AvondaleGuide MAGlossary

G|ossary of Mergers &
Acqu|s|t|ons 1erms

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1hls gulde ls noL deflnlLlve. Accuracy ls noL guaranLeed and lL does noL replace professlonal advlce.

1hls Clossary ls deslgned Lo glve an undersLandlng of Lerms commonly used wlLhln Lhe corporaLe flnance and
mergers and acqulslLlons flelds. WlLh cerLaln words and Lerms we have deLalled Lhe common usage and
undersLandlng raLher Lhan a llLeral deflnlLlon.

Accrua|s An allowance made wlLhln Lhe accounL for a charge, expense or llablllLy LhaL
ls ofLen esLlmaLed, as Lhe flnal amounL ls noL known aL Lhe accounLlng daLe.
An example mlghL be a quarLerly blll LhaL has noL been lnvolced by Lhe Llme
Lhe accounLs are prepared.
Ac|d 1est kat|o Also known as Llquld 8aLlo. lL ls a raLlo used Lo assess Lhe llquldlLy of a
company l.e. Lhe clrculaLlng asseLs less sLock Lo currenL llablllLles. Shown as
a percenLage. L.g. a company wlLh llquld asseLs of 23k lncl sLock of 13k and
currenL llablllLles of 12k wlll have a llquld raLlo of 23000 - 13000 / 12000 =
0.83 = 83. 1he company has 83 pence of llquld asseLs excludlng sLock for
every 1 of currenL llablllLles
Added Lxtras Addlng exLra lnLeresLs when ln reallLy you have less. Allows you Lo make
concesslons wlLhouL acLually glvlng anyLhlng away. Colng lnLo deLall of each
lnLeresL wlll usually expose Lhe weakesL. WaLch for non-verbal
communlcaLlon. 1ry and prepare a llsL of Lhelr llkely demands ln advance.
Adm|n|strat|on order An order of a courL Lo place under admlnlsLraLlon Lhe affalrs of a company ln
flnanclal dlfflculLles wlLh a vlew Lo securlng lLs survlval as a golng concern. lf
LhaL ls noL posslble Lhe alm ls Lo achleve a more favourable value for lLs
asseLs Lhan would be posslble vla llquldaLlon. Whlle under an admlnlsLraLlon
order, Lhe company ls managed by an admlnlsLraLor appolnLed by Lhe courL.
Adm|n|strat|ve rece|versh|ps usually appolnLed Lo companles by debenLure holders, malnly Plgh SLreeL
banks, Lo reallse asseLs by Lhe sale of Lhe buslness or oLherwlse Lo pay Lhe
secured credlLor. AcLlng as an agenL of Lhe company Lhe admlnlsLraLlve
recelver has Lhe power Lo keep Lhe company Lradlng and laLer sell on lLs
buslness as a golng concern, leavlng behlnd Lhe llablllLles.
Aged debtor ana|ys|s A breakdown of Lhe lengLh of Llme Lhe debLs of a buslness have been
ouLsLandlng. 1hls would usually be expressed as Lhe amounL of debL LhaL has
been due for less Lhan 30 days, beLween 30 and 60 days, beLween 60 and 90
days and longer Lhan 90 days. 1hls assessmenL ls ofLen used for esLlmaLlng
fuLure cash flow requlremenLs and as parL of a buslness's credlL conLrol
process.
AIM AlLernaLlve lnvesLmenL MarkeL. A markeL of Lhe London SLock Lxchange LhaL
allows smaller companles Lo ralse caplLal and have Lhelr shares Lraded ln a
markeL wlLhouL Lhe expense of a full markeL llsLlng.
Amort|sat|on 1he process used Lo LreaL as an expense Lhe amounL ln one year deemed Lo
wasLe away from Lhe value of a flxed asseL (usually an lnLanglble flxed asseL
such as a lease or goodwlll). ln Lhe uSA Lhls ls anoLher word for depreclaLlon.
Assets Any ob[ecL Langlble or lnLanglble owned by a company, lncludlng lLems LhaL
lL ls owed. CurrenL asseLs lnclude cash, lnvesLmenLs, money due, maLerlals
and lnvenLorles. llxed asseLs lnclude land, bulldlngs and machlnery.
lnLanglble asseLs lnclude goodwlll.

Gu|de: Mergers & Acqu|s|t|ons
G|ossary



Asset based f|nance Lendlng LhaL ls founded on speclflc asseLs l.e. commerclal morLgages based
on properLy. lL ls ofLen a cruclal elemenL when flnanclng a buy-ouL.
Asset cover A raLlo measurlng Lhe solvency of a company. lL ls calculaLed by dlvldlng Lhe
neL asseLs by Lhe debL.
Assumpt|on 8elng presenLed wlLh a verbal or wrlLLen assumpLlon. ulfflculL Lo re[ecL lf a
deal ls close or mlghL be mlssed lf conLracL lsn'L read properly. Agree as you
go along whaL ls and lsn'L lncluded.
Aud|ted I|nanc|a| Statements 1he flnanclal sLaLemenLs of a buslness prepared by a reglsLered audlLor and
quallfled accounLanL ln accordance wlLh general accounLlng prlnclples. 1hese
sLaLemenLs show Lhe buslness's flnanclal poslLlon and Lhe resulLs of lLs
operaLlons.
8a|ance sheet A sLaLemenL presenLlng Lhe sLaLus of Lhe buslness's asseLs, llablllLles and
equlLy on a glven daLe.
8ankruptcy 1echnlcally Lhls only relaLes Lo personal lnsolvency under Lhe supervlslon of
Lhe CourL. lL ls a phrase, however, LhaL lay people ofLen mlsapply Lo
corporaLe lnsolvency Loo.
8ear A dealer or speculaLor on Lhe sLock exchange, currency markeL or
commodlLy markeL who expecL prlces Lo fall
8ear market Cne ln whlch a dealer or speculaLor ls more llkely Lo sell Lhan Lo buy. A bear
may even sell securlLles, currencles or goods wlLhouL havlng Lhem. 1hls ls
known as selllng shorL or esLabllshlng a bear poslLlon. 1he bear hopes Lo
close (or cover) a shorL poslLlon by buylng aL a lower prlce Lhe securlLles,
currencles or goods prevlously sold. 1he dlfference represenLs Lhe bear's
successful proflL. A concerLed efforL Lo force prlces down by one or more
bears ls known as a bear rald.
8est adv|ce Seven LAWS of besL advlce ln order of use.
1. ulllgenLly obLaln Lhe full facLs from a cllenL.
2. Check Lhe facLs, needs and ob[ecLlves of Lhe cllenL.
3. rovlde clear consldered advlce wlLhln your area of experLlse.
4. Advlce musL be ob[ecLlve (noL lnfluenced by your needs)
3. Cuallfy Lhe reasons why Lhe advlce has been glven.
6. Advlce musL be quallfled as your oplnlon.
7. Check Lhe cllenL has undersLood advlce.
8IM8C 1he 8lM8C ls a comblnaLlon of a managemenL buy-ln and buy-ouL. ln a
8lM8C, key people such as an lnvesLlng Chalrman, llnance ulrecLor or
Managlng ulrecLor are added Lo an exlsLlng managemenL Leam, perhaps Lo
replace an exlLlng owner or slmply [usL Lo sLrengLhen Lhe Leam. 1hls
comblnaLlon can be ldeal ln LhaL lL provldes new, backable, managemenL
LogeLher wlLh Lhe knowledge of Lhe exlsLlng managemenL Leam.
8|ue ch|p names we all recognlse, companles whose producLs or servlces we all use.
8ook va|ue]net worth 1he accounLlng value of Lhe buslness or an asseL accordlng Lo flnanclal
records and sLaLemenLs.
8k 8uslness properLy rellef. 8ellef from lnherlLance Lax on relevanL buslness
asseLs
8rand name A name ldenLlfylng a parLlcular producL, group of producLs or servlce.
1yplcally a well-known name LhaL ls lmmedlaLely assoclaLed wlLh Lhe

G|ossary



approprlaLe producL or servlce.
8reakeven po|nt 1he amounL of money a producL or servlce needs Lo be sold for Lo cover Lhe
dlrecL cosLs assoclaLed wlLh produclng Lhe producL or provldlng Lhe servlce.
8u|| A dealer or speculaLor on Lhe sLock exchange, currency markeL or
commodlLy markeL who expecLs prlces Lo rlse.
8u|| market Cne ln whlch a dealer or speculaLor ls more llkely Lo be a buyer Lhan a seller
even Lo Lhe exLenL of buylng wlLhouL havlng made a correspondlng sale Lhus
esLabllshlng a bull poslLlon.
8us|ness Ange| or Informa|
Investor
A hlgh neL worLh lndlvldual wllllng Lo provlde a company wlLh caplLal ln
exchange for a hlgh proporLlon of shares. 1hey wlll usually fund sums below
230,000. 8uslness angels wlll ofLen requlre an exlL rouLe. 1hey wlll normally
wanL a say ln Lhe way LhaL Lhe buslness ls run.
8us|ness p|an A deLalled plan seLLlng ouL Lhe ob[ecLlves of Lhe buslness over a sLaLed
perlod, ofLen Lhree, flve or Len years. lor new buslnesses lL ls an essenLlal
documenL for ralslng caplLal or loans. 1he plan should lnclude a cash flow
analysls, anLlclpaLed proflL and loss accounLs and producLlon flgures for aL
leasL Lhe flrsL Lwo years. 1he plan musL also lnclude Lhe sLraLegy and LacLlcs,
whlch Lhe buslness lnLends Lo use Lo achleve lLs ob[ecLlves.
8uy and 8u||d 8uylng a company wlLh a flnanclal and buslness plan Lo develop Lhe
company slgnlflcanLly ln Lhe shorL and medlum Lerm.
Ca||ed up share cap|ta| 1he amounL of Lhe lssued share caplLal of a company for whlch paymenL has
been requesLed (called up). Some shares are pald for ln parL, for example an
alloLmenL, wlLh subsequenL calls for paymenL. When all calls have been pald
Lhe called up share caplLal wlll equal Lhe fully pald-up share caplLal.
Cap|ta| 1he LoLal sum LhaL an lndlvldual has lnvesLed ln a buslness or Lhe buslness
neL worLh.
Cap|ta| a||owances 1ax rellef for caplLal expendlLure glven agalnsL lncome on ellglble flxed asseLs
slmllar Lo depreclaLlon buL aL seL raLes pre-deLermlned by Lhe 8evenue
CG1 CaplLal Calns 1ax. 1ax payable by an lndlvldual on Lhe proflL made on Lhe
dlsposal of an asseL.
C|ty code on take-overs &
mergers
llrsL lald ouL ln 1968 and slnce modlfled. 1he code aLLempLs Lo ensure all
shareholders lncludlng mlnorlLy ones are LreaLed equally, are kepL advlsed of
Lhe Lerms of all blds and counLer blds. lLs many recommendaLlons are almed
aL prevenLlng dlrecLors acLlng ln Lhelr own lnLeresL raLher Lhan Lhose of Lhe
shareholders Lo ensure LhaL negoLlaLlons are conducLed openly and
honesLly. 8epresenLaLlves from Lhe London SLock Lxchange, clearlng banks
and oLhers, complled Lhe code.
Co||atera| A form of securlLy such as shares offered Lo secure a loan.
Cherry |ck|ng 8ulldlng a proposal for you Lo maLch from Lhe besL several compeLlLors can
offer. LsLabllsh who you are compeLlng wlLh and conflrm LhaL lL ls lndeed
one company's offer. use opporLunlLy Lo geL a blgger deal by parL maLchlng
or maLchlng l.e. one concesslon for anoLher.

G|ossary



Comfort |etter A leLLer of reassurance from Lhe parenL company of a subsldlary Lrylng Lo
borrow money from a bank. 1he leLLer wlll supporL Lhe appllcaLlon buL noL
acL as a guaranLee for Lhe loan.
Company o||cy uslng someLhlng (usually wrlLLen) Lo relnforce a poslLlon and creaLe Lhe
lmpresslon of no flexlblllLy. Ask who formulaLed lL, when and why. Ask for a
copy ln order Lo undersLand lL beLLer. use lL yourself Lo suggesL your hands
are Lled l.e. prlce llsLs.
Company vo|untary
arrangement
Such formal agreemenLs lnvolve Lhe company comlng Lo an arrangemenL
wlLh lLs credlLors Lo avold llquldaLlon. 1he credlLors may voLe Lo accepL ln full
seLLlemenL a paymenL less Lhan Lhelr rlghLful due. upon fulfllmenL of Lhls
arrangemenL Lhe company can resume buslness as before. A quallfled
lnsolvency pracLlLloner musL be appolnLed Lo supervlse Lhe arrangemenL.
Compet|t|on Lveryone else provldes Lhls" ApparenLly speclflc evldence for one or more
compeLlLors. Challenge generallsaLlons wlLh requesLs for speclflc evldence.
Make your own enqulrles. Make sure you are comparlng llke for llke. Work
on developlng uSs Lo dlfferenLlaLe.
Comp|et|on accounts A seL of flnanclal accounLs (prlnclpally Lhe balance sheeL alLhough usually
lncludes a proflL and loss accounL) produced aL Lhe daLe a buslness ls sold.
1he compleLlon accounLs are produced Lo show Lhe sLaLe of a buslness aL Lhe
polnL of sale. 1he sale prlce ls ofLen ad[usLed ln accordance wlLh pre-deflned
formulas applled Lo Lhe compleLlon accounLs.
Compu|sory ||qu|dat|on 1hls Lype of llquldaLlon ls where an lnsolvenL company ls wound up by order
of Lhe Plgh CourL or CounLy CourL wlLh bankrupLcy [urlsdlcLlon. LlLher Lhe
Cfflclal 8ecelver and/or an ouLslde llquldaLor deal wlLh Lhe admlnlsLraLlon of
wlndlng up Lhe company's affalrs.
Concess|on Where a parLy backs down or agrees Lo Lhe oLher parLy on Lerms.
Concesslons are ofLen soughL Lo allevlaLe deadlocks. ln a wln/wln deal a
concesslon ls usually made on boLh sldes Lo secure a deal.
Conf|dent|a||ty undertak|ng An underLaklng provlded by a purchaslng parLy Lo keep all lnformaLlon
regardlng Lhe buslness ln Lhe sLrlcLesL confldence. 1he underLaklng ls legally
blndlng wlLh recourse. Also known as a non-dlsclosure agreemenL (nuA).
Cons|derat|on roceeds recelved or recelvable on a dlsposal of an asseL. 1hls can be ln
varlous forms lncludlng cash, shares or loan noLes.
Cont|ngent ||ab|||t|es An accounLlng Lerm for a llablllLy LhaL ls anLlclpaLed lf a parLlcular evenL
occurs. ln buslness sales a Lyplcal example of where Lhls Lerm mlghL arlse ls lf
a courL case ls pendlng aL Lhe polnL of sale. ?ou would calculaLe Lhe poLenLlal
loss Lo Lhe company (conLlngenL llablllLy) lf lL losL Lhe case. CfLen ln a
buslness sale an lndemnlLy wlll be asked for from Lhe vendor agalnsL
poLenLlal conLlngenL llablllLles
Cost of sa|es 1he cosLs dlrecLly assoclaLed wlLh provldlng a producL or servlce. 1hls could
be Lhe cosL of purchaslng Lhe producL Lo sell, or manufacLurlng a producL.
1he cosL of sales does noL lnclude overheads such as admlnlsLraLlon cosLs,
esLabllshmenL cosLs or flnance cosLs.
Cred|tors arLles LhaL a buslness owes money Lo.
Cred|tors vo|untary ||qu|dat|on 1he wlndlng up of a company by speclal resoluLlon of Lhe members when lL
ls lnsolvenL. 1hls ls Lhe mosL common Lype of lnsolvency. 1he company ls
wound up ouLslde Lhe [urlsdlcLlon of Lhe CourL. 1he procedure musL noL be

G|ossary

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confused wlLh Members volunLary LlquldaLlon where credlLors are llkely Lo
be pald ln full.
C1 CorporaLlon Lax. A Lax on Lhe proflLs of a company. ulfferenL raLes are used
for dlfferenL levels of proflLs.
Current assets Cash or asseLs LhaL are easlly converLed Lo cash ln a relaLlvely shorL perlod of
Llme (no more Lhan one year). 1hey lnclude sLock and debLors.
Current ||ab|||t|es ShorL-Lerm llablllLles LhaL need Lo be meL ln a relaLlvely shorL perlod of Llme
(no more Lhan one year). 1hey mlghL lnclude Lrade credlLors, sLaff salarles,
vA1 eLc.
Data-room A servlce made avallable Lo boLh Lhe purchaser and Lhelr advlsors ln order
for Lhem Lo vlew / lnspecL company lnformaLlon durlng Lhe due dlllgence
procedure.
Dead||nes SomeLlmes used Lo force your hand or reduce your preparaLlon Llme. Ask
abouL consequences of noL hlLLlng lL and Lry and creaLe non-Llme relaLed
opLlons. useful Lechnlque Lo use l.e. speclal offers.
Dead|ock Where parLles seek Lo resolve a confllcL or dlfference buL can'L see a way.
CfLen deadlock occurs because of a lack of undersLandlng over each parLy's
requlremenLs.
Dea| When Lhe parLles lnvolved ln a sale have agreed Lhe prlce and Lerms under
whlch Lhe LransacLlon ls Lo be carrled ouL.
Debentures A long-Lerm loan Laken ouL by a company. lL ls usually repayable by a flxed
daLe. MosL debenLures carry a flxed raLe of lnLeresL LhaL musL be pald before
dlvldends are pald Lo Lhe shareholders. MosL debenLures are secured by Lhe
borrower's asseLs, alLhough some, naked debenLures or unsecured
debenLures are noL.
Debtors arLles LhaL owe money Lo a buslness
Deferred cons|derat|on An agreemenL ln whlch paymenL of Lhe conslderaLlon ls delayed unLll a
cerLaln daLe or unLll a speclfled evenL has occurred. CfLen pald ln
lnsLalmenLs wlLh lnLeresL. A vendor loan ls a deferred conslderaLlon
paymenL. SecurlLy and or personal guaranLees wlll ofLen/should be asked Lo
glve collaLeral for deferred paymenLs. See performance relaLed paymenL.
De-group|ng 1hls ls where a company who was a member of a group no longer fulflls Lhe
crlLerla Lo be a member of Lhe group and Lherefore exlLs Lhe group.
De||berate M|stake Some error Lo your advanLage whlch wlll come back Lo blLe you laLer lf
accepLed. PlghllghL Lhe error lmmedlaLely demonsLraLlng your eLhlcs.
De-merger A company spllLs up lnLo more Lhan one company. 1here ls a sLrlcL legal
process Lo follow.
Deprec|at|on An accounLlng meLhod of spreadlng Lhe cosL of a flxed asseL over lLs
LheoreLlcal useful llfe wlLhln Lhe proflL and loss accounL. When a buslness
purchases a flxed asseL, Lhe cosL and Lhe value of Lhe asseL are usually
represenLed ln Lhe balance sheeL. 1he value of Lhe asseL ls Lhen reduced
(depreclaLed) annually uslng one of accepLed accounLlng meLhods of
depreclaLlon, and Lhe depreclaLlon ls shown ln Lhe proflL and loss accounL
wlLh Lhe reduced value of Lhe asseL belng shown ln Lhe balance sheeL.
D||ap|dat|ons 8epalrs requlred relnsLaLlng a leasehold properLy back Lo lLs orlglnal sLaLe
and condlLlon on Lhe explry or LermlnaLlon of a lease.

G|ossary



D|rector |oans A loan made by Lhe dlrecLor of a company Lo Lhe company or from Lhe
company Lo a dlrecLor of Lhe company. 1here are sLrlcL rules governlng
dlrecLor loans. 1yplcally dlrecLor loans are seen ln prlvaLely owned
companles where Lhe shareholders are Lhe dlrecLors.
D|rector remunerat|on
(emo|uments)
1he amounLs pald Lo Lhe dlrecLors of a company ln Lhe form of salarles,
penslon conLrlbuLlons and oLher forms of beneflLs ln respecL fulfllllng Lhe
role of a dlrecLor and performlng Lhe duLles of offlce.

D|sc|osure |etter & d|sc|osure
bund|e
A documenL dlscloslng sLaLemenLs of condlLlon, facL and vendors bellefs
relaLlng Lo a buslness aL Lhe Llme of sale. lL forms parL of Lhe compleLlon
documenLaLlon. A dlsclosure leLLer serves Lwo purposes. Cne ls Lo aLLach a
seL of all relevanL company documenLaLlon and Lhe second ls Lo vary Lhe
effecL of Lhe warranLles conLalned ln a Sale and urchase AgreemenL. A
good example ln a buslness sale mlghL be "noL all C sofLware ls llcensed.
Coples of llcensees Lhus far held."
D|scounted cash f|ow A meLhod of budgeLlng LhaL esLlmaLes Loday's value of money Lo be recelved
ln Lhe fuLure, lL ls dlscounLed due Lo Lhe uncerLalnLy of lLs Lrue value ln Lhe
fuLure and for Lhe cosL of Lhe caplLal (less valuable Lhan Lhe cash ln your
hand Loday).
D|v|dend ulsLrlbuLlons Lo shareholders of a company ouL of posL-Lax reLalned proflLs.
D|v|dend cover ulvldend cover ls Lhe number of Llmes LhaL a company's dlvldends could be
pald ouL of lLs neL proflL afLer Lax ln Lhe same perlod (posL Lax neL proflL
dlvlded by Lhe dlvldends pald). rudenL companles reLaln a percenLage of
Lhelr earnlngs. A raLlo of 2 or more ls generally accepLed as comforLable, and
anyLhlng below 1x as an alarm bell. lf Lhe raLlo slnks below 1, Lhe company ls
paylng ouL more Lhan lLs earnlngs and dlsLrlbuLlng parL of lLs reLalned
surpluses. ClrcumsLances vary - Lhls may or may noL be a bad Lhlng ln Lhe
shorLer Lerm. Powever, lL ls clearly a slLuaLlon, whlch cannoL conLlnue
lndeflnlLely.
D|v|dend y|e|d 1he dlvldend yleld ls one of Lhe key measuremenLs for shareholders. 1hls ls
Lhe amounL of dlvldend recelved per share expressed as a percenLage of Lhe
markeL prlce of Lhe share. 1he dlvldend may be pald ln Lwo lnsLalmenLs: Lhe
lnLerlm and flnal dlvldends. MosL dlvldends are pald afLer deducLlon of Lax:
ylelds are generally expressed 'gross'. 1he Lax deducLed ls added back as parL
of Lhe calculaLlon. A gross yleld of 4 per cenL ls equlvalenL Lo a neL yleld of
2.4 per cenL Lo a 40 per cenL Laxpayer.
Pow should we lnLerpreL Lhe yleld?
very hlgh ylelds may lndlcaLe LhaL a company was expecLed Lo reduce lLs
dlvldend payouL. 1he share prlce has fallen on Lhe sLock markeL because
reduced proflLs are expecLed. 1he calculaLlon uses lasL year's dlvldend and
Lhls year's (reduced) share prlce. LasL year's dlvldend ls expecLed Lo have
been hlgher Lhan Lhls year's.
Low ylelds may lndlcaLe expecLaLlons boLh of a growLh ln proflLs and of
lncreased dlvldends and a share prlce, whlch has already rlsen.
Shares ln dlfferenL companles may be compared Lhrough dlvldend ylelds.
Due d|||gence uue dlllgence ls Lhe process prlor Lo compleLlng and acqulslLlon of verlfylng
Lhe lnformaLlon provlded and dlllgenLly checklng Lhe sulLablllLy of Lhe
acqulslLlon, Lhe company's hlsLory and fuLure prospecLs. LxLernal
professlonal advlsors are ofLen used Lo asslsL ln Lhls process. uue dlllgence ls

G|ossary



someLlmes broken down lnLo a number of dlsLlncL areas, flnanclal, legal,
commerclal, envlronmenLal, culLural, l1 eLc.
L8I1DA Larnlngs before lnLeresL, Lax, depreclaLlon and amorLlsaLlon.
L8I1D Larnlngs before lnLeresL, Lax, depreclaLlon.
L8I1 Larnlngs before lnLeresL, Lax.
Larn out Where some or all of Lhe purchase prlce for a buslness ls pald over a perlod
of Llme. 1hls usually lnvolves a conLlnued lnvolvemenL from Lhe vendor and
may also be a varlable sum, llnked Lo cerLaln crlLerla belng meL, Lyplcally Lhe
fuLure flnanclal performance of Lhe buslness.
Lconomy of sca|e Where Lhe llnklng of Lwo operaLlons provldes a dlrecL cosL savlng enabllng
enhanced operaLlng proflLs. 1yplcally, wlLh an acqulslLlon, Lhls ls where Lhe
Lwo buslnesses' funcLlons may dupllcaLe each oLher. 1he closure of one
creaLes beLLer economles l.e. reduces cosLs creaLlng more proflL.
LIS LnLerprlse lnvesLmenL Scheme. 1ax efflclenL lnvesLmenL ln a company for
lndlvlduals enabllng elLher lncome Lax rellef and/ or relnvesLmenL rellef for
caplLal galns Lax purposes. 1here are sLrlcL condlLlons applylng Lo Lhe
lnvesLor, Lhe lnvesLmenL and Lhe company. 1he company equlvalenL ls Lhe
corporaLe venLurlng scheme.
L|evator dea|

A LransacLlon where Lhe purchaser acqulres a shareholdlng greaLer Lhan 30
and Lhe vendor reLalns a shareholdlng. 1he vendor sLays wlLh Lhe buslness
and Lhe new funds, and probably Lhe ldeas and lnfrasLrucLure, provlded by
Lhe new lnvesLor are used Lo grow Lhe buslness. 1he lnvesLor has Lhe rlghL
Lo buy Lhe remalnlng elemenL aL a hlgher 'elevaLed' prlce, usually
predeLermlned by a formula.
Lmp|oyment taxes 1ax payable by an employer on earnlngs of employees. lL lncludes ay As
?ou Larn (A?L) and naLlonal lnsurance ConLrlbuLlons (nlC).
Lqu|ty 1he amounL by whlch Lhe value of an asseL exceeds any llablllLles aLLached Lo
lL.
Lqu|ty f|nance A form of flnance, where equlLy ln Lhe buslness ls provlded ln reLurn for
provldlng flnance.
Lscrow noun - Law - a bond, deed, deposlL kepL by a neuLral Lhlrd parLy unLll a
speclfled condlLlon has been fulfllled".
Crlgln, old lrench (legal sysLem has orlglns ln lrance) - escroe" meanlng
scrap, scroll". 8elaLed Lo shred" and, Lherefore, shroud".
Shroud - lengLh of cloLh or enveloplng garmenL or a Lhlng LhaL obscures or
proLecLlve caslng conceallng from vlew.
Lxample: A deed LhaL has been slgned buL wlll noL become operaLlve unLll a
pre-deLermlned evenL Lakes place. Money held ln escrow ls conLrolled by a
Lhlrd parLy (ofLen a lawyer) and ls only released Lo Lhe beneflclarles when a
cerLaln evenL Lakes place (usually compleLlon).
Lntrepreneurs' ke||ef Cap|ta| Ga|ns 1ax Gu|de to Lntrepreneurs' ke||ef
Lntrepreneurs' ke||ef |s a Cap|ta| Ga|ns 1ax concess|on on qua||fy|ng
bus|ness d|sposa|s, prov|d|ng a 10 CG1 rate on bus|ness sa|es- up to a
max|mum ||fet|me a||owance of 2m. A f|at CG1 rate of 18 app||es |n
other cases, from 6
th
Apr|| 2008.

lollowlng Lhe abollLlon of Lhe CC1 1aper 8ellef scheme from 6
Lh
Aprll 2008,

G|ossary



Lhe CovernmenL lnlLlally lnLended Lo enforce a new flaL 18 raLe on caplLal
galns.

1hls 10 raLe concesslon ls a resulL of lobbylng by buslness organlsaLlons
who clalmed LhaL an 80 lncrease ln CC1 raLe on buslness dlsposals was an
anLl-enLrepreneurlal measure.

1here are a number of condlLlons whlch apply for buslness owners who wlsh
Lo use LnLrepreneurs' 8ellef. Pere a some of Lhe condlLlons:

A buslness dlsposal can apply Lo Lhe whole buslness, or merely a
parL of lL.

LnLrepreneurs' rellef only applles Lo lndlvldual Laxpayers.

1he rellef ls noL reLrospecLlve, and won'L lnclude pasL dlsposals.

8ellef can apply Lo buslness shares, provldlng Lhe clalmanL owns aL
leasL 3 of Lhe company (and has voLlng rlghLs), and ls an offlcer or
employee of Lhe company.

LnLrepreneurs' rellef can be clalmed any number of Llmes from 6
Lh
Aprll
2008, up Lo a llfeLlme llmlL of 2 mllllon. CaplLal galns Lax of 18 wlll apply
on amounLs greaLer Lhan Lhls llmlL.
Iactor|ng 1he buylng of Lrade debLs of a company assumlng Lhe Lask of debL collecLlon
and accepLlng Lhe credlL rlsk, Lhus provldlng Lhe company wlLh worklng
caplLal. A flrm LhaL engages ln facLorlng ls called a facLor.
Ia|r |ay lf we do Lhls, lL's only falr LhaL you do..." suggesLlng you would be unfalr or
wrong Lo do oLherwlse. ln Lhls scenarlo lL ls Llme for a Lrade off l.e. We
couldn'L do LhaL buL we could do Lhls..."
I|nanc|a| report|ng for sma||er
ent|t|es
1he reporLlng sLandards for buslnesses have been revlsed and updaLed ln
several areas. AccounLanLs are requlred Lo prepare Lhem accordlng Lo
publlshed flnanclal reporLlng sLandards. 1hese seL ouL Lhe permlLLed
meLhods of accounLlng for cerLaln LransacLlons and slLuaLlons. 1hese
sLandards have Lo cover all sorLs of lssues LhaL are someLlmes only relevanL
Lo larger companles. As a resulL, Lhere ls now a separaLe, less complex,
sLandard for smaller companles and oLher organlsaLlons, known as Lhe
llnanclal 8eporLlng SLandard for Smaller LnLlLles, or l8SSL (pronounced
'fruzzy'!). As new sLandards are lssued, Lhe l8SSL ls amended Lo reflecL
Lhose aspecLs LhaL apply Lo smaller companles.
I|nanc|a| statement 1he annual sLaLemenL summarlslng a company's acLlvlLles over Lhe lasL year.
1hls lncludes Lhe proflL and loss accounL, balance sheeL and, lf requlred, a
cash-flow sLaLemenL.
I|sca| year 1he flnanclal year lmposed by Lhe CovernmenL for Lhe purposes of assesslng
Lax. lL runs from Aprll 6
Lh
Lo Aprll 3
Lh
of Lhe followlng year.
I|xed assets AsseLs LhaL are noL Lraded ln Lhe course of Lhe normal day Lo day acLlvlLles of
a buslness. 1he naLure of Lhe buslness wlll usually dlcLaLe wheLher an asseL ls
LreaLed as a flxed asseL or a currenL asseL. lor example a car would usually
be LreaLed as a currenL asseL (sLock) by a car dealershlp (Lhelr buslness ls

G|ossary



selllng cars), whereas a recrulLmenL company would usually llsL a car as a
flxed asseL (Lhe car ls a Lool LhaL helps Lhe buslness Lrade, raLher Lhan an
lLem whlch Lhe buslness Lrades.)
I|xed asset and goodw||| sa|e CfLen referred Lo lncorrecLly as an asseL and goodwlll sale. lL means where
Lhe flxed asseLs of a buslness, lLs goodwlll, cusLomers, sLaff and know-how
are sold on ln a way LhaL enables conLlnuance of a buslness. ln Lhe case of a
llmlLed company, Lhe company sells lLs flxed asseLs and goodwlll, however
no shares change hands.
I|oat A floLaLlon ls Lhe offerlng of lnlLlal shares Lo Lhe publlc on a quoLed sLock
markeL. Wlll lL floaL or slnk. l.e. wlll Lhe publlc buy Lhe offerlng. 1he process ls
known as an lnlLlal prlce offerlng.
Iranch|s|ng lranchlser - an agreemenL whereby Lhe franchlsor (a prlmary company)
provldes a markeL LesLed buslness package Lo anoLher buslness (Lhe
franchlsee). 1he laLLer Lhen operaLes under Lhe franchlsor's Lrade name,
markeLlng goods accordlng Lo an agreed conLracL and elLher for a fee or
resLrlcLed supply chaln or slmllar. 1yplcally a franchlsor wlll allow a number
of franchlsees Lo operaLe Lhe buslness model, usually resLrlcLed by flnanclal
LerrlLory Lo prevenL compeLlLlon among Lhe franchlsees.
I1-SL llnanclal 1lmes SLock Lxchange Share lndex someLlmes known as Lhe
looLsle. 1he llnanclal 1lmes publlshes Lhe l1-SL 100 Share lndex, whlch
reflecLs Lhe comblned performance of Lhe 100 largesL companles quoLed on
Lhe sLock markeL. 1he lndex shows Lhe currenL level, Lhe hlghs and lows, and
levels aL oLher speclfled daLes. 1he l1-SL 230 shows Lhe comblned
performance of Lhe nexL 230 largesL companles below Lhe Lop 100. 1he l1
AcLuarles All Share lndex shows Lhe dally performance of Lhe Lop 800
companles.
GAA Cenerally AccepLed AccounLlng rlnclples. An accounLlng pracLlces whereby
your accounLs have been prepared ln agreemenL wlLh normal accounLlng
convenLlons. lease noLe LhaL Lhere are some dlfferences beLween uk and
Amerlcan CAA processes.
Gear|ng 1he level of borrowlng (debL) Lo equlLy.
Go|den handcuffs (|oya|ty
bonus)
llnanclal lncenLlves offered Lo key sLaff Lo persuade Lhem Lo remaln wlLh a
buslness afLer Lhe sale. Also known as loyalLy bonus. usually pald Lo non-
shareholdlng key sLaff lf Lhey remaln wlLh Lhe buslness for a deflned perlod
afLer sale or unLll a pre-deflned evenL occurs. .
Goodw||| Coodwlll: a klndly feellng, a well-belng, benevolence.
WhaL ls buslness goodwlll? 1he advanLage or favour a buslness has ln lLs
cusLom and Lrade.
WhaL ls flnanclal goodwlll? 1he excess of Lhe purchase prlce (noL lLs
valuaLlon buL whaL ls achleved) over and above Lhe value asslgned Lo lLs neL
asseLs excluslve of goodwlll.
ln oLher words goodwlll ls an absLracL concepL. lL also means dlfferenL Lhlngs
Lo dlfferenL people. 1herefore lL sLands Lo reason LhaL goodwlll ls a maLLer of
oplnlon. Some even argue LhaL lL does noL exlsL. Coodwlll could also be Lhe
measure of LrusL Lhe markeL has ln a buslness.
Groom|ng 1he process of preparlng a buslness for sale ln order Lo make lL more
aLLracLlve Lo a poLenLlal purchaser.

G|ossary



Gross prof|t 1he Lurnover of a buslness (LoLal revenue generaLed) less dlrecL cosLs (Lhose
cosLs LhaL are dlrecLly aLLrlbuLable Lo Lhe generaLlon of Lhe Lurnover).
Group A parenL underLaklng and lLs subsldlary or subsldlarles.
nand-over A perlod ln whlch Lhe selllng parLy 'hands-over' knowledge, conLacLs,
relaLlonshlps eLc. Lo Lhe purchaser. 1he complexlLy of Lhe buslness belng
sold, level of lnvolvemenL ln Lhe day Lo day runnlng of Lhe buslness Lhe
vendor has and skllls and lndusLry experlence Lhe purchaser has wlll dlcLaLe
Lhe lengLh and sLrucLure of Lhe hand-over requlred.
neads of terms A documenL ouLllnlng Lhe key polnLs of an agreed LransacLlon LhaL ls Lhen
used as Lhe basls Lo prepare Lhe legal conLracLs. 1he heads of Lerms ls noL
usually legally blndlng save for speclflc clauses relaLlng Lo excluslvlLy and
confldenLlallLy.
n|ve down

Where Lhe Lrade and asseLs of a company are Lransferred lnLo a subsldlary
company.
n|ve up Where Lhe Lrade and asseLs of a company are Lransferred lnLo a parenL
company
nouse keep|ng non-producLlve buL necessary procedures Lyplcally relaLlng Lo record
keeplng and admlnlsLraLlve lssues. WhllsL good housekeeplng ls an
lmporLanL parL of all buslnesses on an ongolng basls, lL ls ofLen only Laken
serlously ln Lhe perlod precedlng a sale, parLlcularly ln Lhe case of small
buslnesses.
I8A lndusLrlal bulldlngs allowance. Slmllar Lo a caplLal allowance buL applled Lo
cerLaln lndusLrlal bulldlngs such as facLorles and warehouses.
In1 lnherlLance Lax. 1ax levled on cerLaln llfeLlme Lransfers and esLaLes on Lhe
deaLh of lndlvlduals.
Incorporat|on 1he process by whlch a company ls reglsLered under Lhe companles acL. 1he
formaLlon of n assoclaLlon LhaL has 'corporaLe ldenLlLy' l.e. an ldenLlLy LhaL ls
dlsLlncL from lLs members.
Indemn|t|es (Warrant|es and
Indemn|t|es)
An lndemnlLy ls an underLaklng Lo pay or relmburse ln full wlLhouL
declaraLlon agalnsL a parLlcular evenL occurrlng. lL ls noL sub[ecL Lo any
mlnlmum or maxlmum amounL. CfLen money wlll be held ln an accounL [see
escrow] agalnsL a flnanclal clalm belng made agalnsL a warranLy. A warranLy
ls an underLaklng or guaranLee offered agalnsL a poLenLlal evenL. lL may be
sub[ecL Lo resLrlcLlons on Lhe mlnlmum or maxlmum amounL referred Lo ln
Lhe sale and purchase agreemenL.
Input tax vA1 on purchases from suppllers.
Inso|vency An excess of llablllLles over asseLs and an lnablllLy Lo meeL debLs as Lhey fall
due. 1hls ofLen leads Lo llquldaLlon alLhough noL always.
Intang|b|e assets llxed asseLs LhaL are lnLanglble. 1yplcally goodwlll, lnLellecLual properLy or
lnvesLmenLs.
Interest re||ef on borrow|ngs 1ax rellef glven for lnLeresL on loans made by a quallfylng lndlvldual for Lhe
purposes of lnvesLlng ln a quallfylng company or parLnershlp.
IC lnlLlal ubllc Cfferlng - also known as floLaLlon.
Ik lnLellecLual roperLy 8lghLs - 1he rlghL of ownershlp of lnLanglble properLy,
such as paLenLs, copyrlghLs Lrademarks eLc.

G|ossary



Ikk lnLernal raLe of reLurn
know-how 1he procedures, ldeas, producLs, vlslon and personal knowledge of a
buslness normally resldlng ln lLs people. unless Lhls ls Lransferred on a sale.
Coodwlll wlll rapldly dlsslpaLe. An experlenced buyer wlll work ouL a deal
LhaL reLalns know-how.
Large bus|ness Large companles - flrms wlLh over 230 employees
Leav|ng Deta||s Unt|| Later 8road agreemenL reached and boLh parLles Lhlnklng Lhey have a deal. nLvL8
leave Lhe deLalls unLll laLer - Lhey wlll always be dlfferenL Lo whaL each parLy
LhoughL or addlLlonal deLalls wlll be added or Laken away - dellberaLely or
oLherwlse.
Leverage See gearlng
L|ab|||ty An obllgaLlon Lo Lransfer economlc beneflL as a resulL of pasL LransacLlons. A
conLlngenL llablllLy may or may noL become a llablllLy.
L|m|ted company A llmlLed company ls a separaLe enLlLy from lLs owners (members,
shareholders). lLs ulrecLors are noL normally llable for lLs debLs alLhough
Lhey may be asked Lo glve personal guaranLees on cerLaln loans and
llablllLles. 1he company musL be reglsLered and submlL properly prepared
sLaLuLory flnanclal sLaLemenLs. 1here are speclflc rules and regulaLlons
governlng Lhe way a llmlLed company ls seL up and run whlch musL be
followed.
L|m|ted or n|gher Author|ty l can only go up Lo Lhls level" or l have Lo go and ask someone else."
LsLabllsh early on Lhe company's process of buylng. 8ulld relaLlonshlps wlLh
lnfluencers buL LargeL Lhe declslon maker. useful Lechnlque Lo use ln hlgh
value slLuaLlons.
L|m|ts We can only afford x". 8evlew Lhe value of your soluLlon. lf you meeL Lhelr
llmlL, counLer wlLh a concesslon yourself.
L|st|ng 1he floLaLlon of a company on Lhe sLock exchange
Loan note 1he legal documenL deLalllng Lhe Lerms of 'loan caplLal', effecLlvely an lCu
lssued by a company. Loan caplLal ls caplLal used Lo flnance an organlsaLlon
LhaL ls sub[ecL Lo lnLeresL over Lhe llfe of Lhe loan, aL Lhe end of whlch Lhe
loan ls usually repald (see debenLure). ln M&A Lerms, a loan noLe ls lssued by
a purchaslng company Lo Lhe seller ln place of cash. lrom Lhe purchaser's
polnL of vlew Lhls asslsLs Lhem ln Lhe cash flow requlremenLs of an
acqulslLlon. lrom a seller's polnL of vlew cerLaln Lypes of loan noLes can be
Lax beneflclal, parLlcularly as Lhe LaxaLlon ls usually crysLalllsed aL Lhe Llme of
lssue of Lhe loan noLe, however ls noL payable unLll Lhe loan noLe ls reallsed.
Loss re||ef 1ax rellef for Lradlng or caplLal losses glven by seLLlng losses agalnsL Laxable
lncome or chargeable galns (lndlvlduals) and Laxable proflLs (companles).
Market cap|ta||sat|on 1hls ls Lhe value puL on Lhe company by Lhe sLock markeL. lL represenLs Lhe
cosL of buylng all Lhe shares ln Lhe company aL Lhe share prlce quoLed.
Mak|ng Lxtreme Cffers Asklng far more Lhan you acLually wanL or offerlng far less Lhan you wlll pay
wlLh Lhe ldea of lowerlng expecLaLlons. SlLuaLlon can be dlffused by saylng,
?ou musL be [oklng" and laughlng. 1hen asklng for a serlous offer. Lvldence
lL ls rldlculous can be useful.
M8I (Management 8uy In) 1he acqulslLlon of a company by a manager or managemenL Leam from
ouLslde of Lhe company who buy lL, and Lhen become Lhe new managers.

G|ossary



M8C (Management 8uy Cut) 1he acqulslLlon of a company by lLs exlsLlng managers.
Med|um bus|ness A buslness LhaL can clalm Lwo or more of Lhe followlng:
8alance sheeL noL exceedlng 3.6m
1urnover noL exceedlng 11.2m
Average number of employees noL exceedlng 230.
Members vo|untary ||qu|dat|on ln Lhls lnsLance Lhe company musL be solvenL. 1he dlrecLors are obllged Lo
make a sLaLuLory declaraLlon LhaL Lhey have formed Lhe oplnlon LhaL Lhe
company wlll be able Lo pay lLs debLs (lncludlng Lhe cosL of llquldaLlon) ln
full, LogeLher wlLh lnLeresL aL Lhe offlclal raLe, wlLhln Lwelve monLhs. 1he
burden of proof ls on Lhe dlrecLors.
Memorandum of Assoc|at|on An offlclal documenL seLLlng ouL a company's exlsLence. lL lncludes Lhe
reglsLered offlce of Lhe company. A sLaLemenL of Lhe company's ob[ecLlves
(called Lhe ob[ecLs clause) Lhe amounL of auLhorlsed share caplLal and lLs
dlvlslon.
Merger A comblnaLlon of Lwo or more buslnesses on an equal fooLlng LhaL resulLs ln
Lhe creaLlon of a new reporLlng enLlLy. 1he shareholders of Lhe comblnlng
enLlLles muLually share Lhe rlsks and rewards of Lhe new enLlLy. (Approval of
Lhe monopolles and mergers commlsslon may be requlred). lor publlcly
quoLed companles mergers musL be conducLed on llnes sancLloned by Lhe
ClLy code on Lake-overs and mergers.
M|cro-f|rms llrms wlLh fewer Lhan 9 employees.
M|nor|ty shareho|der A shareholder who holds less Lhan 30 of Lhe company's shares ls classed as
a mlnorlLy shareholder. 1hey can recelve Lhelr share of Lhe proflLs ln Lhe
form of dlvldends however Lhey cannoL on Lhelr own conLrol or deLermlne
company pollcles.
M|s|ead|ng Informat|on 8elng led Lo belleve someLhlng by oLhers Lo dellberaLely undermlne a
relaLlonshlp or slLuaLlon (usually Lo Lhelr advanLage). Check lL ouL buL rely on
your lnsLlncL and Lhe relaLlonshlp you have bullL. lf you have a good
relaLlonshlp, dlscuss whaL you have heard.
My 8oss Won't L|ke 1h|s uslng anoLher parLy ouLslde Lhe negoLlaLlon Lo drlve down prlce l.e. Lwo
negoLlaLors. Call Lhelr bluff: 1hls remlnds me of Lhe old good cop/bad cop
rouLlne - you wouldn'L do LhaL Lo me would you?" AlLernaLlvely, focus all
your aLLenLlon on Lhe bad cop and dlscoverlng Lhelr needs. 1ry Lo geL Lo
meeL as he/she ls obvlously Lhe declslon maker.
Name Dropp|ng CreaLlng a sense of obllgaLlon or concern by menLlonlng a respecLed name.
locus on Lhls slLuaLlon only, lgnore Lhe assoclaLlon.
Negot|at|on 1he process of Lrylng Lo brlng LogeLher Lwo or more parLles ln order LhaL an
agreemenL ls reached. Cenerally Lhe alm of negoLlaLlon ls obLaln a muLually
beneflclal soluLlon, whlch lnvolves doveLalllng lnLeresLs glvlng boLh sldes a
degree of saLlsfacLlon Lo Lhe agreemenL.
Wln/Wln: Where boLh sldes feel Lhey have obLalned a good deal.
Wln/Lose: Where one slde ls feellng Lhey have a good deal and Lhe oLher
feels hard done by. 1he deal mlghL sLlll happen buL Lhere wlll be bad feellng
LhaL mlghL resulL ln crlLlclsm, or lack of supporL ln a hand-over.
Lose/Lose: Where ulLlmaLely nelLher slde succeeds ln Lhelr ob[ecLlves. 1hls
mlghL occur when a Wln/Lose deal ls agreed and one parLy backs ouL leavlng
boLh wlLh large professlonal bllls.

G|ossary



Net asset va|ue 1he value of Lhe asseLs of Lhe company plus whaL lL ls owed mlnus whaL lL
owes. Shown as shareholders funds on a balance sheeL.
Net prof|t 1he amounL of lncome earned by an organlsaLlon afLer deducLlng all relevanL
cosLs and expendlLure.
Net return 1hls ls Lhe Lrue economlc vlew of a company. lL ls calculaLed by recasLlng Lhe
flnanclal sLaLemenLs of a buslness Lo ellmlnaLe dlrecL and lndlrecL owner
relaLed expenses as well as exLraordlnary or non-recurrlng lLems. 1hls Lype
of recasL ls known as an add-back. 1here mlghL also be Lhe converse, an add-
on where Lhe expenses are noL reallsLlc wlLh beneflclal renLs or lower
salarles belng pald.
N|bb||ng Addlng lasL mlnuLe exLras - 1haL wlll be lncludlng won'L lL?"AL Lhls polnL,
Lhe sLrong urge Lo conclude Lhe deal may wln a compromlse. 8e expllclL
LhroughouL as Lo whaL ls and ls noL lncluded. 1he prlce of Lhese exLras ls...
so lf you are wllllng Lo pay Lhen no problem, Lhey wlll be lncluded."
Non-Lmbarrassment C|ause 1he rlghLs glven Lo a vendor should a successful purchaser re-sell Lhe
buslness wlLhln a cerLaln perlod of Llme and who beneflLs from a hlgher sale
value. 1hls usually Lakes Lhe form of flnanclal compensaLlon.
Cfex (Cf-exchange) An lndependenL markeL for llsLlng small Lo medlum slzed
companles.
Cpen Market Va|ue Pow much an asseL wlll feLch lf sold on Lhe open markeL.
C11 - Cpt|on to 1ax 1he ablllLy of a purchaser/ owner of a commerclal properLy Lo elecL for Lhe
properLy Lo be sub[ecL Lo vA1 by walvlng Lhe usual vA1 exempL sLaLus ln
order Lo recover vA1 lnpuL Lax.
Cutput tax vA1 charged by a vendor on lLs supplles Lo lLs cusLomers.
artnersh|p A parLnershlp lnvolves Lwo or more people [olnLly runnlng a buslness wlLh a
vlew Lo maklng a proflL. AlLhough you do noL have Lo formally reglsLer a
parLnershlp, lL ls recommended LhaL a arLnershlp AgreemenL be drawn up.
lncluded ln Lhe agreemenL should be who has puL whaL lnLo Lhe buslness,
who does whaL work, how your proflLs are shared and whaL would happen lf
you declded Lo wlnd up Lhe parLnershlp. Lach parLner ls personally llable for
all debLs lncurred by Lhe buslness. 1rusL ln Lhls Lype of buslness relaLlonshlp
ls Lherefore cruclal.
ayback per|od Pow long lL wlll Lake Lo repay Lhe amounL lnvesLed aL currenL levels of
earnlng.
ercept|on va|ue ercepLlon value ls denomlnaLed by Lhe markeL vlew of a buslness. 1hls can
be measured by markeL comparlson. LlLerally whaL oLhers are selllng for buL
also lnsLlncL. 1he mosL common measure of Lhls percepLlon value ls Lhe
selecLlon of a proflL earnlngs raLlo. A /L mulLlple (ln lLs lnverse sLaLe Lhls ls
called 8CCL, reLurn on caplLal employed).
erformance re|ated payment Where parL of Lhe conslderaLlon for Lhe purchase of a buslness ls deferred
unLll a laLer daLe and ls llnked Lo Lhe fuLure performance of Lhe buslness.
Slmllar Lo deferred paymenLs and earn ouLs.
LS1 A managemenL or valuaLlon Lechnlque where an analysls of Lhe
envlronmenLal forces LhaL effecL a buslness ls creaLed:
A revlew of naLlonal and global Lrends:
ollLlcal

G|ossary



Lconomlc
Soclal or soclologlcal
1echnlcal
hoen|x A buy-ouL from a llquldaLor.
reparat|on 1hls ls where all parLles research, conslder, bralnsLorm and assess prlor Lo
LransacLlons. A good negoLlaLor can never do Loo much preparaLlon.
r|ce 1he moneLary value LhaL a buslness ls markeLed for sale.
r|ce earn|ngs rat|o (]L) rat|o 1he /L raLlo ls Lhe raLlo of Lhe prlce pald per share ln a company Lo Lhe
earnlngs LhaL share produces annually.
lor a quoLed company Lhls ls calculaLed as Lhe currenL quoLed share prlce
dlvlded by Lhe year end dlvldend declared per share.
lor prlvaLely owned companles Lhls ls more llkely Lo be Lhe prlce pald per
share dlvlded by Lhe posL-Lax proflL per share.
1he /L raLlo ls wldely quoLed as a basls for comparlson. 1here are Lhose
who regard /L raLlos as havlng Lhelr uses, even lf Lhey are a llmlLed Lool.
ulfferenL Lypes of buslnesses aLLracL dlfferenL /L raLlos.
ut opt|on 1he rlghL Lo buy or sell a deflned number of shares aL a pre agreed prlce aL a
parLlcular daLe. 1hls ls someLlmes used lf a purchaser buys a proporLlon of a
buslness and has a puL opLlon Lo buy more of lL aL a laLer daLe.
k&D (kesearch & Deve|opment) 1he lnvesLlgaLlon underLaken Lo galn new sclenLlflc or Lechnlcal knowledge
and undersLandlng, and/or Lhe use of sclenLlflc or Lechnlcal knowledge Lo
produce new or subsLanLlally lmproved, maLerlals, devlses, producLs,
processes, sysLems or servlces prlor Lo commencemenL of commerclal
producLlon.
AccounLlng sLandards dlsLlngulsh beLween pure research, applled research
and developmenL. uependlng on Lhe caLegory or 8&u, Lhe cosLs can elLher
be wrlLLen off agalnsL Lax lmmedlaLely, or caplLallzed and amorLlzed.
kedundancy Where an organlsaLlon no longer has a commerclal use for some of lLs
funcLlons, Lhe sLaff LhaL perform Lhose funcLlons may be made redundanL
and recelve a redundancy paymenL. 1here are very sLrlcL rules governlng
redundancy. 1he sLaLuLory calculaLlons for redundancy paymenLs can be
found on Lhe followlng web slLe: hLLp://www.dLl.gov.uk/cgl-
bln/er_reconner.pl
kestr|ct|on of trade (non
compet|t|on c|ause)
A clause or serles of clauses ln a sale conLracL LhaL prevenLs Lhe seller from
enLerlng lnLo a compeLlLlve buslness or performlng compeLlLlve acLlvlLles
afLer Lhe sale of a buslness. 1yplcally Lhe resLrlcLlons wlll be before a deflned
perlod and wlLhln a deflned geographlcal area. unllke employmenL law
where resLrlcLlve covenanLs lmposed on employees are ofLen consldered
unenforceable, Lhey are enforceable ln Lhe case of Lhe sale of a buslness
when drafLed correcLly.
keturn on cap|ta| emp|oyed
(k.C.C.L.)
An accounLlng raLlo expresslng Lhe proflL of an organlsaLlon as a percenLage
of Lhe caplLal employed (Lhe raLe of reLurn requlred on money lnvesLed).
1hls should cerLalnly be more Lhan Lhe raLe of lnLeresL you could geL from
leavlng your money ln a bulldlng socleLy accounL. 1hls ls Lhe reverse raLlo of
a /L raLlo.
ko||-over tax re||ef 8ellef from caplLal galns Lax (or corporaLlon Lax on chargeable galns) on
ellglble dlsposals. 1he flnanclal galn from Lhe dlsposal of an asseL may be

G|ossary

www.avonda|e.co.uk age 1S of 19 01737 240888


deferred lf Lhe proceeds are used Lo purchase anoLher quallfylng asseL. SLrlcL
rules apply Lo roll over rellef and whaL ls accepLed as a quallfylng asseL.
Sa|e and urchase Agreement
(SA)
A legal conLracL seLLlng ouL Lhe deLalls and Lerms of Lhe purchase of a
buslness or buslness asseL. 1hls ls Lyplcally drawn up by lawyers and lncludes
deLalls of all aspecLs of Lhe LransacLlon, lncludlng deLalls of whaL ls belng
sold, Lhe prlce Lo be pald, any resLrlcLlve covenanLs on boLh buylng and
selllng parLles and warranLles and lndemnlLles provlded Lo Lhe purchaser by
Lhe seller eLc.
Schedu|e of staff A comprehenslve llsL of all sLaff, Lhelr [ob descrlpLlon, Lhelr addresses, Lhe
lengLh of Lhelr employmenL, Lhelr salarles and beneflLs and any ouLsLandlng
holldays.
Schedu|e 22 emp|oyment taxes 1ax and nlC payable by elLher an employer and/ or Lhe employee where
shares or share opLlons are Lransferred Lo an employee aL an undervalue.
1here are speclal rules relaLlng Lo M8C's.
Sect|on 320 rovlslons ln Lhe Companles AcL LhaL prevenLs a dlrecLor purchaslng more
Lhan 10 of Lhe company's neL asseLs wlLhouL obLalnlng permlsslons from
Lhe shareholders.
Secur|t|es and Iutures
Author|ty (SIA)
1he self regulaLlng auLhorlLy responslble for regulaLlng Lhe conducL of
8rokers and dealers ln securlLles, opLlons and fuLures.
Secur|ty An asseL or loan Lo whlch a lender can have recourse lf a borrower defaulLs
on hls loan paymenLs. SomeLlmes referred Lo as collaLeral or a charge.
Shares Shares are equal parLs lnLo whlch Lhe caplLal sLock of a company ls dlvlded.
1hey fall lnLo Lwo baslc caLegorles:
Crdlnary shares
reference shares
When we buy shares, we are lnvesLlng ln Lhe fuLure performance of Lhe
company, whlch orlglnally lssued Lhem. We are looklng for lncome (recelved
vla dlvldend paymenLs) or caplLal galn (recelved lf we sell shares aL a hlgher
prlce Lhan we pald for Lhem) or boLh.
Shares - ord|nary Companles someLlmes subdlvlde Lhelr ordlnary shares lnLo dlfferenL classes
e.g. Lo reflecL dlfferenL daLes of lssue. Crdlnary shares are securlLles lssued
by companles ln reLurn for Lhe lnvesLmenL of rlsk caplLal. 1he rlsk ls hlgh
because Lhe clalms of owners of ordlnary shares rank behlnd Lhose of all
oLhers ln Lhe evenL of Lhe company belng wound up and lLs lncome and
asseLs dlsLrlbuLed.
LlmlLed llablllLy: here, Lhe shareholders' rlsk ls llmlLed Lo Lhe value of Lhe
ordlnary shares. lf Lhe buslness falls Lhelr llablllLy for losses lncurred by
credlLors and lenders ls llmlLed Lo Lhe funds Lhey have lnvesLed ln Lhe
buslness - hence Lhe Lerm 'llmlLed llablllLy company'
oLenLlal for galn: Lo compensaLe for Lhelr hlgh rlsk sLaLus, ordlnary shares
offer unllmlLed poLenLlal for galn because oLher forms of caplLal e.g.
preference shares have sLrlcLly llmlLed clalms on Lhe lncome and asseLs of
Lhe buslness.
Shareholders' rlghLs: ordlnary shareholders also have voLlng rlghLs on a
whole range of lssues. 1he exerclse of Lhese rlghLs by an lndlvldual
shareholder may be of llmlLed slgnlflcance. 1hls ls parLlcularly so where
lnsLlLuLlonal lnvesLors e.g. lnsurance companles own very large blocks of
shares.

G|ossary



Shares - preference reference shares provlde parL of Lhe equlLy caplLal of a company. 1hey
carry very llmlLed rlghLs of ownershlp, resLrlcLed ofLen Lo Lhe rlghL Lo voLe lf
preference dlvldends remaln unpald. ln reallLy, preference shares are a form
of speclallsed debL. 1hey carry rlghLs Lo:
A flxed lnLeresL raLe raLher Lhan dlvldends.
8epaymenL of Lhe par value of Lhe share ln Lhe evenL of wlndlng up.
reference shareholders rank behlnd unsecured credlLors and ahead of
ordlnary shareholders.
Share pr|ce 1he share prlce: lor publlcly quoLed companles, Lhls ls usually Lhe prevlous
day's closlng mld-markeL prlce ln pence (l.e. halfway beLween Lhe offer and
bld prlce aL Lhe prevlous day's close of buslness) or Lhe prlce change from
Lhe prevlous Lradlng day.
PlghesL and lowesL prlces: 1hese are Lhe share's maxlmum and mlnlmum
prlces over Lhe prlor 32-week perlod.
Share transfer A change ln Lhe ownershlp of a share or sLock.
Ske|etons |n the cupboard Pldden llablllLles (see conLlngenL llablllLles) normally referred Lo as ones LhaL
have been lefL dusLy, lgnored or hldden.
Sma|| bus|nesses llrms wlLh beLween 10 - 49 employees.
SMLs Small Lo medlum slzed enLerprlses.
So|e trader 1o become a 'sole Lrader', all you need Lo do ls lnform Lhe lncome 1ax and
Soclal SecurlLy auLhorlLles LhaL you wanL Lo work for yourself. ?ou have Lhe
freedom Lo choose how you do Lhlngs and ln many ways your buslness wlll
be relaLlvely slmple Lo manage, even Lhe book keeplng and accounLlng
should be sLralghLforward. ?ou are, however, responslble and llable for
every aspecL of your buslness and lf Lhlngs do go wrong, your personal
possesslons as well as your buslness may be aL rlsk.
So|vency A buslness wlLh Lhe ablllLy Lo meeL lLs flnanclal obllgaLlons.
SSL SubsLanLlal shareholdlng exempLlon. CorporaLlon Lax exempLlon glven Lo
Lradlng companles dlsposlng of a greaLer Lhan 10 lnLeresL ln anoLher
Lradlng company from corporaLlon Lax on chargeable galns.
Stamp duty

Stamp duty |and tax

A x duLy on documenLs relaLlng Lo Lhe purchase or Lransfer of shares and
securlLles. 1hese musL be physlcally sLamped aL a SLamp Cfflce and Lhe duLy
pald Lo Lhe 8evenue
A Lax pald by Lhe buyer on Lhe acqulslLlon of land and/ or properLy. SeparaLe
raLes apply Lo ouLrlghL purchases and Lo leases.
See www.lnlandrevenue.gov.uk for raLes
Subs|d|ary A company conLrolled by a parenL or holdlng company.
Summar|s|ng verbally and Lhen preferably ln wrlLlng ouLllnlng Lhe Lerms or agreemenLs Lo
daLe ln a way LhaL seLs ouL Lhe clear progress.
Sweetheart approach A 'one' company dlrecL approach. 1hey are qulck and easy deals buL wlLh no
compeLlLlve process ofLen leadlng Lo lower values.
SWC1 An analysls Lool ldenLlfylng:
SLrengLhs
Weaknesses
CpporLunlLles
1hreaLs

G|ossary



Synergy Where a buyer ls able Lo galn added proflLs ouL of an exlsLlng buslness by
llnklng Lhelr own operaLlon and sharlng knowledge or resource. A good
example ls where cllenLs ln exlsLlng operaLlons can be crossed over. lL ls noL
an economy of scale, whlch ls where proflLs can be enhanced by a dlrecL
reducLlon ln cosLs by reduclng Lhe 'scale' of Lhe Lwo llnked operaLlons.
1ake It Cr Leave It uellberaLely confronLaLlonal Lo creaLe pressure Lo agree. 8evlew whaL ls
requlred and parLlcularly why - and whaL you mlghL geL lf you agree e.g. lf
we meeL LhaL prlce, you wlll have Lo lncrease your order." 1esL: lf we were
Lo agree, would you be prepared Lo go ahead now?" lf noL, whaL else ls Lhere
Lo conslder? 1esL: Ck, so whaL prlce would you be prepared Lo go ahead
aL?"
1arget 1he chosen company Lo be acqulred.
1ax rates ulfferenL raLes of Lax apply Lo dlfferenL Laxes, Lo dlfferenL sources of lncome
and/ or dependlng on wheLher Lhe Laxpayer ls an lndlvldual, a company or
oLher enLlLy (e.g. LrusL). CurrenL Lax raLes can be vlewed on Lhe 8evenue
webslLe www.hmrc.gov.uk.
1rade |osses Losses made ln normal Lrade of buslness
1rade purchaser An lndusLrlal buyer of companles.
1roub|eshoot the dea| 1o look ahead and pre-empL poLenLlal problems ln deal. lf you know Lhese
lssues you are Lhen prepared Lo:
Purdle Lhem wlLh soluLlons
Co around Lhem
8rlng Lhem ouL ln Lhe open
lgnore Lhem
1h|rd arty referra|

Where a Lhlrd parLy needs Lo be referred Lo ln cerLaln declslon-maklng
processes. 1hls ls someLlmes used as a negoLlaLlng LacLlc, by glvlng Lhe
lmpresslon LhaL cerLaln declslons are beyond one parLy's conLrol.
1CGC - 1ransfer of a go|ng
concern
8elaLes Lo Lhe Lransfer of a buslness as a golng concern whereby Lhe seller
does noL charge vA1 on sLock, asseLs, goodwlll eLc and Lhe purchaser does
noL clalm lnpuL Lax.
1UL - 1ransfer of
Undertak|ngs (rotect|on of
Lmp|oyment) kegu|at|ons 1981
8egulaLlons governlng Lhe rlghL of employees Lo have conLlnuous
employmenL and have Lhelr Lerms of employmenL honoured and malnLalned
when buslness acLlvlLles are Lransferred from one parLy Lo anoLher. 1hls ls
appllcable Lo whole buslnesses or dlvlslons of buslnesses.

Cne mlsconcepLlon of purchasers parLlcularly ln an asseL sale ls LhaL Lhey can
leave behlnd unwanLed employees. Powever, all employees are covered by
1uL and as a resulL Lhe buslness ls Lransferred as a golng concern and
classlfled as an 'underLaklng' Lhey wlll auLomaLlcally become employed by
Lhe purchaser.

ln addlLlon Lhe accrued rlghLs and clalms and Lerms and condlLlons wlll pass
Lo Lhe purchaser. As many acqulslLlons lead Lo raLlonallsaLlon of workforce lL
ls essenLlal LhaL Lhe purchaser quanLlfles Lhe LoLal conLlngenL llablllLy prlor Lo
Lhe LransacLlon and lL ls made clear LhaL Lhls ls hls/her responslblllLy. 1he
purchaser should lnslsL on warranLles and lndemnlLles wlLh respecL Lo
employee clalms and aLLachlng conLlngenL llablllLles.

G|ossary



US unlque selllng polnL. SomeLhlng relaLlng Lo Lhe producL or servlce whlch a
buslness provldes LhaL dlfferenLlaLes lL from Lhe compeLlLlon.
Va|uat|on 1hls ls Lhe calculaLed esLlmaLed value of a buslness. 1o value a buslness lL ls
necessary Lo undersLand lLs sLrucLure. 1he Lype of buslness, Lhe way ln whlch
lL ls runs and Lrades effecLs Lhe maLhemaLlcal calculaLlons LhaL are used ln
assesslng lLs value.

1here are four elemenLs LhaL should be consldered when deLermlnlng a
value: properLy, oLher flxed asseLs, neL currenL asseLs and goodwlll. 1wo
examples of properLy are freehold and leasehold, ln very broad Lerms Lhe
flrsL has a value Lhe second usually does noL. CLher flxed asseLs lnclude such
lLems as flxLures and flLLlngs, planL, equlpmenL and vehlcles LhaL should be
valued on a second hand resale basls. neL currenL asseLs lncludlng lLems
such as sLock, cash, debLor/credlLor balance eLc. have a value aL cosL Lo Lhe
buslness wlLh old or redundanL sLock belng dlscounLed or wrlLLen off.
Coodwlll ls Lhe lnLanglble elemenL LhaL has a value reflecLlng hlsLorlcal
Lradlng paLLerns, fuLure poLenLlal and Lhe buslnesses flnanclal resulLs. 1o
ascerLaln Lhe value of goodwlll a mulLlpller ls ofLen used on boLh Lhe vlslble
and lnvlslble proflLs of Lhe buslness.

1he worLh of a buslness ls a comblned value of Lhe above. 8uL before Lhe
four elemenLs are slmply added up a conslderaLlon has Lo be made beLween
Lhe LoLal lnvesLmenL level and proflLs achleved. lf one of Lhe flrsL Lhree
elemenLs LhaL make up Lhe prlce ls unusually hlgh, lL may have a deLrlmenLal
effecL Lhe goodwlll elemenL. 1hls ls deLermlned by uslng a lower mulLlpller
when calculaLlng Lhe goodwlll. Cnce all facLors have been consldered Lhe
buslness Lhen has a calculaLed value.
Va|uat|ons and IkSSL (I|nanc|a|
keport|ng for Sma||er Lnt|t|es)
8ecenL revlslons ln Lhe reporLlng sLandards for llmlLed companles, whlch
comprlse small buslnesses, lnclude some new rules, especlally ln Lhe area of
goodwlll. 1hey requlre purchased goodwlll and lnLanglble asseLs Lo be
depreclaLed over Lhelr useful economlc llfe and ln any case over a perlod noL
exceedlng 20 years. ln cerLaln slLuaLlons, where Lhe value of flxed asseLs or
caplLallsed goodwlll ls lmpalred, (for example as a resulL of obsolescence or a
fall ln demand for a producL) Lhe lmpalrmenL musL recognlse lmmedlaLely ln
Lhe flnanclal sLaLemenLs.

1he effecL of l8SSL on valuaLlons ls LhaL lL down values buslnesses llkely Lo
appeal Lo LC's and arguably alLhough normally lncreases Lhe value Lo
prlvaLe lndlvlduals ownlng over Lhe long Lerm. l8SSL appears Lo work
alongslde Lhe 1aper rellef concepL. ?ou depreclaLe your goodwlll over 20
years. ?our Lax rellef appreclaLes when selllng over 10 years..??
VA1 value Added 1ax. A LransacLlon Lax payable when a Laxable person makes a
Laxable supply of goods or servlces ln Lhe course of buslness. 1here are a
number of raLes.
Venture Cap|ta||st or VC A person or a flrm lnvesLlng funds ln a hlgher Lhan usual rlsk buslness
venLure expecLlng hlgh flnanclal reLurns.
Warrant|es (Warrant|es and
Indemn|t|es)
A warranLy ls an underLaklng or guaranLee offered agalnsL a poLenLlal evenL.
lL may be sub[ecL Lo resLrlcLlons on Lhe mlnlmum or maxlmum amounL
referred Lo ln Lhe sale and purchase agreemenL. An lndemnlLy ls an

G|ossary



underLaklng Lo pay or relmburse ln full wlLhouL declaraLlon agalnsL a
parLlcular evenL occurrlng. lL ls noL sub[ecL Lo any mlnlmum or maxlmum
amounL. CfLen money wlll be held ln an accounL [see escrow] agalnsL a
flnanclal clalm belng made agalnsL a warranLy.
W|thdrawa| a) Cf a Lerm or condlLlon havlng been agreed ln prlnclple or b) from
negoLlaLlons. undersLand why - real or LacLlc? Check Lo see llnked 1&C ?Cu
AC8LLu. CreaLe new opLlons.
Work|ng cap|ta| 8eadlly accesslble caplLal avallable for Lhe day-Lo-day runnlng of a buslness.
ln accounLlng reporLs Lhls ls calculaLed as Lhe currenL asseLs mlnus currenL
llablllLles.
e||ow 8ook AnoLher name for Lhe 'Admlsslon of SecurlLles Lo LlsLlng'. A book lssued by
Lhe Councll of Lhe London SLock Lxchange LhaL seLs ouL Lhe regulaLlons for
admlsslon Lo Lhe Cfflclal LlsL and Lhe obllgaLlons of companles wlLh llsLed
securlLles.

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