From incorporation to exit, financial terms explained in plain language
Running a business means running into terminology. Some of it is foundational. Some of it only matters at a specific stage. Some of it will cost you real money if you misread it.
This glossary covers the full business lifecycle, from basic bookkeeping to exit planning and everything in between. Every definition is written for incorporated Canadian business owners, not accountants.
A
What is Accounting?
Accounting transforms raw financial records into the information that runs…
What are Accounting Standards for Private Enterprises (ASPE)?
ASPE is the CRA-recognized accounting framework that governs how private…
What is Accounts Payable?
Accounts payable is the total a business currently owes to…
What is Accounts Receivable?
Accounts receivable is the total customers owe for work already…
What is the difference between Cash and Accrual Accounting?
Cash accounting records transactions when money changes hands; accrual accounting…
What is a Chart of Accounts?
A chart of accounts is the structured classification system that…
What are Financial Statements?
Accounts receivable financing is a funding arrangement where a business…
What is Active Business Income?
Active business income is the profit a corporation earns from…
What is Adjusted Cost Base (ACB)?
Adjusted cost base is the CRA’s measure of what was…
What is an Arm’s Length Transaction?
An arm’s length transaction is a deal between unrelated parties…
B
What is Business Valuation?
Business valuation is the process of determining what a business…
What is Business Attractiveness?
Business attractiveness is how compelling a business looks to a…
What is a Buy-Sell Agreement?
A buy-sell agreement is a legally binding contract between co-owners…
What is Business Succession Planning?
Business succession planning is the process of identifying who will…
What is Business Readiness?
Business readiness is the degree to which a company can…
What is Burn Rate?
Burn rate is the pace at which a business consumes…
What is Budgeting and Forecasting?
Budgeting sets the financial plan for the year ahead; forecasting…
What is Break-Even Analysis?
Break-even analysis identifies the exact level of revenue at which…
What is Board and Investor Reporting?
Board and investor reporting is the structured financial and operational…
What is a Business Credit Score?
A business credit score is a numerical rating of a…
C
What is a Confidentiality Agreement (NDA)?
A confidentiality agreement, also called a non-disclosure agreement or NDA,…
What is the Difference Between Closing and Post-Closing Adjustments?
Closing adjustments finalize the purchase price at completion based on…
What is Closing and Completion?
Closing is the moment a transaction legally completes, when funds…
What are Clean Financials?
Clean financials are financial statements that are accurate, consistently prepared,…
What is Customer Retention?
Customer retention is the rate at which a business keeps…
What is Customer Concentration Risk?
Customer concentration risk is when too much revenue depends on…
What is Customer Capital?
Customer capital is one of the four intangible capitals in…
What is Competitive Differentiation?
Competitive differentiation is what makes a business the only logical…
What is Corporate-Owned Life Insurance?
Corporate-owned life insurance is a policy held and paid for…
What is a CEPA (Certified Exit Planning Advisor)?
A CEPA is a professional designation awarded by the Exit…
D
What is due diligence?
Due diligence is the formal investigation a buyer conducts into…
What are Drag-Along and Tag-Along rights?
Drag-along rights allow a majority shareholder to compel minority shareholders…
What is a Deadlock Clause?
A deadlock clause is a provision in a shareholders agreement…
What is Deal Structure?
Deal structure is the combination of price, payment terms, form…
What is a Data Room?
A data room is the secure, organized repository of documents…
What is De-Risking?
De-risking is the deliberate reduction of the factors that make…
What is a Demand Loan?
A demand loan is a loan that the lender can…
What is the Debt-to-Equity Ratio?
The debt-to-equity ratio compares what a business owes to what…
What is the Debt Service Coverage Ratio (DSCR)?
The debt service coverage ratio measures whether a business generates…
What are Debt Covenants?
Debt covenants are the contractual conditions attached to a loan…
E
What is an Exclusivity Clause?
An exclusivity clause is a provision in a letter of…
What is Equity Rollover?
An equity rollover is an arrangement where the selling owner…
What is an Earnout?
An earnout is a deal structure where a portion of…
What is Enterprise Value?
Enterprise value is the total value of a business as…
What is an EBITDA Multiple?
An EBITDA multiple is the number by which a buyer…
What is an Exit Timeline?
An exit timeline is the planned schedule for completing an…
What is an Exit Strategy?
An exit strategy is the specific plan for how, when,…
What is Exit Readiness?
Exit readiness is an assessment of how prepared a business…
What is Exit Planning?
Exit planning is the process of deliberately preparing a business,…
What are Exit Options?
Exit options are the range of paths available to a…
F
What is the Freedom Point?
The freedom point is the specific financial threshold at which…
What is Financial Readiness?
Financial readiness is the personal financial dimension of exit preparedness,…
What is Financial Planning and Analysis (FP&A)?
FP&A is the finance function responsible for budgeting, forecasting, performance…
What is Free Cash Flow?
Free cash flow is operating cash flow after capital expenditures,…
What is a Fractional CFO?
A fractional CFO is a senior finance executive engaged on…
What is the difference between a Forecast and a Projection?
A forecast estimates future financial results based on what is…
What is the difference between Fixed and Variable Costs?
Fixed costs remain constant regardless of how much a business…
What is a Financial Model?
A financial model is a structured, dynamic representation of a…
What is Financial Due Diligence?
Financial due diligence is the structured investigation of a business’s…
What are Financial Statements?
Financial statements are the three core reports, the income statement,…
G
What is Growth Potential?
Growth potential is a buyer’s assessment of how credibly and…
What is Goodwill?
Goodwill is the value of a business above its identifiable…
What is the difference between Gross and Net Profit?
Gross profit is revenue minus the cost of delivering a…
What is Grant Accounting?
Grant accounting is the discipline of tracking, recording, and reporting…
H
What is Human Capital?
Human capital is one of the four intangible capitals in…
What is Harvesting?
Harvesting is the phase of the Value Acceleration Methodology in…
What is HST/GST and how do Input Tax Credits work?
HST and GST are consumption taxes collected by businesses on…
What are Home Office Expenses?
Home office expenses are the portion of household costs, rent,…
What is the difference between a HoldCo and an OpCo?
An OpCo is the operating company that runs a business;…
What is Holdback?
A holdback is a portion of each progress payment withheld…
I
What is an Information Memorandum (CIM)?
An information memorandum, also called a confidential information memorandum or…
What are Indemnities?
Indemnities are contractual obligations in a purchase and sale agreement…
What is Intangible Capital (the 4Cs)?
Intangible capital is the collective term for the four non-financial…
What is an Income Replacement Strategy?
An income replacement strategy is the plan for how income,…
What are Intercompany Transactions?
Intercompany transactions are financial dealings between two or more entities…
What is the Interest Coverage Ratio?
The interest coverage ratio measures how many times operating earnings…
What are Instalment Penalties?
Instalment penalties are interest charges the CRA imposes when required…
What is Income Splitting?
Income splitting is the practice of directing corporate income to…
What is an Income Statement?
The income statement shows revenue, costs, and expenses over a…
J
What is Job Costing?
Job costing tracks every cost associated with a specific project…
K
What is Key Person Risk?
Key person risk is the degree to which a business’s…
What is Key Person Insurance?
Key person insurance is a life or disability policy owned…
What is a KPI Dashboard?
A KPI dashboard is a visual display of the most…
What is a Key Performance Indicator (KPI)?
A KPI is a specific, measurable metric that reflects how…
L
What is a Letter of Intent (LOI)?
A letter of intent is a non-binding document that outlines…
What is a Liquidity Event?
A liquidity event is any transaction that converts illiquid ownership…
What is Legacy Planning?
Legacy planning is the process of defining what a business,…
What is Leadership Succession?
Leadership succession is the planned development and appointment of the…
What is Liquidity Planning?
Liquidity planning is the forward-looking management of a business’s ability…
What is Loan-to-Value (LTV)?
Loan-to-value is the ratio of a loan amount to the…
What is the Lifetime Capital Gains Exemption (LCGE)?
The LCGE is a federal exemption that allows eligible Canadian…
M
What is Management Continuity?
Management continuity is the assurance a buyer seeks that the…
What is Management Depth?
Management depth is the strength and capability of the leadership…
What is a Management Buyout (MBO)?
A management buyout is a transaction in which the existing…
What is Multi-Entity Accounting?
Multi-entity accounting is the management of financial records across multiple…
What is a Margin Profile?
A margin profile is the full picture of profitability across…
What is Margin Expansion?
Margin expansion is the improvement in profitability as a percentage…
What are Management Accounts?
Management accounts are regular internal financial reports prepared for the…
What is Mezzanine Financing?
Mezzanine financing sits between senior debt and equity in a…
What is Month-End Close?
Month-end close is the process of finalizing all financial records…
What is the difference between Markup and Margin?
Markup is the percentage added to cost to set a…
The terms are a start. What you do with them is what matters.
The terms are easy. Knowing what they mean for your business is harder.
That is what Wefinx does. Whether you are structuring your corporation, planning for exit, managing cash flow, or figuring out what your business is actually worth, we turn the terminology into a plan.
N
What is Normalized, Adjusted, or Recast EBITDA?
Normalized EBITDA is reported EBITDA adjusted to remove owner-specific costs,…
What is Non-Solicitation and Non-Compete Clauses?
A non-compete clause prevents the seller from starting or joining…
What is a Non-Arm’s Length Transaction?
A non-arm’s length transaction is a deal between related parties,…
What are Non-Cash Expenses?
Non-cash expenses reduce reported profit on the income statement without…
O
What is the owner’s Real Number?
The owner’s real number is the specific after-tax amount needed…
What is Owner Dependence?
Owner dependence is the degree to which a business’s performance,…
What is Owner Readiness?
Owner readiness is the personal and psychological dimension of exit…
What is Outsourced Accounting?
Outsourced accounting is the delegation of some or all of…
What are Objectives and Key Results (OKRs)?
OKRs are a goal-setting framework that pairs a qualitative objective,…
What is an Operating Line of Credit?
An operating line of credit is a revolving facility that…
What is Owner Compensation Planning?
Owner compensation planning is the deliberate design of how income…
What is Owner’s Equity?
Owner’s equity is what remains on the balance sheet after…
What is the difference between Operating and Capital Expenses?
Operating expenses are recurring costs deducted in the year they…
P
What is Purchase Price Allocation?
Purchase price allocation is the process of assigning the total…
What is a Purchase and Sale Agreement (PSA)?
A purchase and sale agreement is the definitive legal contract…
What is Pre-Sale Due Diligence?
Pre-sale due diligence is the process of reviewing a business…
What is the Profit Gap?
The profit gap is the difference between what a business…
What is Post-Exit Planning?
Post-exit planning is the preparation for life after the business,…
What is Phantom Equity?
Phantom equity is a compensation arrangement that gives key employees…
What is a Personal Financial Plan?
A personal financial plan is the comprehensive blueprint for how…
What is Profitability Improvement?
Profitability improvement is the deliberate process of increasing the percentage…
What is the Personal Property Security Act (PPSA)?
The PPSA is provincial legislation that governs how security interests…
What is a Personal Guarantee?
A personal guarantee is a commitment by a business owner…
Q
What is Quality of Earnings Readiness?
Quality of earnings readiness is the state of being prepared…
What is a Quality of Earnings (QoE) Report?
A Quality of Earnings report is an independent financial analysis…
What is a Qualified Small Business Corporation (QSBC)?
A QSBC is a Canadian-Controlled Private Corporation that meets specific…
R
What are Representations and Warranties?
Representations and warranties are the seller’s formal statements in a…
What is the Difference Between the Real Number and the Tax Number?
The real number is what a business actually earns under…
What is Revenue Diversification?
Revenue diversification is the distribution of a business’s income across…
What is Recurring Revenue?
Recurring revenue is income that renews predictably, through subscriptions, retainers,…
What is a Readiness Score?
A readiness score is a structured, quantified assessment of how…
What is the Range of Value?
The range of value is the spread between the floor…
What is Risk Tolerance?
Risk tolerance in an exit planning context is the degree…
What is Retirement Planning for Business Owners?
Retirement planning for business owners is the process of building…
What is Runway?
Runway is how long a business can continue operating at…
What is a Rolling 13-Week Cash Flow Forecast?
A rolling 13-week cash flow forecast projects cash receipts and…
S
What is the Difference Between a Strategic Buyer and a Financial Buyer?
A strategic buyer acquires a business for what it adds…
What is Sell-Side Readiness?
Sell-side readiness is the state of being genuinely prepared to…
What is Systems and Process Documentation?
Systems and process documentation is the written, organized record of…
What is Structural Capital?
Structural capital is one of the four intangible capitals in…
What is Social Capital?
Social capital is one of the four intangible capitals in…
What is Scalability?
Scalability is the ability of a business to grow revenue…
What are Succession Options?
Succession options are the specific paths available for transferring ownership…
What is a Shareholders Agreement?
A shareholders agreement is a binding contract between the owners…
What is Sensitivity Analysis?
Sensitivity analysis tests how financial outcomes change when a single…
What is Scenario Planning?
Scenario planning models how a business performs under different sets…
T
What is Transferable Value?
Transferable value is the portion of enterprise value that would…
What is Transferability?
Transferability is the degree to which a business can operate,…
What is the Three Legs of the Stool?
The Three Legs of the Stool is the Exit Planning…
What is Transition Planning?
Transition planning is the operational roadmap for handing over leadership,…
What is the difference between a Term Loan and Revolving Credit?
A term loan advances a fixed amount repaid on a…
What is Tax Planning?
Tax planning is the proactive structuring of business and personal…
What is Tax on Split Income (TOSI)?
TOSI is a set of rules that applies the highest…
What is Tax Deferral?
Tax deferral is the strategy of delaying when tax becomes…
What is a T2 Corporate Tax Return?
The T2 is the annual corporate income tax return that…
What is Trust Accounting?
Trust accounting is the strict segregation and tracking of client…
U
What is Undepreciated Capital Cost (UCC)?
Undepreciated capital cost is the remaining tax value of a…
V
What is a Vendor Take-Back (VTB)?
A vendor take-back is a seller-financed loan where the selling…
What is the Value Acceleration Methodology?
The Value Acceleration Methodology is the Exit Planning Institute’s structured…
What is a Virtual Controller?
A virtual controller is a remote finance professional who oversees…
What is a Virtual CFO?
A virtual CFO is an outsourced senior finance professional who…
What is Variance Analysis?
Variance analysis is the comparison of actual financial results against…
W
What is a Working Capital Adjustment?
A working capital adjustment is the mechanism in a transaction…
What is Wealth Preservation?
Wealth preservation is the discipline of protecting assets accumulated through…
What is the Wealth Gap?
The wealth gap is the difference between what a business…
What is Working Capital Optimization?
Working capital optimization is the active management of receivables, payables,…
What is the Working Capital Ratio?
The working capital ratio, also called the current ratio, divides…
What is a Working Capital Facility?
A working capital facility is a credit arrangement specifically structured…
What is Working Capital Management?
Working capital management is the active discipline of managing the…
What is Working Capital?
Working capital is current assets minus current liabilities, the net…
What is Work in Progress (WIP)?
Work in progress is the value of work that has…
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The glossary explains the terms. We help you act on them.
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