital / Class 14.1 treatment for tax purposes, which matters to both sides. Goodwill is also why the CSBFP can't finance the whole deal.
GST/HST section 167 election
When substantially all of the assets of a business are sold to a buyer who is a GST/HST registrant, the parties can jointly elect under section 167 of the Excise Tax Act so no GST/HST is charged on the sale. Without the election, the buyer must fund the tax at closing and claim it back later, which is a real cash-flow hit. The election is filed with the buyer's return. Share sales are not subject to GST/HST at all.
Holdco
A holding company (Holdco) is a corporation that owns the shares of the operating company rather than running the business itself. Canadian buyers often acquire through a Holdco for creditor protection, tax-deferred intercorporate dividends, and easier future estate planning. Sellers may also have a Holdco structure that affects capital gains exemption eligibility. Structure this with an accountant before the deal is papered, not after.
Key-person risk
Key-person risk is the degree to which the business depends on one individual — usually the owner — for sales, technical work, or customer relationships. The higher it is, the lower the multiple, because the earnings may leave with that person. Buyers reduce it with a longer transition period, an earnout, or a non-compete. Documented systems and a capable second-in-command are the strongest fix.
LCGE (Lifetime Capital Gains Exemption)
The LCGE lets an individual shelter a large lifetime amount of capital gains on the sale of qualified small business corporation shares from tax — over $1 million and indexed annually. It applies only to share sales of qualifying Canadian-controlled private corporations, and the shares must meet asset and holding-period tests. This is the single biggest reason Canadian sellers push for a share sale. Purification planning usually has to start well before closing.
Lease assignment / landlord consent
Most commercial leases require the landlord's written consent before the lease can be assigned to a buyer, and the landlord may use the moment to demand a rent increase, a personal guarantee, or a shorter term. For location-dependent businesses, the lease is often the most valuable asset in the deal. Confirm remaining term, renewal options, and assignment terms early. Make landlord consent a condition precedent to closing.
Letter of confidentiality
A letter of confidentiality is a short-form NDA some brokers use before releasing basic information about a listed business. It is usually lighter than a full confidentiality agreement and may cover only the fact that the business is for sale. Signing one does not commit you to buying anything. Expect a fuller NDA before you receive financial statements or a CIM.
Letter of Intent (LOI)
An LOI is a short document setting out the proposed price, structure, timeline, exclusivity period, and conditions before the parties spend money on lawyers and diligence. Most of it is non-binding, but the confidentiality, exclusivity, and expense clauses usually are. Signing an LOI typically starts the due-diligence clock and takes the business off the market for 30–90 days. It is the pivot point where a conversation becomes a deal.
Management buyout (MBO)
An MBO is a purchase of the business by its existing management team, often supported by vendor financing because the buyers know the operation but lack capital. It reduces transition risk dramatically, which lenders like. Confidentiality is easier than an open-market sale, but negotiating with your own staff can be awkward if it falls apart. Valuations in MBOs still need an arm's-length sanity check.
Multiple
A multiple is the number applied to earnings to arrive at a value — for example, 3x SDE. It reflects risk, growth, owner-dependence, industry, and how transferable the business is. Small Canadian owner-operated businesses commonly trade around 2–4x SDE; larger, systemized companies command higher EBITDA multiples. A higher multiple isn't a reward — it's the market saying the earnings are more durable.
NDA (Non-Disclosure Agreement)
An NDA is a contract in which a prospective buyer promises to keep the seller's information — and often the fact that the business is for sale at all — confidential. Sellers require one before releasing financials, customer data, or a CIM, because a leak can spook staff, suppliers, and customers. Most NDAs also bar you from soliciting the seller's employees or clients. On BizListings.ca, sellers can require an NDA before contact details or documents are released.
Non-compete
A non-compete stops the seller from starting or working in a competing business for a defined period within a defined geography after closing. Without it, a buyer could pay for goodwill and watch the seller take the customers back. Canadian courts enforce non-competes only where the scope, duration, and territory are reasonable — overly broad clauses get struck down entirely. Two to five years within the trading area is typical for a small-business sale.
Non-solicitation
A non-solicitation clause bars the seller from approaching the business's customers, suppliers, or employees after closing, even if they don't open a competing business. Canadian courts enforce non-solicitation clauses more readily than full non-competes because they are narrower. Most NDAs contain a non-solicitation clause covering staff during the sale process. Duration is typically one to three years post-closing.
Normalized earnings
Normalized earnings are reported profits adjusted to show what the business would earn under typical ownership — removing one-time items, personal expenses, above- or below-market owner pay, and non-recurring revenue. Normalization is what turns a tax-minimized return into a number a buyer can apply a multiple to. Both SDE and adjusted EBITDA are normalized figures. Every adjustment should be documented; unsupported ones get rejected in diligence.
Personal guarantee
A personal guarantee makes the buyer personally liable for the business loan if the company can't pay, putting personal assets such as a home at risk. Canadian acquisition lenders almost always require one from any owner with meaningful equity, and vendors taking back a note usually do too. The guarantee may be limited in amount or time if you negotiate it. Get independent legal advice before signing one.
Promissory note
A promissory note is the written promise to repay a vendor take-back or other deferred portion of the purchase price, setting out interest rate, payment schedule, security, and default remedies. It usually sits behind the bank's loan through a subordination agreement. Sellers should register security where possible rather than relying on goodwill. Missed payments trigger the remedies in the note, so the schedule must match realistic cash flow.
Purchase price allocation
In an asset sale, the price must be allocated across inventory, equipment, goodwill, and restrictive covenants — and the allocation drives the tax outcome for both parties. Buyers prefer more value on depreciable assets and inventory; sellers prefer goodwill, which is taxed more favourably. The CRA expects both sides to report the same allocation. Negotiate it in the LOI, because doing it at closing rarely ends well.
Recurring revenue
Recurring revenue is income that repeats predictably — subscriptions, service contracts, maintenance plans, retainers. It is the single biggest driver of a higher multiple, because it reduces the risk that revenue disappears when the owner does. Buyers distinguish contracted recurring revenue from merely repeat customers. A business with 60% contracted revenue is worth materially more than an identical one selling one-off jobs.
Representations and warranties
Reps and warranties are the seller's contractual statements of fact about the business — that the financials are accurate, taxes are paid, there is no undisclosed litigation, and title to the assets is clean. If one turns out to be false, the buyer has a claim, usually backed by a holdback or indemnity cap. They survive closing for a defined period, often 12–24 months. Share sales carry far more of them than asset sales.
SDE (Seller's Discretionary Earnings)
SDE is the total financial benefit a single full-time owner-operator takes from a business in a year: net profit plus the owner's salary, plus interest, taxes, depreciation, amortization, and legitimate one-time or personal add-backs. It is the standard earnings measure for valuing small owner-run Canadian businesses, and most asking prices are a multiple of it. It assumes one working owner — if a business needs two, the second one's market salary must come out. Get the SDE wrong and every downstream number is wrong.
Seasonality
Seasonality is the predictable swing in revenue across the year — critical in Canada, where landscaping, tourism, and construction businesses can earn most of their income in a handful of months. It affects working-capital requirements, the best time to close, and how monthly loan payments will be covered in the off-season. Always review at least 24–36 months of monthly figures rather than annual totals. Closing right before the slow season can strand a buyer for cash.
Succession planning
Succession planning is preparing a business to change hands — to family, management, or a third-party buyer — years before the transition. It covers documenting systems, reducing owner dependence, cleaning up financials, and structuring shares for tax efficiency. With a large share of Canadian small-business owners nearing retirement, planned successions consistently sell for more than forced ones. Two to three years of preparation is a realistic target.
Term sheet
A term sheet outlines the key commercial points of a deal — price, structure, financing, and timing — in an even shorter form than an LOI, and is more common on the lending side in Canada. A lender's term sheet sets out the loan amount, rate, amortization, security, covenants, and conditions. It is not a commitment until credit approval is granted. Read the covenants closely; they govern how you can run the business afterwards.
Transition period
The transition period is the time after closing when the seller stays on to hand over relationships, systems, and know-how. It ranges from two weeks of training on a simple business to twelve months of part-time consulting on a complex one. Terms — hours, pay, and duration — belong in the purchase agreement, not in a handshake. Lenders and buyers view a committed transition as risk reduction.
TTM (trailing twelve months)
TTM refers to the most recent twelve months of financial results, regardless of the fiscal year end. Buyers use it because it reflects how the business is performing right now rather than what a stale year-end statement shows. If TTM earnings are drifting below prior years, expect the multiple — or the price — to come down. Ask for month-by-month figures so the trend is visible, not just the total.
Vendor take-back (VTB) / seller financing
A vendor take-back is a loan from the seller to the buyer for part of the purchase price, repaid with interest over an agreed term after closing. It is extremely common in Canadian small-business deals because it bridges the gap between the price and what a bank will lend. It also signals confidence: a seller willing to finance believes the business will keep performing. VTBs are usually subordinated to the bank's loan and secured by a promissory note and personal guarantee.
Working capital
Working capital is current assets minus current liabilities — the cash, receivables, and inventory needed to run day-to-day operations. Purchase agreements normally require the seller to deliver a "normal" level of working capital at closing, with a true-up adjustment afterwards if the actual amount differs. Buyers who ignore working capital close the deal and then discover they need more cash on day one. Agree on the target number in the LOI, not at the closing table.
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