Business glossary

Accelerated depreciation
Any depreciation method that produces depreciation at a greater rate in the early years of an asset’s life.

Acceleration clause
A statement in a contract that stipulates that the entire balance is due immediately in the event that a breach of a contract occurred, such as the debtor’s failure to make payment when due.

Account
A record of all the debits and credits chronologically posted to a ledger showing how each transaction affects a particular phase of a business. Entries are usually stated in monetary figures and reflect the current balances, if any.

Accounting
The process of identifying, measuring, recording, and communicating financial information about a business or organization. Accounting information can be a helpful aid in the decision-making process.

Accounts payable
Money owed by a person or company. Accounts payable are carried in the current liabilities section of the firm’s balance sheet.

Accounts receivable
Money due from customers to a person or company, carried as “open book” accounts. Carried in the current assets section of the firm’s balance sheet.

Accrual basis accounting
An accounting system in which income and expenses are recorded when an obligation is made rather than when money is received or paid.

Accrued expenses
Expenses that have been accumulated, but have not yet been paid.

Accrued interest
Interest that has been earned but has not yet been paid.

Accrued taxes
Taxes that have been accumulated, but have not yet been paid.

ADA
Americans with Disabilities Act – civil rights law that prohibits, under certain circumstances, discrimination based on disability.

Administrative expenses
The expenses incurred in carrying out the activities listed in the management and organization section of the business plan.

Advertising
Communicating the features and benefits of your product or service through the use of radio, television, print, and other media.

Advisory board/council
A group of outside experts, typically three to six, recruited by entrepreneurs to provide regular input and suggestions to management. Many small companies use an advisory board in place of a board of directors with outsiders, so as to avoid liability and control issues.

Age discrimination
Any negative employment practices directed against an individual on the basis of age.

Aging of receivables
(1) An inventory of accounts receivable classified by the debt’s age; (2) A method of estimating bad-debt losses by aging the accounts and then assigning a probability of collection to each classification. For example, accounts aged more than six months might be assumed to be worthless, while those more than ninety days delinquent might be assumed to be worth only fifty cents on the dollar.

Allowance
(1) A reduction from a stated price; (2) A share of money allocated for a specific purpose.

Americans with Disabilities Act (ADA)
A federal law that prohibits discrimination against people with disabilities.

Amortization
(1) The process of liquidating a debt through installment payments; (2) Prorating expenditures over time in order to write them off.

Amortize
The gradual reduction of a debt by making periodic payments or recording periodic expenses against income until the total has been satisfied.

Angel investor
An affluent individual who provides capital for a business startup, usually in exchange for convertible debt or ownership equity.

Annual sales (or revenues)
Money or the promise of money, received from providing a company’s products and services as accomplished during the period of a year.

Arrears
Monies that are overdue and are unpaid at the date of maturity.

Asset
An item which has value and is owned by an individual or corporation.

Assign
To transfer a right or interest to another person.

Assignee
A person to whom an assignment is made or to whom a transfer of rights or property is given.

Assignment
The transfer of property from one person (the assignor) to another person (the assignee). Items other than property can be assigned, such as sales contracts, mortgages, leases and options.

Assignor
The person with authority to assign to another person (the assignee).

Attorney (lawyer)
A person who has the authority to act for another person in legal matters.

At-will employment
An employment policy that allows employees and employers to terminate the working relationship at any time.

Average annual growth rate
Measures the rate of change in a company’s annual sales. Research has linked business growth to higher survival rates, greater levels of market share, improved operating efficiencies, higher levels of profitability, and enhanced net worth.  

B2B (business to business)
Describes companies that sell to other companies rather than to individual consumers.

B2C (business to consumer)
Describes companies that sell to individual consumers.

Backup
To duplicate an item in the event the original is damaged or destroyed.

Backup system
Standby or alternate components in a computer processing system that can be used in case of loss or damage to the primary component.

Bad credit
The result of a company or individual being late or defaulting on bill payment.

Bad debt
Money that is past due, still owed on an account and unlikely to be collected.

Bailout clause
A clause in a contract that allows a party to be relieved of his or her obligations in the contract.

Balance sheet
An accounting statement showing the financial condition of a company at a point in time; present assets, liabilities, and net worth. Basic equation: assets = liabilities + owner’s equity (or net worth).

Barter
The exchange of one commodity for another without the exchange of money.

Barter arrangement
An agreement to exchange goods or services directly without money as a medium of exchange. A great tool for the entrepreneur.

Base pay
The rate of pay for a standard work period excluding any additional pay received from overtime, bonuses, sales commissions or other premiums.

Basis
(1) A price assigned to all property by the IRS (Internal Revenue Service) for taxing purposes. It is usually determined by taking the purchase price of an asset, plus any capital improvement made to the asset and minus the accumulated depreciation; (2) Securities also have a basis which is determined by the price an investor pays for the security plus any other incremental fees. The basis is then used to determine capital gains or losses for tax purposes when the stock is eventually sold.

Blog
Short for weblog, a blog is an online journal that is updated on a regular basis. Posts (or entries) appear in reverse chronological order. Blogs can be about any subject, are typically tagged by topic and often contain comments by other readers.

Board of advisors
A group of outside experts, typically three to six, recruited by entrepreneurs to provide regular input and suggestions to management. Many small companies use an advisory board in place of a board of directors with outsiders, so as to avoid liability issues.

Board of directors
The people elected by stockholders of a corporation who have the fiduciary responsible for overseeing the overall direction and policy of the company.

Boiler plate
Legal clauses routinely included in all contracts.

Book value of a company
The book value is determined from a company’s balance sheet by adding all current and fixed assets and then deducting all debts, other liabilities, and the liquidation price of any preferred issues.

Book value of an asset
The value of an asset (computer, milling machine, truck etc.) As reflected in the books of the company owning the item.

Bookkeeper
A person who records the accounts or transactions of a business in a general ledger.

Bootstrap financing
When a company uses the founder’s cash and internal operations to generate money to be used to fund company.

Bottom line
Refers to the amount of money an enterprise has earned in any given period after all extraordinary items, special charges and credits, and write offs are taken into account.

Bottom line profit
Refers to the amount of money an enterprise has earned in any given period after all extraordinary items, special charges, credits and write offs are taken into account.

Brand
A mark or symbol placed on an item or a group of products to differentiate them from competitors’ products. A name, term, design, symbol, or any other feature that identifies one seller’s good or service as distinct from those of other sellers. The legal term for brand is trademark. A brand may identify one item, a family of items, of all items of that seller. If used for the firm as a whole, the preferred term is trade name.

Brand management
The process of developing and shaping the public image of a product, service or enterprise.

Breach of contract
(1) The breaking of a promise made to fulfill an obligation; (2) A violation of one’s duty to carry out a contractual responsibility.

Breakeven analysis
A means of determining the quantity of units that has to be sold at a given price so that revenues will equal cost (including production costs and administrative costs). Breakeven point in units = total fixed cost / (unit price – unit variable cost)

Breakeven point
The quantity of revenues at which total revenue equals total costs incurred; the point at which the venture is meeting expenses with no profit, no loss.

Breakeven pricing
Establishing a level of pricing that will enable a company to break even.

Bridge financing
A limited amount of equity or short-term debt financing typically raised within six to eighteen months of an anticipated public offering or private placement meant to “bridge” a company to the next round of financing.

Bridge loan
Short-term, temporary financing used until permanent financing can be secured.

Business ethics
The moral obligation placed on business leaders in a community to be honest and fair in their dealings with customers, vendors and other parties.

Business license
A permit or certification that local and state governments require businesses to obtain and post. Obtaining a license may merely require the payment of a fee to do business; in other cases, the proprietor may have to pass a test that certifies he or she is competent to perform certain services. Some licenses limit the number of businesses that can provide certain goods or services.

Business model
The method by which an organization uses its resources to deliver value to customers while maximizing profits and growth for itself.

Business philosophy
The unique outlook an entrepreneur, owner, or manager takes towards the conduct of business. Business philosophy determines, for example, the extent to which customer service takes precedence over hitting profit targets, whether employees are encouraged to take initiative or not, whether innovation is encouraged or resented. Entrepreneurs can share many business practices, for example accounting and financial systems, marketing strategies and the like, and yet differ considerably in their business or management philosophy.

Business plan
A well-researched and ever changing document that provides direction and focus for both the day-to-day operations and the future growth of the business. A good business plan will include components covering management, the product and/or service, a marketing plan, financials, operations and control systems, and a growth plan and exit strategy.

Buyout agreements
(1) A means of protecting principal parties in a venture from undue financial loss should the personal and/or business relationships among the founders or investors for some reason disintegrate, often included in buy-sell agreements. Saves aggravation, legal expense, goodwill of involved parties; (2) A provision inserted into agreements between private investors and entrepreneurs that allows them to get rid of troublesome investors.  

Buy-sell agreements
Contracts between associates that set the terms and conditions by which one or more of the associates can buy out one or more of the other associates.

C corporation
One type of stand-alone business organization in which the owners are usually not subject to the liabilities of the corporation and which is a tax-paying entity (does not pass through taxable income to shareholder/owners)

Capital
A term commonly used as a synonym for funding necessary to start and operate a company.

Capital expenditure
Money spent for the purchase or expansion of plant or equipment.

Cash basis accounting
An accounting method that immediately records the receipt of cash or the expense for goods and services. This is not an accepted method of bookkeeping for publicly held companies.

Cash cow
A product or service that sells very well and has a low cost. The name implies the relative ease with which cash is obtained-like milking a cow.

Cash discount
A discount given to the buyer as an incentive to render immediate payment or payment within a specific time frame.

Cash equivalents
All short-term investments that are easily convertible into cash. Two such liquid investments include treasury bills and bankers acceptances.

Cash flow
The most important consideration of business survival. The measurement of the differences between the actual cash received by a firm and its actual cash expenditures. Only the flow of cash is measured. Noncash transactions such as depreciation, amortization, credit sales, and purchases on account are ignored. Negative cash flow is called “burn rate” (see definition).

Cash position
The amount of cash and cash equivalents available to a company at a given point in time.

Cash flow projection
A forecast of the cash flow for a period of time in the future. Sometimes called a cash budget.

Certified public accountant (CPA)
An accountant who has met all of a state’s requirements and has received a state certificate

Chart of accounts
A list of account categories contained in the general ledger including asset, liability, equity, revenue and expense accounts

Chief executive officer (CEO)
The top managerial position in a company.

Chief financial officer (CFO)
A member of a company’s upper management who oversees all the financial aspects of the business.

Chief operating officer (COO)
An executive who oversees the daily operations of a company

Closed corporation
A corporation whose shares of stock are held by only a few people, usually by those who are in active management positions. Restrictions are placed on the stockholders and their right to transfer stock to others.

Closely held corporation
A corporation owned by a few individuals, who also own all the stock. No stock in the corporation is publicly traded. State regulations administer the establishment of corporations.

Collection agency
A bill collecting agency that is often paid based on a percentage of money they receive on overdue payments.

Commercial bank
State or nationally chartered bank that accepts demand deposits, grants business loans, and provides a variety of other financial services. Typically used by the entrepreneur as an asset lender.

Compensation
Rewards given to employees based on their contributions or the value of their jobs. These rewards can be monetary or nonmonetary.

Competition
(1) Any rivalry between two competitors; (2) When two or more parties acting independently try to secure the business of a third party customer by offering the best terms available.

Competitive advantage
The factors that give a company an advantage over its competitors in the marketplace. One theory of entrepreneurship is that the venture must develop some competitive edge if it is to profitably exist in the market. Also, competitive edge.

Competitive analysis
A study of the factors in a company’s operations, compared to the same operations in competing companies, to show how well the company can expect to do in competition with those other companies.

Competitive conditions
Conditions that make a business able to compete with other companies in the same sector or type of business.

Competitive edge
The factors that give a company an advantage over its competitors in the marketplace. One theory of entrepreneurship is that the venture must develop some competitive edge if it is to profitably exist in the market.

Competitive pricing
(1) A price established by a number of buyers and sellers negotiating independently in a market setting; (2) Setting a price to be comparable to what competitors are charging.

Competitor(s)
Companies that are competing for the same potential customers.

Cosigner
A person who signs a note in conjunction with another person. The cosigner assumes responsibility for the amount of the note if the maker defaults.

Credit
(1) An entry on the right-hand side of an account ledger representing an addition to a revenue or liability account; (2) The ability to borrow a sum of money or purchase an item with the understanding that the balance will be repaid at a later date.

Credit rating
An evaluation that is performed on a person or a business to review their past credit history and determine their ability to repay debts.

Credit report
The confidential report that is usually generated as a result of a credit investigation into an applicant’s background. It details the financial standings of an applicant.

Credit score
A procedure for assigning scores to an individual or company on the basis of their risk of default.

Creditor
Individuals or firms to which money is owed. (1) General: class of claimants who are paid from funds remaining after preferred and secured creditors have been satisfied; they have no preferred status or security for their claims. (2) Preferred: class of claims that must be paid first, by order of court in bankruptcy cases, including: taxes, wages, court costs, secured creditors.

Crowdfunding
The act of soliciting financial contributions or investments from a large number of people (especially from the online community) outside your organization who collectively raise money to support a cause or to underwrite a project.

Crowdsourcing
The practice of obtaining needed skills, ideas, or content from users outside your organization who collectively help you solve a problem. Contributions are typically sought from a large group of individuals from the online community rather than from traditional employees or suppliers.

Current assets
Cash or property that can be converted to cash in a short period of time; usually accounts receivable, inventory, and short-term notes receivable.

Current liability
A debt which is payable within one year or within the normal operating cycle of a company; usually accounts payable, accrued expenses payable and short-term notes payable.

Current ratio
A ratio that indicates a firm’s degree of liquidity by dividing current assets by current liabilities.

Customer
An individual, business or other organization that purchases a good or service from a business entity.

Customer relationship marketing
Process of developing and maintaining a relationship with customers through interactive technology, loyalty reward programs and direct mail messages, in order to encourage repeat business.

Customer service
What the business does to increase the customer’s convenience and satisfaction.

Customer-in-hand
Customer already interested enough and ready to purchase a product or service-advance orders, deposits. 

Debit
An entry in the left side of an account ledger representing an increase in an asset or expense account.

Debit card
A card resembling a credit card that allows bank customers to withdraw cash from any affiliated automated teller machine as well as being able to make cashless purchases from funds on deposit.

Debt
Any obligation by one person to pay another. May be a primary (direct) obligation as in a note, or a secondary (contingent) obligation as in a guaranty.

Debt capital
Funds or assets acquired by borrowing.

Debt instrument
Any instrument evidencing the obligation of the maker to pay the holder of the debt instrument. Includes bonds, debentures, and notes of all kinds.

Debt ratio
Measurement of what portion of the company is leveraged or financed (how much the owner could lose to creditors).

Debt service
The money needed to regularly pay the required amount due on a loan.

Debtor
One who owes a debt.

Debt-to-assets ratio
The relationship of a company’s total debt to its total assets. The lower the ratio, the more financially sound a company is thought to be.

Debt-to-equity ratio
The relationship of debt to stockholder equity (ownership), or net worth, in a firm’s capital structure. The higher the ratio, that is, the more debt there is relative to equity, the greater the firm is leveraged.

Default
Failure to pay a debt, make scheduled payments, or meet any term of a credit contract.

Delinquency
A past-due credit account or debt payment

Demand note
A note which is payable immediately when the holder decides to present it.

Deposit
Cash and checks given to a bank to maintain a credit balance until the funds are withdrawn and converted to cash.

Depositary
A person or place entrusted with something for safekeeping.

Depreciation
The periodic allocation of the cost of a tangible long-lived asset over its estimated useful life.

Direct competition
Businesses that sell similar products or services in the same target market. Examples are Burger King and Wendy’s; Rite Aid and Walgreen’s; Reebok and Nike.

Discretionary funds
Excess money that has not yet been budgeted for any particular spending.

Discretionary income
Amount of disposable personal income available for spending and saving after the basic necessities of food, clothing and shelter have been provided.

Dislocated worker
A dislocated (or displaced worker) is a person 20 years of age or older who either left or lost his/her job because the company closed, relocated, abolished their position or shift, or did not have enough work to give the employee.

Due diligence
A reasonable investigation of a proposed investment deal and the principals offering it before the transaction is finalized. The investigation is usually completed by the investor’s accountant and attorney.

Earnest money
Partial payment in advance, showing the serious intent of a buyer. Sometimes called front money.

Earnings
(1) Total remuneration of an employee or group of employees for work performed, including wages, bonuses, commissions etc. (2) The profits of a company

Earnings before interest and taxes (EBIT)
Also known as operating income, it is the net income generated by conducting business.

Earnings before taxes (EBT)
Net income generated by conducting business with a deduction made for interest owed/paid on company debts.

Earnings report
A statement issued by a company reflecting its financial situation over a given period of time. This report lists revenue, expenses and the net result.

EEO
Equal Employment Opportunity – prohibits federal contractors from discriminating against employees on the basis of race, sex, creed, religion, color or national origin.

Elevator pitch
An extremely concise presentation of an entrepreneur’s idea, business model, company solution, marketing strategy and competition delivered to potential investors. Should not last more than a few minutes, or the duration of an elevator ride.

Employ
To engage an individual or a company to perform a job in exchange for compensation.

Employee
An individual who works for an employer in exchange for a wage or salary.

Employee manual
A book that explains a company’s policies, procedures, and benefits.

Employment contract
An agreement between an employer and an individual to induce him or her to work for the company. The need for a contract arises when a firm wants a talented person to leave a good job to come work for it and that person demands assurances of fair treatment. Most managers are reluctant to offer these contracts.

Employment taxes (payroll taxes)
Any variety of taxes levied by government, based on an employer’s payroll. Most common employer’s contributions to social security are known as FICA (Federal Insurance Contribution Act), also FUTA (Federal Unemployment Tax Act).

Entrepreneur
Derived from the French word “to undertake.” Someone who is willing and eager to create a new venture in order to present a concept to the marketplace.

Entrepreneurship
A process through which individuals and groups pursue opportunity, leverage resources, and initiate change to create value. Thus, an entrepreneur is one who creates and manages change by pursuing opportunity, acting with passion for a purpose, living proactively and leveraging resources to create value.

Entry barriers
Any law or condition that prevents imported goods from coming into a country.

Entry strategy
The way an entrepreneur plans to get business. Some of the various strategies are: franchising, buying a business, engaging in a part-time business, expanding a hobby, spinning off from current employment, observation of market need, exploitation of invention, turnarounds, inventions

Equity
(1) Total assets minus total liabilities equals equity or net worth; (2) Money invested into a company that is not intended to be repaid, but represents an ownership interest.

Equity capital
Funds invested in a business by its owner(s).

Executive summary
A document which captures and presents succinctly the essence of the written business plan. It is, in effect, a capsulated version of the entire plan. The executive summary is not simply a background statement, nor is it an introduction. It is the plan in miniature. Because many plan reviewers are inundated with proposals, they use the executive summary for a quick understanding of the total plan.

Exit strategy
An investor’s intended method for liquidating its investment holdings and realizing a return on its investment. Exit strategies can include selling or distributing the portfolio company’s shares at or after an initial public offering (IPO), upon a sale of the portfolio company or at the time of a recapitalization. 

Face value
The amount printed on the bond or other debt instrument, on which the borrower computes interest and which it repays at maturity.

Factor
Financial institution that buys accounts receivables from a firm and bills customers directly, taking a percentage of the money collected as a fee, in contrast to a bank that only lends on accounts receivable.

Factoring
(1) The selling of accounts receivable; (2) Selling invoices at a discount.

Fair use
A doctrine established as part of the copyright law that allows the use of copyrighted materials for specific purposes without the permission of the copyright’s owner(s). Such purposes may include teaching, research or news reporting.

Family and Medical Leave Act (FMLA)
A federal law requiring employers to give eligible employees up to twelve weeks of unpaid leave during a year’s time if they meet acceptable conditions.

Fictitious business name
The registration of the name of a business to link a business name to the owner’s tax-payer identification number, required by many states.

Finance charge
Total cost of credit in dollars and cents to obtain credit.

Financial institution
Any firm that deals with money and/or securities. Banks, savings and loans, insurance companies, hard-asset lenders, credit unions, stockbrokers, consumer financial companies, and investment bankers, as well as a host of other highly specialized organizations are examples of the institutions that operate in the huge and highly complex world of finance.

Financial leverage
Equals total debt divided by the total owners’ investment. This ratio measures a company’s ability to withstand business setbacks. The lower the level of financial leverage, the less total debt a company is carrying relative to the owners’ investment and the more likely the company will be able to cover that debt in the event of a downturn.

Financial ratios
Measurements used to establish common standard figures that can be compared from year-to-year, company-to-company, or company-to-industry.

Financial statement
Periodic accounting reports of a company’s activities. Usually includes balance sheet and income statement.

Financing
Activities associated with securing additional funds for business use.

Financing statement
A statement filed by a creditor to show the lien they hold on personal property.

Fiscal year
A corporation’s accounting period that consists of twelve consecutive months.

Fixed asset
Property with relatively long life, such as land, buildings, and equipment.

Fixed capital
Money invested in fixed assets.

Fixed cost
A cost that remains constant within a relevant range of volume or activity.

FLSA
Fair Labor Standards Act – sets federal minimum wage and defines workweek, overtime conditions and employment of minors.

FMLA
Family Medical Leave Act – federal law that gives eligible employees the right to take a leave of absence for family or medical reasons, as well as leave for military families, while maintaining job protection.

Fringe benefits
Employment benefits given by an employer that does not affect the basic wage rate. These benefits include paid vacations, pensions, paid holidays, health and life insurance and are funded in whole or in part by the employer.

GAAP (generally accepted accounting principles)
The common set of accounting principles, standards, and procedures. GAAP is a combination of authoritative standards set by standard-setting bodies as well as accepted ways of doing accounting.

Garnishment
A court order directing an employer to make deductions from an employee’s wages and forward the money to the court or directly to the plaintiff to whom the employee is indebted. This procedure continues until the debt is paid off.

Gatekeeper
Someone within a company who controls access to upper level decision-makers.

General partner (GP)
The partner in a limited partnership responsible for all management decisions of the partnership. The GP has a fiduciary responsibility to act for the benefit of the limited partners (LPs) and is fully liable for its actions.

General partnership
An agreement in which all partners are completely liable for the indebtedness brought about by the partnership or any partner.

Goodwill
The difference between the market value of a firm and the market value of its net tangible assets.

GPS
Short for Global Positioning System, GPS is a navigation system that uses satellite signals commonly to pin the location of people, buildings and objects. Common GPS-enabled devices — smartphones (or other mobile handhelds) or a car’s navigation system — are often used to provide directions from one location to another.

Grace period
A period of time allowed in which the contract or policy will remain effective even if the premium has not been paid. This period of time is usually a month (twenty-eight to thirty-one days) past the premium’s due date.

Gross margin (gross profit)
Net sales minus cost of goods sold.

Guarantee
(1) A promise or assurance that an item is of a specified quality; (2) An agreement in which one person will perform the obligations of another if that person fails to perform or defaults.

Guarantor
One who makes a guarantee?

Guerilla marketing
Guerillas fight using non-traditional methods (since guerillas are not part of an army). 

Hard assets
Assets with liquidation value, such as equipment and machinery.

Health insurance
Provides coverage for individuals requiring medical attention, such as hospitalization and outpatient treatment. Health insurance can come in a number of forms, and some companies offer it as an employee benefit.

HR
Human resources – The company department or support systems responsible for finding, screening, recruiting, training and retaining job applicants and staff, as well as administering employee benefit programs.

HUBZone
The Historically Underutilized Business Zones program helps small businesses in urban and rural communities gain preferential access to federal procurement opportunities. The HUBZone program is regulated and implemented by the Small Business Administration (SBA).

Income statement
A financial statement that shows the amount of income earned by a business over a specific accounting period. All costs (expenses) are subtracted from the gross revenues (sales) to determine net income, which outlines the profit-and-loss financial statement (P and L).

Independent contractor
A person who is hired by a company to perform a specific job in a designated period of time. The worker is not recognized as an employee of the organization and is not entitled to company benefits.

Indirect competition
(1) Businesses that sell similar products or services as a sideline to their normal business. For example, major grocery chains that sell greeting cards and flowers indirectly compete with card and flower shops; (2) Businesses that sell different products or services to fulfill a similar customer demand. Examples include bagel and doughnut shops competing for breakfast business, or training consultants and training video producers competing for employee development business.

Indirect cost
A manufacturing cost that is not traceable to a specific product or cost objective and which must be assigned by some allocation method

Industry overview
The history, participants, total sales volume, trends, growth potential and other pertinent facts on a particular industry.

Industry profile
The history, participants, total sales volume, trends, growth potential and other pertinent facts on a particular industry.

Infrastructure
Specialists (outside the normal management team) such as attorneys, CPAs, bankers, insurance brokers, consultants and other types of advisers who provide necessary support and resources to the entrepreneur to operate a business.

Insufficient funds
A term used to describe inadequate funds in a depositor’s account to cover a check presented on that account.

Interest
A charge for borrowing money.

Interest rate
A percentage rate charged on the amount of money that is borrowed usually stated as an annual percentage rate (APR).

Intrapreneur
While an entrepreneur works for his/her own company, an intrapreneur is a gifted person who innovates from within a firm or institution. Intrapreneurs have an entrepreneurial ability that inspires them to creatively solve problems. They ordinarily have the capabilities and resources of the business available to them.

Itemized deductions
A list of allowed expenses that a taxpayer can deduct to arrive at his or her taxable income. These deductions include but are not limited to such items as contributions to charitable organizations, various health care expenses, qualified home mortgage interest and investment interest.

Job description
An overall written summary of task requirements describing what a specific job entails

Keogh Plan
Retirement accounts for the self-employed and their employees, similar to IRAs. The maximum allowable annual contribution varies upward from 15 percent of annual income and is regulated by a complicated set of laws.

Key employees
Professional management attracted by the founder to run the company. Key employees are typically retained with warrants and ownership of the company.

Key personnel
Employees who are deemed as essential to achieving the goals and objectives of an organization. 

Landlord
The owner of property that is leased or rented to another person.

Learning curve
A line on a graph showing how long it takes for someone to learn something reflected on the horizontal axis and how much must be learned in each time period shown on the vertical axis.

Lease
A form of contract that conveys to another the right to possess property in return for payment, usually in the form of rent. In a lease, the person who conveys the property is the lessor and the person who holds the property under a lease is the lessee.

Leasehold
A payment made to secure the right to a lease for specified terms.

Leasehold improvement
An improvement to leased property, considered an intangible asset to the lessee, which becomes the property of the lessor at the end of the lease.

Lease-purchase agreement
An agreement wherein part of the lessee’s monthly rent is applied toward the purchase of the property. When the agreed equity is reached, the ownership is transferred to the lessee.

Leave of absence
A period of time off work, usually initiated by the employee. Employers grant this absence on the assumption that it is only a temporary leave and the employee is usually reinstated at the same level of seniority they occupied prior to the leave.

Legal structure
The various forms of business organizational structure: sole proprietorship, partnership, corporation, s corporation, limited liability company, not-for-profit corporation.

Lender
An individual or financial institution that temporarily lends out money with the expectation that it will be repaid in full with interest.

Lessee
One who holds property under a lease.

Lessor
One who transfers property by lease, such as a landlord.

Letter of intent
A letter addressed to a company from a customer, supplier, distributor, investor, or other interested party, stating the desire to conduct business. A letter of intent does not necessarily obligate the party writing it but can be an influential device to sway prospective investors or bankers to finance the venture based on evident industry and market support.

Liability
A debt of the business; an amount owed or an obligation to perform a service to creditors, employees, government bodies or others; a claim against assets.

License
A document granting permission to engage in a business, occupation or activity that would otherwise be unlawful without the license.

Limited liability company (LLC)
A type of business formation that allows the owners to be taxed as a partnership, but with the limited liability of a corporation.

Line of credit
Short-term financing usually granted by a bank up to a predetermined limit; debtor borrows as needed up to the limit of credit without need to renegotiate the loan.

Liquidity
The relative amount of ease in converting assets to cash.

Loan
An agreement between two parties in which the lender transfers an item to the borrower with the expectation of the item being returned at a later date. Many arrangements involve money being loaned with the repayment including interest as well as the principle loan.

Loan to value ratio (LTV)
The relationship between the size of the mortgage loan and the mortgage lender’s valuation of the property expressed as a ratio.

Long-term liabilities
Debt of a business that matures more than one year into the future, beyond the normal operating cycle or is to be paid out of non-current assets. 

Market demand
The degree to which the market accepts a market offering.

Market driven
An enterprise created to exploit a market opportunity.

Market growth rate
How fast a market is expanding.

Market niche
A particular appeal, identity or place in the market that a product or service has. What a company does well, differently or better than others in the market.

Market penetration
The degree of success and acceptance of a product by a specified target market.

Market position
The place or niche for a certain product or service within a market.

Market positioning
The projection of a product as having a certain desired image which makes it appealing to a certain segment of the market for that type of product.

Market research
The systematic gathering, recording, and analyzing of data about problems relating to the marketing of goods and services. Such research may be undertaken by impartial agencies or by business firms or their consultants for the solution to their marketing problems.

Market segment
A specified, homogeneous, identifiable portion of the market.

Market share
That portion of the total market sold by a specific company, expressed as a percentage.

Market size
The number of potential customers or amount of potential sales in a given economic sector or industry.

Market survey
A form of market research that collects information from the market by asking carefully selected questions by phone, face-to-face, or through the mail.

Marketing plan
A written formulation for achieving the marketing goals and strategies of the venture, usually on an annual basis. Business plans always contain a marketing-plan section.

Maturity stage of the product/service life cycle
Most products or services will spend a part of their marketable lives in this stage characterized by stable increases, leveling off in sales, declining profits, falling prices, aggressive competition, improved liquidity, decreased leverage and excessive cash flow.

NAICS
The North American Industry Classification System (NAICS) — a system for providing comparability in statistics about business activity across North America that has been developed jointly by the United States, Canada, and Mexico to replace the U.S. Standard Industrial Classification (SIC) system.

Negotiation
The bargaining, discussion and compromise between two parties in an effort to reach a settlement. In business, for example, negotiations may occur between a union representative and management to arrive at labor issues acceptable to both sides.

Net income
The formula for determining net income is calculated by subtracting all expenses and taxes from total revenue.

Net margin
A measurement of how many cents on each dollar of sales are profit.

Net profit
The amount of revenue that is available after all costs and expenses have been paid. However, if expenses exceed revenue, a net loss occurs.

Net sales
The dollar amount of sales made during a specific time period, excluding sales tax and any returns or allowances.

Net worth
Determined on the company’s balance sheet by subtracting liabilities from assets. Also the book value of a company.

Network
The common channels established with important people in a variety of related fields to provide information and contacts which can be used to help the entrepreneur become successful.

Niche market
A small segment of a market in which an entrepreneur is strongly competitive.

Nondisclosure agreements (NDAs)
A contracts intended to protect information considered to be proprietary or confidential. Parties involved in executing an NDA promise not to divulge secret or protected information disclosed during employment or other business transactions.

Note
An instrument signed by the maker (borrower) promising to pay another (the payee) a sum of money on demand or at a stated date.

Note payable
A written promise to pay a stated sum on or by a specific date. Notes can be classified in two categories. (1) Short-term notes are due in one year or less and (2) Long-term notes extend for longer periods of time.

Operating budget
A financial plan outlining how a company will use its resources over a specified period of time.

Operating expenses
The cost, including selling, administrative and general overhead costs involved in a business’s operations throughout a given time period.

Operating margin
A measurement of how well a company is managing its overhead costs.

Organization chart
A diagram outlining the “chain of command” that makes up the structure of a business, showing specific areas of responsibility.

Organization structure
The pattern of how power, authority and functions are distributed in any established group of people.

Out of pocket expense
Expenses incurred by an individual on a business trip that are paid for from the employee’s personal funds.

Overdraft
A check drawn for a larger amount than the drawee has on deposit.

Overdue
A situation in which a bill is not paid or an item is not returned when due.

Overhead
Operating cost not directly associated with the product or its marketing, such as rent, managers’ salaries and administrative expenses. 

Paid in capital
Money invested into the company above and beyond the par value of stock that becomes equity and is not intended to be repaid, but represents an ownership interest.

Partnership
A nontaxable entity in which each partner shares in the profits, losses and liabilities of the partnership. Each partner is responsible for the taxes on its share of profits and losses.

Part-time employees
Employees whose hours are less than those with full-time status, usually achieved by working shorter days or fewer days per week.

Payroll
An employer’s list of all the employees who have earned wages or salaries over a certain period of time and the amount due to each one. Amounts are withheld from paychecks for taxes, insurance, and other required and elected deductions.

Perceived value
The value a customer places on a product or service that is a strong determinant to the ceiling price that can be charged.

Personal financial statements
Personal balance sheets and tax returns for three years. (Sometimes required of the founders/managers of a start-up by prospective investors and loan officers.)

Predatory pricing
An attempt to restrain trade by underselling rivals in order to acquire or preserve market share.

Prepaid expenses
Expenses that are typically paid for up front (such as insurance) and therefore carry a cash value and are considered an asset.

Prepayment
The payment of a debt before its actual due date. Usually associated with the payment of additional principle to reduce the open mortgage balance.

Press (or news) release
Written information given to the news media.

Prestige pricing
Policy of charging relatively high prices to enhance the quality image of the product or seller.

Pricing methods (pricing strategies)
Various methods sellers of goods and services use to establish prices. (1) Retailers and wholesalers normally add a fixed percentage to their costs-called mark-up or mark-on pricing. (2) Sellers of foodstuffs and raw materials are more apt to have their prices set for them by rapidly shifting changes in external supply and demand-called auction market pricing. (3) Sellers of premium goods sometimes improve demand for their goods by intentionally increasing the price to create an aura of exclusivity around their product.

Primary market research
Consists of specific information collected to answer specific questions. A few examples include user surveys, focus groups, phone interviews and customer questionnaires. Many times specific studies are commissioned by private or public entities and are conducted for a fee by market research firms that specialize in various methods of data collection. Results are then published and may be considered proprietary and thus may be made publicly available.

Pro forma
Indicates a projection in the future, used with financial documents, such as pro forma cash flow, pro forma income statement and pro forma balance sheet.

Product/service life cycle
The stage that a product or service is in during its marketable life. Stages include introduction, growth, maturity and decline.

Profit
The result of subtracting from revenues all expenses related to those revenues in a given period.

Profit and loss statement
A report from an enterprise indicating the amount of revenue taken in during a specific period, the costs of doing business and the resulting profit or loss. The fundamental financial statement for all companies, and one that is required by the securities and exchange commission for all public companies on a quarterly basis.

Profit margin
A measure of profitability; the percentage of each dollar of sales that is net income; net income divided by sales.

Quick assets
The sum of marketable securities, receivables and cash. Quick assets are also defined as current assets minus inventory.

Quick ratio
The measure of a firm’s liquidity or its ability to pay off liabilities quickly with the funds that are currently available. This ratio is calculated by taking the quick assets (current assets – inventory) divided by current liabilities. This ratio is also referred to as the acid-test ratio.

Refinance
To renew, revise, or reorganize existing debt that incorporates or pays off current debt.

Responsive
Responsive (or mobile friendly) refers to a website that detects the users’ types of devices and screen size when someone visits the site and it automatically rearranges itself for easy viewing and use to match the device and screen size.

Retained earnings
Net income that is kept within the organization.

Return on assets (ROA)
Measures a company’s ability to produce net profits by effectively utilizing its assets. The higher the ratio, the more effective the company is at using its assets to produce profits.

Return on equity (ROE)
Measures the return on the owner’s investment in the company and is perhaps the most important measure of a business’s financial viability. The higher the ratio, the higher the rate of return on the owner’s investment.

Return on investment (ROI)
A measurement of the amount of money that has been realized as a result of a certain investment of resources. 

S corporation (sub-Chapter S corporation)
A firm that has elected to be taxed as a partnership under the sub-Chapter S provisions of the internal revenue code.

Salary
Fixed compensation paid to an employee in exchange for work performed during a specified period of time.

Sales
Money, or the promise of money, received from providing a company’s products and services to customers.

SBA (Small Business Administration)
Federal agency created in 1953 that assists with business loans and other problems relating to the operation of small business.

SCORE (Service Corp of Retired Executives)
Nonprofit association comprised of over 10,000 volunteer business counselors serving as counselors, advisors and mentors to aspiring entrepreneurs and business owners.

Search engines
Websites such as Google or Yahoo that let you search the Internet.

Seasonality
Variation of sales activity caused by the time of the year.

Secondary market research
Is information that has been gathered and repackaged from already existing sources? Most marketing research has been, at one time or another in its life cycle, considered primary research. Most of the information sources familiar to librarians and their patrons are considered secondary sources of market research. Sources such as government agencies, their statistics and publications, books, journals and newspapers as well as trade association information are all considered secondary market research.

Secretary of State
The body of each state government that regulates business registrations, among other things.

Seed money
The first round of capital for a startup business. Seed money usually takes the structure of preferred stock or convertible bonds, although sometimes it is common stock. Seed money provides startup companies with the capital required for their initial development and growth. Angel investors and early-stage venture capital funds often provide seed money.

SEO
Short for search engine optimization, SEO is the process of organizing a website to give it the best chance of appearing near the top of search engine rankings. As an Internet marketing strategy, SEO considers how search engines work and what people search for. Optimizing a website primarily involves providing unique content, identifying high-traffic keywords and improving the site’s layout and design.

Severance pay
Money given to employees when they are asked to leave their job, usually without any advance notice of termination. The person’s level in the organization, the cause of termination, and their length of service are factors that determine the amount of severance pay.

Sexual harassment
Any unwanted or uninvited sexual comments, threats, or advances that adversely affect an employee’s work environment.

Share of stock
A unit of ownership in a corporation, which can be held privately or publicly.

Short-term debt
Loans that are to be repaid within one year.

Signature loan
Loan requiring no collateral and depending on the personal guarantee of the debtor.

Small business
A commercial enterprise that, as defined in the federal small business administration act, is independently owned and operated and which is not dominant in its field of operation. Other definitions, for such purposes as taxation or employee benefits, may be based on such factors as the number of employees or the amount of annual revenue.

Small Business Administration (SBA)
Provides financial, technical, and management assistance to help Americans start, run and grow their businesses through dozens of programs nationwide.

Small Business Administration (SBA) loan
(1) An SBA loan provides guarantee for up to 90 percent of a loan obtained from banking sources; (2) Direct SBA loan for an amount under $150,000.

Small Business Development Centers (SBDC) or Small Business & Technology Development Centers (SBTDC)
Administered by the SBA, SBDCs provide management assistance to current and prospective business owners through one-stop assistance. SBTDCs have specially trained specialists that can address technology businesses’ unique needs. 

Supervisor
An individual who oversees and is responsible for an area, business, operation or school and the employees who work those areas.

Tangible assets
Assets that are touchable and real (such as equipment and buildings) as opposed to intangible assets (such as goodwill), which are not of a physical or material nature

Target customers
A store’s marketing effort directed to a specific demographic of people in an attempt to entice them into the store and become customers.

Target market
The market selected for penetration by a firm’s management.

Target pricing
An attempt at pricing items to maximize both sales and profit.

Term loan
A loan with an original maturity beyond one year.

Testimonial
An endorsement of a product by a satisfied customer or a celebrity.

Total assets
The actual dollar value of all tangible and intangible property owned or maintained by a company at any point in time. These are the operational resources a business maintains, such as cash, short-term investments, accounts receivable, inventory, furniture, fixtures, equipment, buildings and land.

Transaction
An act between a seller and a cardholder that results in either a paper or an electronic representation of the cardholder’s promise to pay for goods or services received from the act.

Undercapitalization
A situation in which a new enterprise starts with too little money to carry it through the beginning stages of development.

Unemployment compensation
Money paid to individuals who are not currently employed in the workforce. These individuals must meet several eligibility requirements in order to receive benefits.

Unlimited liability
A legal situation in which the sole proprietor of a business is fully liable for all of its debts and obligations to the extent of his or her total estate.

Unsecured loan
Loan granted solely on the strength of the maker’s signature.

 

Valuation
The process of determining the economic value of a firm. Business valuation can be used to determine the fair value of a company for a variety of reasons, including sale value and establishing partner ownership.

Variable cost
A cost that changes in total in direct proportion to productive output or any other volume measure.

Vendor
The source of supply, raw materials or finished goods throughout the production and distribution processes. 

Vetting
A diligent review of a prospective project or individual before a hiring or investment decision.

W-2 form
Wage and tax statement. By the end of January of each year, employers must provide each employee with at least two copies of his or her withholding statement. This statement shows earnings for the preceding year and various deductions. Employees must file one copy of their W-2 forms with their federal income tax form.

Wage
Compensation given to an employee in exchange for work performed. Wages vary and can be paid per piece, per hour, per day or in any other period or unit that has been previously agreed upon.

Wage bracket
The range of salaries allowed as compensation for an employee in a given profession.

Wage compression
A situation that occurs when the compensation paid to the highest and lowest employees in the same job is very narrow with little discrepancy between the two salaries paid.

Walk-ins
People seeking employment that arrive at a prospective workplace without any appointment and not in response to a specific ad or request.

Webinar
An online seminar, class or event that might contain audio and video.

Word-of-mouth advertising
One satisfied customer tells another about a particular product or service.

Workers’ compensation insurance
Mandated insurance payments made by employers to cover their employees’ work-related injuries and diseases.

Working capital
The amount of funds available to pay short-term expenses. Seen as a cushion to meet unexpected or out-of-the-ordinary expenses. It is determined by subtracting current liabilities from current assets.

Zoning commission
The group of individuals that establishes/reviews the restrictions placed on a geographic area’s construction/redevelopment.