Glossary business

Glossary
The following glossary will define business and financial terms with which you
may not be familiar. Use of these terms will help you to communicate in language
that will be understood by business associates with whom you may be dealing.
A
Account A separate record showing the increases
and decreases in each asset, liability, owner's equity,
revenue and expense item. Also a contract,
arrangement, written or unwritten, to purchase and
take delivery with payment to be made later as
arranged.
Account balance The difference between the debit
and the credit sides of an account.
Accounting professional A person who is skilled at
keeping business records. Generally, a highly trained
professional rather than one who keeps books. An
accountant can set up the books needed for a business
to operate and help the owner understand them.
Accounts payable A record of what you owe to your
creditors for goods or services received.
Accounts receivable A record of what is owed to
your business as a result of extending credit to a
customer who purchases your products or services.
All of the credit accounts taken together are your
"accounts receivable."
Accrual basis A method of keeping accounts that
shows expenses incurred and income earned for a
given fiscal period, even though such expenses and
income have not been actually paid or received in
cash.
Actuary A professional expert in pension and life
insurance matters, particularly trained in
mathematical, statistical, and accounting methods and
procedures, and in insurance probabilities.
Administrative expense Expenses chargeable to the
managerial, general administrative, and policy phases
of a business in contrast to sales, manufacturing, or
cost of goods expense.
Advertising The practice of bringing to the public’s
notice the good qualities of something in order to
induce the public to buy or invest in it.
Agent A person who is authorized to act for or
represent another person in dealing with a third party.
Amortization To liquidate on an installment basis:
the process of gradually paying off a liability over a
period of time.
Analysis Breaking an idea or problem down into its
parts: a thorough examination of the parts.
Appraisal Evaluation of a specific piece of personal
or real property. The value placed on the property
evaluated.
Appreciation The increase in the value of an asset in
excess of its depreciable cost due to economic and
other conditions.
Arrears Amounts past due and unpaid.
Asset Anything of worth (having cash value) that is
owned by your business (i.e. cash on hand, inventory,
land, buildings, vehicles and equipment). Accounts
receivable, notes receivable and prepaid purchases are
also assets.
Articles of Incorporation A legal document filed
with the state which sets forth the purposes and
regulations for a corporation. Each state has different
regulations.
Audit An examination of accounting documents and
supporting evidence for the purpose of reaching an
informed opinion concerning their propriety.
B
Bad debts Money owed to you, but that you cannot
collect.
Balance The amount of money remaining in an
account.
Balance Sheet An itemized statement which lists the
total assets and the total liabilities of a given business
to portray its net worth at a given moment in time.
Bank Statement A monthly statement of account that
a bank renders to each of its depositors.
Benchmarking Rating of your company’s products,
services, and practices against those of the frontrunners
in the industry.

198 18 Steps for Starting Your Business
Bill of lading A document issued by a railroad or
other carrier. It acknowledges the receipt of specified
goods for transportation to a certain place, sets forth
the contract between the shipper and the carrier, and
provides for proper delivery of the goods.
Bill of sale Formal legal document that conveys title
to or interest in specific property from the seller to the
buyer.
Board of directors Those individuals elected by the
stockholders of a corporation to manage the business.
Bookkeeping The process of recording business
transactions into the accounting records.
Brand A design, mark, symbol, or other device that
distinguishes one line or type of goods from those of a
competitor.
Brand name A term, symbol, design, or combination
thereof, that identifies and differentiates a seller’s
product or service.
Break-even analysis A method used to determine
the point at which the business will neither make a
profit nor incur a loss. That point is expressed in either
the total dollars of revenue exactly offset by total
expenses or in total units of production, the cost of
which exactly equals the income derived by their sale.
Bottom line A business's net profit or loss after taxes
for a specific accounting period.
Budget A plan expressed in financial terms. The
business is then evaluated by measuring its
performance in terms of these goals. The budget
contains projections for cash inflow and outflow.
Business venture Taking financial risks in a
commercial enterprise.
C
Capital Money available to invest or the total of
accumulated assets available for production. See
"Owner's Equity."
Capital equipment The equipment that you use to
manufacture a product, provide a service, or use to
sell, store, and deliver merchandise. Such equipment
will not be sold in the normal course of business, but
will be used and worn out or consumed in the course
of business.
Capital expenditures An expenditure for a purchase
of an item of property, plant or equipment that has a
useful life of more than one year. (Fixed assets)
Capital gains (and losses) The difference between
purchase price and selling price in the sale of assets.
Cash Money in hand or readily available.
Cash discount A deduction that is given for prompt
payment of a bill.
Cash flow The actual movement of cash within a
business; cash inflow and cash outflow.
Cash receipts The money received by a business
from customers.
Certified Public Accountant (CPA) An accountant
who has met prescribed requirements designed to
ensure competence on the part of the public
practitioner in accounting as directed by the state.
Chamber of commerce An organization of business
people designed to advance the interests of its
members. There are three levels: national, state, and
local.
Collateral Something of value given or held as a
pledge that a debt or obligation will be fulfilled.
Contract An agreement regarding mutual
responsibilities between two or more parties.
Controllable expenses Those expenses which can be
controlled or restrained by the business person.
Variable expenses.
Corporation A voluntary organization of persons,
either actual individuals or legal entities, legally bound
together to form a business enterprise; an artificial
legal entity created by government grant and treated
by law as an individual.
Co-signers Joint signers of a loan agreement,
pledging to meet the obligations in case of default.
Cost of goods sold The cost of inventory sold during
an accounting period. It is equal to the beginning
inventory for the period plus the cost of purchases
made during the period minus the ending inventory for
the period.
Credit Another word for debt. Credit is given to
customers when they are allowed to make a purchase
with the promise to pay later. A bank gives credit
when it lends money.
Creditor A company or individual to whom a
business owes money.
Credit line The maximum amount of credit or
money a financial institution or trade firm will extend
to a customer.
Current assets Cash plus any assets that will be
converted into cash within one year plus any assets
that you plan to use up within one year.

Glossary 199
Current liabilities Debts that must be paid within
one year.
Current ratio A dependable indication of liquidity
computed by dividing current assets by current
liabilities. A ratio of 2.0 is acceptable for most
businesses.
D
Debt That which is owed.
Debt capital The part of the investment capital which
must be borrowed.
Debt measures The indication of the amount of other
people's money that is being used to generate profits
for a business. The more indebtedness, the greater the
risk of failure.
Debt ratio The key financial ratio used by creditors in
determining how indebted a business is and how able
it is to service the debts. The debt ratio is calculated
by dividing total liabilities by total assets. The higher
the ratio, the more risk of failure. The acceptable ratio
is dependent upon the policies of your creditors and
bankers.
Default Failure to pay a debt or meet an obligation.
Deficit The excess of a business’ liabilities over its
assets; a negative net worth.
Depreciable base of an asset The cost of an asset
used in the computation of yearly depreciation
expense.
Depreciation A decrease in value through age, wear
or deterioration. Depreciation is a normal expense of
doing business which must be taken into account.
There are laws and regulations governing the manner
and time periods that may be used for depreciation.
Desktop publishing Commonly used term for
computer-generated printed materials such as
newsletters and brochures.
Differentiated marketing Selecting and developing
a number of offerings to meet the needs of a number
of specific market segments.
Direct expenses Those expenses that relate directly to
your product or service.
Direct mail Marketing goods or services directly to
the consumer through the mail.
Direct selling The process whereby the producer of a
product or service sells to the user, ultimate consumer,
or retailer without intervening middlemen.
Discount A deduction from the stated or list price of
a product or service.
Distribution channel All of the individuals and
organizations involved in the process of moving
products from producer to consumer.
Distributor Middleman. A wholesaler, agent, or
company distributing goods to dealers or companies.
Downsize Term currently used to indicate employee
reassignment, layoffs, and restructuring in order to
make a business more competitive, efficient, and/or
cost-effective.
E
Entrepreneur An innovator of business enterprise
who recognizes opportunities to introduce a new
product, a new process, or an improved organization,
and who raises the necessary money, assembles the
factors for production, and organizes an operation to
exploit the opportunity.
Equipment Physical property of a more or less
permanent nature ordinarily useful in carrying on
operations, other than land, buildings, or
improvements to either of them. Examples are
machinery, tools, vehicles, furniture, and furnishings.
Equity The monetary value of a property or business
which exceeds claims and/or liens against it by others.
An equity investment in a business carries with it a
share of ownership of the business, a stake in the
profits, and a say in how it is managed.
Equity capital Money furnished by owners of the
business.
Exchange The process where two or more parties
give something of value to one another to satisfy needs
and wants.
Expenses The costs of producing revenue through the
sale of goods or services.
F
Facsimile machine (fax) A machine capable of
transmitting written input via telephone lines.
Financial statements Periodic reports that summarize
the financial affairs of a business.
Fixed assets Items purchased for use in a business
which are depreciable over a fixed period of time
determined by the expected useful life of the purchase.
Usually includes land, buildings, vehicles and
equipment not intended for resale. Land is not
depreciable, but is a fixed asset.

200 18 Steps for Starting Your Business
Fixed expenses Costs which generally don't vary
from one period to the next. Generally, these expenses
are not affected by the volume of business.
Franchise A business that requires three elements:
franchise fee, common trade name, and continuous
relationship with the parent company.
Fundraising Events staged to raise revenue.
G
Gross Overall total revenues before deductions.
Gross profit on sales The difference between net
sales and the cost of goods sold.
Gross profit margin An indicator of the percentage
of each sales dollar remaining after a business has paid
for its goods. It is computed by dividing the gross
profit by the sales.
Guarantee A pledge by a third party to repay a loan
in the event that the borrower cannot.
H
Home page The “table of contents” to a Web site,
detailing what pages are on a particular site. The first
page one sees when accessing a Web site.
Horizontal analysis A percentage analysis of the
increases and decreases on the items on comparative
financial statements. A horizontal financial statement
analysis involves comparison of data for the current
period with the same data of a company for previous
periods. Percentage of increase or decrease is listed.
I
Income Statement A financial document that shows
how much money (revenue) came in and how much
money (expense) was paid out.
Interest The cost of borrowing money. The price
charged or paid for the use of money or credit.
Internet The vast collection of interconnected
networks that provide electronic mail and access to the
World Wide Web.
Inventory The stock of goods that a business has on
hand for sale to its customers.
Invest To lay out money for any purpose from which
a profit is expected.
Investment measures Ratios used to measure an
owner's earnings for his or her investment in the
company. See "Return on investment (ROI)."
Invoice A bill for the sale of goods or services sent
by the seller to the purchaser.
L
Lead The name and address of a possible customer.
Lease A long term rental agreement.
Liabilities The amounts owed by a business to its
creditors. The debts of a business.
Liability insurance Risk protection for actions for
which a business is liable.
License Formal permission to conduct business.
Lifestyle A pattern of living that comprises an
individual’s activities, interests, and opinions.
Limited partnership A legal partnership where
some owners are allowed to assume responsibility
only up to the amount invested.
Liquidate To settle a debt or to convert to cash.
Liquidity The ability of a company to meet its
financial obligations. A liquidity analysis focuses on
the balance sheet relationships for current assets and
current liabilities.
Loan Money or other assets let out temporarily,
usually for a specified amount of interest.
Loan agreement A document that states what a
business can and cannot do as long as it owes money
to the lender.
Long-term liabilities Liabilities that will not be due
for more than a year in the future.
M
Management The art of conducting and supervising
a business.
Market A set of potential or real buyers or a place
where there is a demand for products or services.
Actual or potential buyers of a product or service.
Marketing All the promotional activities involved in
the buying and selling of a product or service.
Market demand Total volume purchased in a specific
geographic area by a specific customer group in a
specified time period under a specified marketing
program.
Market forecast An anticipated demand that results
from a planned marketing expenditure.

Glossary 201
Market niche A well-defined group of customers
that are interested in what you have to offer.
Market positioning Finding a market niche that
emphasizes the strengths of a product or service in
relation to the weaknesses of the competition
Market share A company’s percentage share of total
sales within a given market.
Market targeting Choosing a marketing strategy in
terms of competitive strengths and marketplace
realities.
Market mix The set of product, place, promotion,
price, and packaging variables that a marketing
manager controls and orchestrates to bring a product
or service into the marketplace.
Market research The systematic design, collection,
analysis, and reporting of data regarding a specific
marketing situation.
Mass marketing Selecting and developing a single
offering for an entire market.
Merchandise Goods bought and sold in a business.
"Merchandise" or stock is a part of inventory.
Micro business An owner-operated business with
few employees and less that $250,000 in annual sales.
Middleman A person or company that performs
functions or renders services involved in the purchase
and/or sale of goods in their flow from producer to
consumer.
Multilevel sales Also know as network marketing.
Rather than hiring sales staff, multilevel sales
companies sell their products through thousands of
independent distributors. Multilevel sales companies
offer distributors commissions on both retail sales and
the sales of their “down line” (the network of other
distributors they sponsor).
N
Need A state of perceived deprivation
Net What is left after deducting all expenses from the
gross.
Net income The amount by which revenue is greater
than expenses. On an income statement this is usually
expressed as both a pre-tax and after-tax figure.
Net loss The amount by which expenses are greater
than revenue. On an income statement this figure is
usually listed as both a pre-tax and after-tax figure.
Net profit margin The measure of a business's
success with respect to earnings on sales. It is derived
by dividing the net profit by sales. A higher margin
means the firm is more profitable.
Net Worth The owner's equity in a given business
represented by the excess of the total assets over the
total amounts owing to outside creditors (total
liabilities) at a given moment in time. The net worth
of an individual is determined by deducting the
amount of all personal liabilities from the total of all
personal assets.
Niche A well-defined group of customers for whom
what you have to offer is particularly suitable.
Nonrecurring One time, not repeating. "Nonrecurring"
expenses are those involved in starting a
business which only have to be paid once and will not
occur again.
Note A written promise with terms for payment of a
debt.
O
Operating expenses Normal expenses incurred in
the running of a business.
Operating profit margin The ratio representing the
pure operations profits, ignoring interest and taxes. It
is derived by dividing the income from operations by
the sales. The higher the percentage of operating
profit margin the better.
Organizational market A marketplace made up of
producers, trade industries, governments, institutions.
Other expenses Expenses that are not directly
connected with the operation of a business. The most
common is interest income.
Other income Income that is earned from nonoperating
sources. The most common is interest
income.
Outsourcing Term used in business to identify the
process of subcontracting work to outside vendors.
Overhead A general term for costs of materials and
services not directly adding to or readily identifiable
with the product or service being sold.
Owners' equity The financial interest of the owner
of a business. The total of all owner equity is equal to
the business's assets minus its liabilities. The owners'
equity represents total investments in the business plus
or minus profits or losses the business has accrued to
date.

202 18 Steps for Starting Your Business
P
Partnership A legal business relationship of two or
more people who share responsibilities, resources,
profits, and liabilities.
Payable Ready to be paid. One of the standard
accounts kept by a bookkeeper is "accounts payable."
This is a list of those bills which are current and due to
be paid.
Personal financial history A summary of personal
financial information about the owner of a business.
The personal financial history is often required by a
potential lender or investor.
Prepaid expenses Expense items that are paid for
prior to their use. Some examples are insurance, rent,
prepaid inventory purchases, etc.
Price The exchange value of a product or service
from the perspective of both the buyer and seller.
Price ceiling The highest amount a customer will
pay for a product or service based on perceived value.
Price floor The lowest amount a business owner can
charge for a product or service and still meet all
expenses plus acceptable profit.
Principal The amount shown on the face of a note or
a bond. Unpaid principal is the amount remaining at
any given time.
Pro forma A projection or estimate of what may
result in the future from actions in the present. A pro
forma financial statement is one that shows how the
actual operations of the business will turn out if certain
assumptions are achieved.
Product Anything capable of satisfying needs,
including tangible items, services, and ideas.
Product life cycle (PLC) The stages of development
and decline through which a successful product
typically moves.
Product line A group of products related to each
other by marketing, technical, or end-use
considerations.
Product mix All of the products in a seller’s total
product line.
Profit Financial gain; returns over expenditures. The
sum remaining after deducting costs.
Profit and Loss Statement A list of the total amount
of sales (revenues) and total costs (expenses). The
difference between revenues and expenses is your
profit or loss. Income statement.
Profit Margin The difference between your selling
price and all of your costs.
Promotion The communication of information by a
seller to influence the attitudes and behavior of
potential buyers.
Promotional pricing Temporarily pricing a product
or service below list price or below cost in order to
attract customers.
Psychographics The system of explaining market
behavior in terms of attitudes and lifestyles.
Publicity Any nonpaid, news-oriented presentation
of a product, service, or business entity in a mass
media format.
Q
Quarterly budget analysis Method used to measure
actual income and expenditures against projections for
the current quarter of the financial year and for the
total quarters completed. The difference is expressed
as the amount and percentage over or under budget.
Questionnaire A data-gathering form used to collect
information by a personal interview, with a telephone
survey, or through the mail.
Quick ratio A test of liquidity subtracting inventory
from current assets and dividing the result by current
liabilities. A quick ratio of 1.0 or greater is usually
recommended.
R
Ratio analysis An analysis involving the comparison
of two individual items on financial statements. One
item is divided by the other and the relationship is
expressed as a ratio.
Receivable Ready for payment. When you sell on
credit, you keep an "accounts receivable" as a record
of what is owed to you and who owes it. In
accounting, a "receivable" is an asset.
Retail business A business that sells goods and
services directly to individual consumers.
Retained earnings Earnings of a corporation that are
kept in the business and not paid out in dividends.
This amount represents the accumulated, undistributed
profits of the corporation.
Return on investment (ROI) The rate of profit an
investment will earn. The ROI is equal to the annual
net income divided by total assets. The higher the
ROI, the better.

Glossary 203
Revenue The income that results from the sale of
products or services or from the use of investments or
property.
S
Sales Representative An independent salesperson
who directs efforts to selling your products or services
to others, but is not an employee of your company.
Sales reps often represent more than one product line
from more than one company and generally work on
commission.
Sample A limited portion of the whole of a group.
Security Collateral that is promised to a lender as
protection in case the borrower defaults on a loan.
Service Business A business that provides services
rather than products to its customers.
Share One of the equal parts into which ownership of
a corporation is divided. A "share" represents a part
ownership in a corporation.
Short-term notes Loans that come due in one year or
less.
Sole proprietorship A legal structure of a business
having one person as the owner.
Stock An ownership share in a corporation. Another
definition would be accumulated merchandise.
Stockholders' equity The stockholders' shares of
stock in a corporation plus any retained earnings.
Suppliers Individuals or businesses that provide
resources needed by a company in order to produce
goods and services.
Survey A research method in which people are asked
questions.
SWOT Analysis "SWOT" stands for Strengths,
Weaknesses, Opportunities, and Threats. A SWOT
analysis is an in-depth examination of key factors that
are internal (strengths and weaknesses) and external
(opportunities and threats) to a business.
T
Takeover The acquisition of one company by another.
Tangible personal property Machinery, equipment,
furniture and fixtures not attached to the land.
Target Market Specific individuals, distinguished by
socio-economic, demographic, and/or interest
characteristics, who are the most likely potential
customers for the goods and services of a business.
Target marketing Selecting and developing a number
of offerings to meet the needs of a number of specific
market segments.
Telemarketing Marketing goods or services directly
to the consumer via the telephone.
Terms of Sale The conditions concerning payment
for a purchase.
Three-year projection A pro forma (projected)
income statement showing anticipated revenues and
expenses for a business.
Trade Credit Permission to buy from suppliers on
open account.
U
Undifferentiated marketing Marketing by selecting
and developing one offering for an entire market.
Unearned income Revenue that has been received,
but not yet earned.
V
Variable costs Expenses that vary in relationship to
the volume of activity of a business.
Venture capital Money invested in enterprises that
do not have access to traditional sources of capital.
Vertical analysis A percentage analysis used to show
the relationship of the components in a single financial
statement. In vertical analysis of an income statement
each item on the statement is expressed as a
percentage of net sales.
Volume An amount or quantity of business; the
"volume" of a business is the total it sells over a period
of time.
W
Wholesale Selling for resale.
Wholesale business A business that sells its products
to other wholesalers, retailers, or volume customers at
a discount.
Working capital Current assets minus current
liabilities. This is a basic measure of a company's
ability to pay its current obligations.