Business Buying & Selling Glossary (Canada)
Every deal comes with its own vocabulary. Here are the 29 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.
- Add-backs
- Asking price
- Asset sale
- BDC (Business Development Bank of Canada)
- Business broker
- Business valuation
- Business valuator (CBV)
- Closing
- Confidentiality agreement
- CSBFP (Canada Small Business Financing Program)
- Customer concentration
- Deal structure
- DSCR (Debt Service Coverage Ratio)
- Due diligence
- Earnout
- EBITDA
- Escrow / holdback
- Goodwill
- Letter of confidentiality
- Letter of Intent (LOI)
- Multiple
- NDA (Non-Disclosure Agreement)
- Non-compete
- Recurring revenue
- SDE (Seller's Discretionary Earnings)
- Share sale
- Transition period
- 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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
Put the terms to work
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