Glossary: Business succession explained simply

A company's profit after removing one-off effects, private expenses and a reasonable owner's salary.

In an asset deal, the successor buys individual assets such as machinery, the customer base and contracts, not the legal entity itself.

State-backed promotional institutions in each German federal state that guarantee bank loans when collateral is missing.

A detailed description of the company for serious potential buyers, including the business model, figures, team and expected price.

The contract that governs the takeover: what is being sold, the price and payment terms, warranties, the closing date and transition rules.

The careful review of a company before a purchase: figures, contracts, taxes, staff, equipment and risks.

Part of the purchase price depends on how the company performs after the handover.

A common method for valuing small and medium-sized companies.

Earnings before interest, taxes, depreciation and amortisation.

The international term for founding through acquisition.

The part of the purchase price that successors bring in from their own funds.

A promotional loan from KfW (Germany's state development bank) for small businesses that explicitly also finances takeovers.

The company goes to a person outside the family and the existing workforce, for example through a management buy-in.

The company is handed over to children or other family members.

Founding through acquisition means buying an existing company and developing it further as its owner, instead of building a new one from scratch.

Responsibility passes from the current owner to the successor step by step.

An assumed salary for the work of the owner, which does not appear in the costs of sole proprietorships and partnerships.

A document in which the buyer and seller set out the key points of a planned takeover, such as the price range, timeline and exclusivity.

An outside person buys into a company and takes over its management at the same time.

Managers already working in the company buy it from its current owner.

A form of financing between equity and debt, for example a silent partnership or a subordinated loan.

State-backed promotional institutions in each German federal state that provide investment capital to small and medium-sized companies, usually as a silent partnership.

The value of a company is calculated as a multiple of a key figure, for example profit or revenue.

A contract in which interested buyers agree to keep information received about a company confidential and use it only to assess the takeover.

The path from the company's value to the price actually agreed.

A model in which investors fund one or two people to search for, buy and then run a company themselves.

An agreement under which the previous owner keeps working or advising for a limited time after the handover.

The previous owner defers part of the purchase price, and the successor pays it back in instalments from the company's earnings.

In a share deal, the buyer purchases the shares in the legal entity, for example a GmbH (the German equivalent of a limited liability company).

Signing is the signature under the purchase agreement, closing is the point when the company actually changes hands and the purchase price is paid.

A platform where companies looking for a successor and interested buyers list their offers and requests.

Preparing a handover in good time: clarifying goals, making the company ready to hand over, finding a successor, and checking valuation and taxes.

A short, anonymised profile of a company for sale, showing industry, region, size and the reason for the handover.

In an asset deal, employment relationships transfer to the new owner with all rights and obligations under Section 613a of the German Civil Code (BGB).

Assurances by the seller about the state of the company, for example regarding accounts, contracts, taxes or legal disputes.

Current assets minus short-term liabilities, mainly inventory and receivables minus payables to suppliers.