Glossary of Terms on The Grid

A financial modeling method that toggles deal terms, market returns, and spending to show whether an exit funds the owner's goals.

Stock appreciation rights (SARs) give the right holder a bonus based on the company's stock price increase. Essentially, it's a way to benefit from a rising stock price without directly buying the stock.

Multi-stakeholder cooperatives (MSCs) are co-ops that formally allow for governance by representatives of two or more “stakeholder” groups within the same organization, including consumers, producers, workers, volunteers or general community supporters

The Debt-Service Coverage Ratio (DSCR) assesses a company's ability to pay its debt using cash flow. It's calculated by dividing net operating income by total debt service, including principal and interest. This ratio shows if a company earns enough to cover its debt obligation.

FMV is the price a business would sell for on the open market with the following assumptions: Buyer and seller (1) are reasonably knowledgeable about the business (2) are behaving in their own best interests (3) free of undue pressure (4) given a reasonable period for completion

Loans made by nonbank lenders, mostly closed-end funds, to private companies. Some employee ownership funds use private credit to lend mezzanine debt in ESOP transactions, replacing much of the seller note.

A private-equity approach that buys multiple businesses in one industry, combines them, and aims for a larger exit, often over about five years.

The Exit Planning Institute's process for growing transferable business value while aligning personal and financial goals before an exit.

The Price-to-Earnings (P/E) ratio is a fundamental metric used to assess a company's stock valuation by comparing its current share price to its earnings per share (EPS). The P/E ratio helps determine if a stock is overvalued or undervalued relative to its earnings.

Net present value (NPV) is the difference between the present value of cash inflows and the present value of cash outflows over a period of time. NPV is used in capital budgeting and investment planning to analyze the profitability of a projected investment or project.

In 2015, UN Member States translated their vision of sustainable development into a blueprint: the 2030 Agenda for Sustainable Development. Its 17 Sustainable Development Goals -- with ambitious targets to achieve by 2030— cover the three dimensions of sustainable development

The difference between an owner's current personal financial resources and the amount needed to fund post-exit lifestyle goals.

A SHARE is a financial instrument designed for startups seeking capital without traditional equity or debt structures. Issued by a company to an investor in exchange for a specified purchase amount, combining elements of revenue-sharing and equity ownership.

An ISO gives an employee the right to buy shares of company stock at a discounted price. Generally, ISOs are awarded only to top management and highly-valued employees. ISOs are also called statutory or qualified stock options.

The interest coverage ratio (ICR) assesses a company's capacity to manage its debt obligations, crucial for evaluating its financial stability. It's calculated by dividing EBIT (earnings before interest and taxes) by total interest expense.

Purchase price allocation is the process of dividing the total purchase price of a business among its individual assets for tax purposes.

A DPO, also known as a direct listing, allows companies to raise capital by selling securities directly to the public without involving traditional intermediaries like investment banks. This method appeals particularly to small companies and those with established customer bases

Ownership moves to family members by sale or gift as part of succession planning.

Existing managers buy the company. Ownership stays with a small leadership group.

The Worker Ownership, Readiness, and Knowledge (WORK) Act, part of the SECURE 2.0 Act of 2022, aims to promote and support worker-owned businesses in the U.S.

Section 1042 lets an owner of a closely held C corporation defer, and potentially avoid, capital gains tax on stock sold to an ESOP or an eligible worker-owned cooperative, if the buyer then owns 30% or more and the proceeds are reinvested in qualified replacement property (QRP).

Court cases which pertain to EO companies, such as that brought by EBSA within the DOL against ESOP companies.

An earnout is a form of deferred payment to the seller that is contingent on certain events occurring post-closing. An earnout can be tied to revenue, EBITDA, or a non-financial metric such as retention of key employees or the issuance of a patent.

Rollover Equity refers to the exit proceeds reinvested by a seller into the equity of the newly formed entity post-acquisition. An equity rollover is therefore designed to align the economic incentives among participants in the post-transaction entity.

The Ownership Impact Index(R) is a targeted workforce diagnostic that does more than just assess ownership culture or mindsets - it zeroes in on actions leaders can take to transform the operational and managerial practices to ignite them.

SBA’s primary business loan program, provides loan guaranties to lenders that allow them to provide financial help for small businesses. The maximum loan amount is $5MM. Key eligibility factors are based on the business's good or service, credit history, and location.

“Silver tsunami” refers to the large cohort of Americans entering their retirement years as the baby boom generation, born 1946 to 1964, continues to age. The term is used to highlight the economic opportunities created by an aging population and the challenges it may pose

A mini IPO, also known as Regulation A+, is a streamlined version of a traditional IPO designed for early-stage companies. This process allows companies to raise capital by offering publicly traded shares with fewer regulatory requirements compared to standard IPOs.

When preparing to meet with a banker for a loan, it's crucial to anticipate and answer questions that demonstrate your business's creditworthiness using the Five C’s of Credit: Character, Capital, Capacity, Collateral, and Conditions.

Enterprise value (EV) represents a company's total worth, going beyond market capitalization to include debt, cash, and equivalents. It's essential for mergers, acquisitions, and investment analysis, offering a holistic view of a company's value.