Glossary

Freehold

On a freehold you purchase the business, goodwill, fixtures and fittings and the building.

Leasehold

On a leasehold you purchase the business and the lease – you rent the building / premises from the landlord.

Licence to Assign

Most leases provide that the tenant can assign the lease to a buyer providing they obtain the landlord's consent. The Licence to Assign is the document in which the landlord consents to the lease being assigned from the seller (the assignor) to the buyer (the assignee).

Goodwill

Goodwill is an intangible asset of the business which represents the good name and reputation of the business. When a business is set up its goodwill is valued at £0. As the business progresses and establishes a name for itself, the goodwill increases in value. As a general rule of thumb, goodwill is valued at the equivalent of one to three times gross profit of a business, but different multipliers are used for different kinds of businesses.

Exchange of Contracts

A deposit is paid and there is a legal commitment and a completion date is set. At this stage vendors allow purchase to come to the business meet customers, suppliers, etc.

Completion Date

This is the date when the buyer takes over the running of the business and the seller receives the money. In law the ownership of the business passes on the Completion Date.

SAV = Stock at Valuation

Most businesses sell a product and when you buy a business this stock is not usually included in the asking price. When you buy the business you may need the stock to carry on trading while you introduce your own lines. So the value (cost price) of the stock is calculated and paid for when you take over the business.

FRI Lease = Full Repairing and Insuring Lease

An FRI lease requires the tenant to pay all running costs, e.g. maintenance, rates and insurance.

CTN = Confectioner, Tobacconist and Newsagent

SDLT = Stamp Duty Land Tax

EBITDA = Earnings Before Interest, Taxes, Depreciation and Amortisation