Business Terminology
 

Accounts payable - Liabilities created by purchases made on credit.

Accounts receivable - Claims against customers for credit sales.

Amortization -The periodic expense of an amount paid for an intangible asset over a period of time. New businesses are able to amortize their start-up expenses over at least a 5-year period.

Annual growth factor - A percentage by which sales and cost of sales (COS) will increase over a one-year period.

Asset category - The indication of whether an asset is either land, a building, equipment, or a start-up cost.

Asset life - The number of year's service expected from an asset.

Audit - An examination of a company's financial records and the accounting systems, controls, and records that produced them.

Bad debt expense - The amount of credit sales deemed not to be collectible.

Balance sheet - A report listing the balances of the assets, liabilities, and equity as of a specific date.

Business type - The legal structure of the business. Types include Sole Proprietorship, Partnership, S Corporation, C Corporation, or Limited Liability Company.

Cash - Coins and currency, checks, money orders, credit card slips, and deposits in bank accounts.

Cash flow - The increase or decrease in cash from business operations.

Cash plan -A report listing the cash the business will generate from sales and use for expenses. It also shows how much cash is left over or how much additional cash the business needs.

Cash sales - The portion of sales paid for with cash.

Common stock - Ownership in a corporation resulting from investment. Common stockholder rights usually include a right to vote, share in dividends, purchases additional shares, and share in cash if the corporation is liquidated.

Competitive advantage - A distinct characteristic that makes your product or service more appealing than your competitor's.

Consultants - Paid professionals that perform specific functions for your business. Consultants can include attorneys, accountants, and advertising/marketing agencies.

Cost of sales (COS) - The cost of a product or service sold to customers.

Credit sales - The portion of sales sold on credit terms.

Credit terms - The arrangements agreed upon by the buyer and seller as to when payments for products and services are to be made.

Current assets - Assets that are either cash, will turn into cash, or will be used up within one year.

Current liabilities - Debts the business must pay within one year.

Current market value - What someone is willing to pay you for an item should you choose to sell it today.

Customer profile - A written description of your customers. Usual methods for developing customer profiles include demographics, geographics, and psychographics.

Dividends - Distributions of money by a corporation to its stockholders.

Debt service - The total payment of principal and interest on loans.

Demographics - A means of separating customers into groups by factors such as age, gender, income, or education.

Depreciation - The reduction in value of an asset over its useful life.

Distributions - Amounts paid to, or withdrawn by, the owners of a Sole Proprietorship, Partnership, S Corporation, or Limited Liability Company.

Double taxation - Owners of C Corporations pay income taxes on the business's net income as well as on dividends received from the corporation.

Employee benefits - Expenses for employees in addition to salaries and wages. Employee benefits include retirement plans, health plans, dental or vision plans, life insurance plans, paid vacations, holidays, or sick leave.

Equity - The investment in the business by the owner(s).

Expenses - Costs incurred by the business.

Expense forecast - An estimate of the business's future costs.

Fixed cost or expense - A cost or expense that remains constant regardless of the level of sales.

Fixed inventory - A system where the inventory level remains constant.

Franchise fees - Cash paid to a franchisor for the use of a franchise.

Franchise - An agreement under which the franchisor (owner of the rights) licenses the franchisee (the business owner) the right to sell a given product/service or to use certain trademarks or trade names, usually within a designated area.

General partner - A partnership investor who manages the business and assumes responsibility for the partnership's debts and other obligations.

Gross profit - Sales minus the cost of sales.

Independent contractor - Someone who provides services to your business on a non-employee basis.

Interest expense - The cost of borrowing money.

Inventory - Items the business owns and intends to sell to customers.

Labor - Costs paid to employees directly involved with bringing goods or services to the customer.

Limited partner - A partnership investor who has no control over the business and is not subject to the same liabilities as the general partners.

Line-of-credit loan - A current liability that extends the cash available in the business's checking account by the upper limit for the loan agreement.

Long-term liabilities - A formal loan where the term of the loan is greater than one year.

Marketing plan - A written explanation of how you plan on reaching customers, making sales, and reaching your financial goals.

Minimum cash balance - The minimum amount of cash the business needs to keep on-hand at all times.

Mission statement - A series of brief sentences or paragraphs that describe the purpose of your business, its products or services, customers, markets, and philosophy.

Net income - The amount the business makes when sales exceeds all expenses.

Net loss - The amount the business loses when all expenses exceed sales.

Net Sales - Sales after discounts and returns.

Net worth - The owner's equity in the business.

Notes payable - Formal loans due in less than one year.

Operating expenses - Selling, general, and administrative expenses that are necessary to run the business. Examples include salaries, insurance, advertising, and rent. Any expenses other than cost of sales.

Operating income - The amount of profit earned during the normal course of operation.

Operating plan - A written explanation of how you plan on running your business. An operating plan should include a description of your business facility, required operating equipment, supplier and vendor relationships, and needed personnel.

Organizational chart - A diagram of the relationships and responsibilities of individuals or functional departments within your business.

Partnership - A business that is unincorporated and organized by two or more individuals.

Payroll taxes - The cost of employing someone. Payroll taxes include FICA, federal and state unemployment taxes, worker's compensation, and state short-term disability programs.

Personnel plan - A written description of your business's staffing requirements. It should include a breakdown of your needs by position and the number required.

Preferred stock - Ownership in a corporation resulting from investment. Preferred stock carries certain preferences over common stock, such as a prior claim of dividends. Often preferred stock has no or limited voting rights.

Product lifecycle - A phenomenon where a product experiences rapid growth until it matures and growth slows. Eventually, sales will decline and the product will disappear from the marketplace entirely.

Profit & Loss (P&L) - A report listing sales, expenses, and net income.

Promotional plan - A written description of the activities you plan on using to promote your products or services. Promotional activities can include advertising, personal selling, public relations, and sale promotion.

Property, plant, and equipment - Assets that are used in the business, which exist physically, and are not for sale to customers.

Sales - Revenue generated from the sale of products and services.

Sales mix - The portion of sales forecasted between the various products and services being offered.

Stockholders - Those persons holding some share of the business's equity through stock ownership. Also known as shareholders or equity holders.

Sole Proprietorship - A business entity that involves just one individual who owns and operates the enterprise.

Strategic alliance - An agreement between two or more companies for the purpose of doing business.

Supplies - Items that a business needs to provide products or services, but are not sold to customers.

S Corporation - A type of corporation that provides its owners with tax treatment that is similar to a partnership and liability protection similar to a corporation.

Unit cost - The cost of a single product or service.

Unit price - The selling price of a single product or service.

Variable cost or expense - A cost or expense that increases or decreases with the level of sales.

Variable inventory - A system where the inventory level fluctuates with sales.

Vendor financing - Buying from vendors on credit terms.

Vision statement - A series of brief sentences of paragraphs that describes the "big goals" that your business hopes to achieve over time. It can also present the heights you believe your business may reach and what you want your business to be after a certain period of time.

Working capital - The amount by which current assets exceeds current liabilities.