Adjusted EBITDA is a normalized measure of profitability. It starts with EBITDA and then adjusts for owner-specific, one-time, or non-recurring expenses that may not continue after a sale.
Buyers often use adjusted EBITDA to estimate the true earning power of an agency.
Learn more: Adjusted EBITDA for agencies.
EBITDA stands for earnings before interest, taxes, depreciation, and amortization. It is used to evaluate operating performance before certain accounting, tax, and financing items.
A valuation multiple is a multiplier applied to revenue or EBITDA to estimate business value. For example, if an agency has $500,000 in adjusted EBITDA and receives a 4x multiple, the implied valuation is $2 million.
Learn more: Agency valuation multiples.
A revenue multiple is a valuation method based on total revenue rather than profit. It may be used for smaller agencies, less profitable agencies, or agencies with attractive recurring revenue.
Owner benefit refers to the total financial benefit the owner receives from the business, including salary, distributions, perks, and certain discretionary expenses.
An add-back is an expense added back to profit when calculating adjusted EBITDA. Common add-backs include one-time expenses, certain owner-related expenses, or costs that will not continue after the sale.
Enterprise value is the total value of the business before considering certain cash, debt, or working capital adjustments.
Recurring revenue is revenue that continues on an ongoing basis, such as hosting, maintenance, SEO retainers, PPC management, email marketing retainers, CRM support, or website care plans.
Buyers often value recurring revenue because it improves predictability.
Learn more: Recurring revenue and agency valuation.
Project revenue is revenue from one-time work, such as website builds, branding projects, development projects, audits, or campaigns.
Client concentration measures how much revenue comes from your largest clients. High concentration means a large percentage of revenue depends on one or a few clients.
Learn more: Client concentration and agency valuation.
Churn refers to clients or revenue lost over a period of time. High churn can reduce valuation because it makes future revenue less predictable.
Retention measures how well an agency keeps clients over time. Strong retention is usually a positive valuation factor.
Net revenue retention measures how revenue from existing clients changes over time after accounting for expansion, contraction, and churn.
Gross revenue retention measures how much existing revenue is retained before expansion or upsells.
Cash at close is the portion of the purchase price paid when the transaction closes.
An earnout is a future payment tied to post-sale performance. It may be based on revenue, EBITDA, client retention, or other agreed metrics.
Earnouts can increase potential value but also introduce risk because payment depends on future outcomes.
Seller financing means the buyer pays part of the purchase price over time after closing. This is often documented as a seller note.
A seller note is a loan from the seller to the buyer for a portion of the purchase price. It usually includes repayment terms and may include interest.
An equity rollover means the seller receives or retains equity in the acquiring company or platform as part of the transaction.
Escrow is a portion of the purchase price held by a third party for a period of time after closing to cover certain risks or obligations.
A holdback is a portion of the purchase price withheld until certain conditions are satisfied.
A working capital adjustment modifies the final purchase price based on the business’s working capital position at closing.
Learn more: Agency deal structure explained.
A letter of intent, often called an LOI, outlines the major terms of a proposed transaction. It usually includes price, structure, timeline, exclusivity, and major conditions.
LOI stands for letter of intent. It is typically signed before due diligence and final legal agreements.
Due diligence is the buyer’s process for verifying the business before closing. It may include reviewing financials, contracts, clients, team structure, systems, and risks.
Learn more: Agency due diligence guide.
A data room is a secure location where sellers organize financial, legal, client, and operational documents for buyer review.
Closing is the point when the transaction is finalized and ownership or assets transfer according to the agreement.
The transition period is the post-close phase where clients, team, systems, billing, and operations are handed off or integrated.
Learn more: What happens after you sell your agency.
Integration is the process of bringing the acquired agency’s clients, team, systems, and services into the buyer’s operating model.
A strategic buyer is a company that acquires an agency to expand services, clients, capabilities, geography, or market position.
A private equity buyer is an investment firm or platform backed by investment capital that acquires businesses with the goal of growth and future return.
A platform buyer is an operating company that acquires agencies and integrates them into a broader operating model.
An individual buyer is a person or small group acquiring an agency to operate directly, often as an owner-operator.
An operator-led buyer evaluates an agency with a focus on how the business actually runs, how clients are served, and how the company can transition operationally.
Learn more: Freshy’s approach to buying agencies.
Founder dependency refers to how much the agency relies on the founder for sales, client relationships, delivery, strategy, or operations. High founder dependency can reduce valuation or require a longer transition.
Service alignment refers to how well an agency’s services fit with the buyer’s capabilities and operating model.
A scope of work defines what services are included, what deliverables are expected, and what responsibilities exist between the agency and client.
Operational clarity means the agency has clear systems, workflows, roles, documentation, pricing, and service delivery processes.
Transition risk refers to the risk that clients, revenue, team members, or operations may be disrupted after the sale.
Client handoff is the process of introducing clients to the buyer and transitioning account ownership, communication, billing, and support.
This glossary is designed to make the agency sale process easier to understand.
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If you are considering a sale and want to understand the terminology, valuation, or process, Freshy can help you think through your options.
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EBITDA stands for earnings before interest, taxes, depreciation, and amortization. Buyers often use adjusted EBITDA to evaluate agency profitability and valuation.
An agency valuation multiple is a multiplier applied to revenue or EBITDA to estimate business value.
An LOI, or letter of intent, outlines the major terms of a proposed acquisition before final agreements are completed.
Due diligence is the buyer’s process for reviewing and verifying financials, contracts, clients, operations, team structure, and risks before closing.
An earnout is a future payment tied to post-sale performance, such as revenue, EBITDA, or client retention.