Glossary

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Showing 72 of 72 terms

3R

Root, Resolve, Record. The AdelphoiOS method for solving a problem: find the root cause, decide the fix and its owner, write it down.

add-back

An expense on the books that a new owner would not have (the owner's truck, a one-time lawsuit). It is added back to profit to show true earning power. A buyer only accepts add-backs that are documented.

AdelphoiOS

The Adelphoi Labs operating system: the weekly and quarterly disciplines a business runs on, from direction and roles to scorecards, problem solving and transferability.

Adjusted EBITDA

EBITDA after removing one-time items and after charging a market-rate salary for someone to do the owner's job. It answers: what does this business earn with a paid manager in the owner's chair?

AP

Accounts Payable. Money you owe vendors and subcontractors.

AR

Accounts Receivable. Money customers and carriers owe you for work already billed.

asset sale

The buyer purchases the business's assets (equipment, contracts, goodwill) but not the legal entity. Liabilities mostly stay with the seller. Taxed differently from a stock sale.

BD

Business Development. The ongoing work of building referral relationships that bring in jobs.

bridge

A one-page reconciliation that starts with profit on your books and walks, line by line, to the income on your tax return. It shows a buyer the two are consistent even though they differ.

buy-sell agreement

A contract among co-owners that says what happens to an owner's share on death, disability, divorce or departure, and at what price.

CIM

Confidential Information Memorandum. The detailed document describing the business that qualified buyers receive after signing a confidentiality agreement.

concentration

How much of your revenue comes from one customer, carrier, program or referral source. High concentration is a risk a buyer prices in.

contingency letter

A short signed document telling your family and key people what to do if you are suddenly unable to run the business: who decides, who to call, where the documents are.

CPA

Certified Public Accountant. For exit work you want one who has been through business sales, not only tax preparation.

CRM

Customer Relationship Management system. The shared database of contacts, referral sources and sales activity, as opposed to names kept in one person's phone.

data room

The organized, secure folder of documents a buyer reviews in due diligence. In this program your Readiness File is your data room, built ahead of time.

due diligence

The buyer's investigation after an offer is accepted: financial, legal, operational. Whatever cannot be proven here lowers the price or ends the deal.

earn-out

Part of the price that is paid later only if the business hits agreed targets after the sale. It shifts risk from the buyer to the seller.

EBITDA

Earnings Before Interest, Taxes, Depreciation and Amortization. Operating profit before financing and accounting charges. The usual yardstick for larger businesses and investor buyers.

Eight Proofs

The program's standard for exit readiness: Books, Margin, Team, Month, Relationships, Paper, Pipeline and Plan. Each is scored on what can be shown, not what is believed.

escrow

Money held by a neutral party at closing and released later, once conditions are met (for example, final fees on unfinished jobs). It delays cash; it is not necessarily a cost.

FDD

Franchise Disclosure Document. The legal document a franchisor must give buyers each year, covering fees, obligations and, in Item 19, financial performance.

Five D's

The five involuntary events that force an exit: Death, Disability, Divorce, Disagreement, Distress.

Focus Constraint

The single proof that most limits the value or transferability of the business right now. Improvement effort goes there first.

GM

General Manager. The person who runs daily operations in place of the owner.

gross margin

Revenue minus the direct cost of doing the work, as a percentage of revenue. The first number a buyer re-calculates for themselves.

IICRC

Institute of Inspection, Cleaning and Restoration Certification. The body that issues the industry's standard technician certifications.

Item 19

The section of the FDD where a franchisor may publish financial performance figures, including what resold franchises have sold for.

job costing

Tracking every dollar of labor, material, subcontractor and equipment cost to the specific job that caused it, so you know the margin on each job.

KPI

Key Performance Indicator. A number that answers a specific question about the business. A KPI is a question with a number attached.

LOI

Letter of Intent. A buyer's written, mostly non-binding offer setting out price, structure and key terms before due diligence.

M&A

Mergers and Acquisitions. The buying and selling of businesses.

Margin Guardrail

An AdelphoiOS early-warning check comparing estimated margin, current forecast margin and final margin on each job, so a slipping job is caught while it can still be fixed.

month away

The owner's documented absence from the business for a full month with results holding steady. The most direct proof that the business does not depend on the owner.

monthly close

Finishing the books for a month: every account reconciled, WIP adjusted, statements issued. Closing by the 10th means last month's results are final ten days into the new month.

multiple

The number a buyer multiplies your cash flow by to arrive at a price. A 3.0 multiple on $400,000 of cash flow is a $1,200,000 price. Lower risk and stronger proof earn a higher multiple.

NDA

Non-Disclosure Agreement. A contract in which a prospective buyer agrees to keep your information, and the fact you are selling, confidential.

net proceeds

What the seller actually keeps from the sale price after fees, costs, debt and taxes.

normalized

Financial results adjusted to show what a typical year under a new owner would look like: one-time items removed, owner perks added back.

owner's number

The after-tax amount you need from the business to fund what comes next, worked out with a personal financial planner.

P&L

Profit and Loss statement. Revenue minus expenses for a period; also called the income statement.

PDRI

Paul Davis Restoration, Inc., the franchisor. PDRI must approve any buyer and any transfer.

Pinnacle

The fourth stage of the program: the business meets the full standard and could go to market on short notice. It is a status that is re-earned each quarter.

proven cash flow

The earnings a buyer's accountant can verify from your records. It is the number that gets multiplied to set price. Earnings you believe in but cannot document are not in it.

QoE

Quality of Earnings. A buyer-commissioned accounting review that tests whether reported earnings are real and repeatable.

qualifier

The licensed individual whose credentials allow the company to hold its contractor license. If the qualifier is the owner, the license leaves with the owner unless a successor is in place.

quality of earnings

A buyer-commissioned accounting review that tests whether reported earnings are real and repeatable. Often shortened to QoE.

Quarterly Targets

The three to five results a team commits to for the quarter, each with one owner.

Readiness File

Your standing collection of the documents that prove each of the Eight Proofs, kept current so it could be opened to a buyer, lender or successor on short notice.

resale fee

A fee the franchisor charges when a franchise is sold to a new owner, usually a percentage of the price with a minimum.

right of first refusal

The franchisor's contractual right to buy the business on the same terms a third party has offered, before the sale can go through.

RMS

The Paul Davis job-management system used to run estimates, jobs and job costs. Jobs cannot be split between owners in RMS, which matters at closing.

Role Map

The AdelphoiOS chart of roles, what each is responsible for, the outcomes expected, and which decisions each role can make without asking.

SBA

U.S. Small Business Administration. Most individual buyers finance an acquisition with an SBA-guaranteed bank loan, and the lender will review your tax returns.

Scorecard

A short list of weekly numbers, each with one owner and a goal, that tells the leadership team whether the business is on track.

SDE

Seller's Discretionary Earnings. The total cash benefit one working owner takes from the business in a year: profit plus the owner's pay and perks plus interest, depreciation and one-time items. The usual yardstick for businesses sold to an owner-operator.

seller financing

The seller accepts part of the price as a note paid over time by the buyer. Common in small deals; it makes the seller a lender to the buyer.

SOP

Standard Operating Procedure. Step-by-step written instructions for doing a task correctly, so someone other than the usual person can do it.

SOPs

Standard Operating Procedures. Step-by-step written instructions for doing tasks correctly, so someone other than the usual person can do them.

stay bonus

A bonus paid to key employees for remaining through and after a sale, usually funded by the buyer and paid over time.

stock sale

The buyer purchases the ownership of the legal entity itself, with its history, contracts and liabilities. Often simpler to transfer; taxed differently from an asset sale.

Strategic Vision Plan

The AdelphoiOS document that sets company direction: purpose, niche, values, long-range goal, three-year outlook and annual plan.

supplements

Additional charges approved by the carrier after the original estimate, for work or costs not captured at first.

Theory of Constraints

Eliyahu Goldratt's management theory: every system has one constraint that limits its output at any time, and improving anything else changes nothing until that constraint is addressed.

TPA

Third-Party Administrator. A company that manages claims and assigns restoration work on behalf of insurance carriers. Program work through TPAs can be a large share of revenue.

trailing twelve months

The most recent twelve months of results, regardless of calendar year. Often shortened to TTM.

Training Tracker

A grid of people against SOPs showing who has been trained on what, and when.

transfer fee

A fixed fee the franchisor charges to process a change of ownership. Amounts depend on the franchise agreement in force.

value gap

The difference between what the business would net you today and the amount you need for the life you want after it.

Weekly Sync

The AdelphoiOS standing weekly leadership meeting: numbers, targets, commitments and problem solving on a fixed agenda.

WIP

Work in Progress. Jobs started but not finished or fully billed. It affects both the true profit of a period and how much money is still owed at closing.

working capital

The cash, receivables and payables needed to run the business day to day. Deals specify how much stays with the business at closing.