Glossary of Health and Beauty Business Sale Terms
Plain English definitions of the terms you will encounter when selling or buying a health and beauty business.
A
- Add-back
- An add-back is a cost that appears in the business accounts but is adjusted out of the net profit figure when calculating the Seller's Discretionary Earnings. Add-backs are used to show the true maintainable earnings of the business, adjusted for personal expenses and one-off costs that would not be incurred by a new owner. Common add-backs include the owner's salary above market rate, personal vehicle and phone costs, personal subscriptions, and genuinely non-recurring one-off costs such as an exceptional legal bill. Every add-back must be clearly evidenced in the business records and defensible under scrutiny from a buyer's accountant.
- Asset sale
- An asset sale is a transaction in which the buyer purchases the assets of the business rather than the shares of the company that owns it. In most small health and beauty business sales, the transaction is structured as an asset sale, with the buyer acquiring the goodwill, fixtures and fittings, equipment, and the benefit of the lease, rather than acquiring the limited company itself. An asset sale typically means the buyer is not acquiring the company's historical liabilities. The tax implications of an asset sale versus a share sale are different for both buyer and seller and should be discussed with a specialist accountant before the sale structure is agreed.
B
- Break clause
- A break clause is a provision in a commercial lease that allows one or both parties to end the lease before the fixed term expires, on giving a specified period of notice. A landlord break clause gives the landlord the ability to end the tenancy early, which is a significant risk for a buyer who has paid for the goodwill of a business tied to a specific premises. A tenant break clause gives the occupying business the ability to exit the lease early, which is generally viewed as a flexible and favourable term. Buyers assess break clauses carefully when evaluating the security of the leasehold position.
D
- Deferred consideration
- Deferred consideration is a portion of the purchase price that is not paid at completion but is instead paid at a later date, typically linked to the future performance of the business. It is used when there is uncertainty about the sustainability of the business's earnings after the current owner leaves. The seller receives an initial payment on completion and further payments if the business meets agreed revenue or profit targets over a defined period after the sale. Deferred consideration protects the buyer against the risk that performance declines post-sale and allows a transaction to proceed where the seller's valuation expectations exceed what the buyer is willing to pay upfront on the basis of current evidence.
- Dilapidations
- Dilapidations refers to the landlord's claim against the tenant for failure to maintain the commercial premises in the condition required by the lease throughout the tenancy. In a full repairing and insuring commercial lease, the tenant is responsible for keeping the entire premises in good repair. At the end of the lease or when seeking to assign it, the landlord may instruct a surveyor to assess the condition of the premises and prepare a schedule of the works required to bring it back to the required standard. The estimated cost of this work is the dilapidations liability. In salon sales, dilapidations exposure is a common source of late-stage surprises and can materially affect the net proceeds received by the seller.
- Due diligence
- Due diligence is the process by which a buyer and their advisers verify that the business is as described before completing the purchase. Financial due diligence covers the accounts, management figures, bank statements, VAT returns, and payroll records. Legal due diligence covers the lease, contracts, any disputes, and intellectual property. Operational due diligence covers the booking system, staffing structure, supplier relationships, and regulatory compliance. The quality and organisation of the seller's documentation directly affects the speed, cost, and outcome of the due diligence process.
E
- Earn-out
- An earn-out is a deal structure in which part of the purchase price is paid after completion, calculated by reference to the future financial performance of the business. It is typically used where the buyer and seller disagree on the value of the business because of uncertainty about future performance, particularly where the business is highly dependent on the current owner. An earn-out allows the transaction to proceed with a lower upfront payment, with the seller able to earn additional consideration if the business performs as they have projected. Earn-outs require careful legal documentation specifying the calculation method, the measurement period, and any adjustments that can be made.
- EBITDA
- EBITDA stands for Earnings Before Interest, Tax, Depreciation, and Amortisation. It is a measure of a business's underlying operational profitability, stripping out financing costs and non-cash accounting charges. EBITDA is the standard valuation basis for larger businesses and those with management structures in place, where the owner is an investor or director rather than a working operator. For smaller owner-operated businesses including most salons and beauty businesses, SDE (Seller's Discretionary Earnings) is the more appropriate measure because it includes the owner's compensation. Using EBITDA for an owner-operated salon significantly understates the total benefit to the working buyer.
G
- Goodwill
- Goodwill is the value attributed to the intangible assets of the business: the client base, the reputation, the trading name, the established relationships, and the ongoing earning power of the business beyond its physical assets. In a salon or beauty business sale, the majority of the purchase price typically represents goodwill rather than the value of physical assets such as equipment and fit-out. The transferability of goodwill is a central question in any health and beauty business sale. Goodwill that is attached to the individual owner rather than to the business brand or team is less transferable and is therefore worth less to a buyer.
H
- Heads of Terms
- Heads of Terms is a document that sets out the key agreed terms of a business sale transaction before the formal legal documentation is drafted. It typically covers the agreed price, what assets are included in the sale, the proposed completion date, any conditions that must be satisfied before completion, and the exclusivity period during which the seller agrees not to market to other buyers. Heads of Terms are generally not legally binding, except for specific provisions such as confidentiality and exclusivity. They provide a framework for the legal process and significantly reduce the risk of a dispute on key terms arising during the drafting of the formal purchase agreement.
L
- Landlord and Tenant Act 1954
- The Landlord and Tenant Act 1954 provides statutory security of tenure for commercial tenants in England and Wales. A business tenant who is in occupation at the end of a fixed-term lease has the right to request a new lease on reasonable terms. The landlord can only oppose renewal on specific statutory grounds, such as an intention to redevelop the premises or to occupy it for their own business. Security of tenure does not guarantee the terms of a new lease, which are negotiated or determined by the court. In a salon sale context, security of tenure provides some comfort where a lease is short, but it is not a substitute for a lease with a substantial remaining term and clear renewal provisions.
- Licence to Assign
- A Licence to Assign is the formal document executed by a landlord granting consent for a tenant to assign their lease to a new occupier. Where a commercial lease requires landlord consent for assignment, the Licence to Assign is the legal instrument through which that consent is given. It is typically prepared by the landlord's solicitors, reviewed by the outgoing tenant's solicitors, and executed by both the landlord and the outgoing tenant before the assignment completes. The time taken to obtain a Licence to Assign is one of the most common causes of delay in small business sale transactions.
M
- Maintainable Earnings
- Maintainable earnings is the adjusted profit figure that represents what a business would earn in a normal year under normal ownership. It is arrived at by taking the net profit from the accounts and adjusting for add-backs (personal and non-recurring costs) and any non-recurring income. It is the basis on which the valuation multiple is applied in a business sale. The term is used interchangeably with Seller's Discretionary Earnings for owner-operated businesses and with Normalised EBITDA for larger businesses with management in place.
S
- SDE, Seller's Discretionary Earnings
- Seller's Discretionary Earnings is the total financial benefit a working owner derives from a business in a year. It is calculated by taking the net profit from the accounts and adding back the owner's total compensation (salary, dividends, pension contributions), depreciation and amortisation, legitimate personal expenses run through the business, and genuine one-off non-recurring costs. SDE is the standard valuation basis for owner-operated small businesses because it reflects the total benefit to the working buyer rather than just the net profit on the accounts. A multiple of SDE is applied to arrive at the business valuation, with the multiple determined by factors including owner dependency, lease security, staff stability, and financial clarity.
T
- TUPE, Transfer of Undertakings (Protection of Employment) Regulations
- TUPE refers to the Transfer of Undertakings (Protection of Employment) Regulations 2006, which protect the employment rights of employees when a business changes ownership. Under TUPE, employees of a business being sold transfer automatically to the new owner on their existing terms and conditions of employment, including pay, hours, holiday entitlement, and length of service. The new owner cannot immediately change these terms without following a consultation process. Sellers are required to inform and in some cases consult with employees before completion. Self-employed contractors and chair renters are not covered by TUPE. TUPE applies to employed staff in health and beauty business sales and is a standard part of the legal due diligence process.
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