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Business Glossary
Our business glossary helps explains common and not so common business terms and phrases.
- ACCOUNTING
PERIOD
- A period of
time, (month, quarter, year), for which a financial statement is produced.
- ACCOUNTS
PAYABLE
- This represents
what a business owes to its suppliers and other creditors at a given
point in time.
- ACCOUNTS
RECEIVABLE
- This represents
the amount due to a business by its customers at a given point in
time.
- ACCRUAL
ACCOUNTING
- A method of
bookkeeping in which income and expenses are allocated to periods
to which they apply, regardless of when actually received or paid.
For example, when an invoice is rendered, its value is added to income
immediately, even though it has not been paid. (Also see CASH ACCOUNTING)
- AUDIT
- Verification
of financial records and accounting procedures generally conducted
by a CPA or accounting firm or if you're really unlucky, the IRS.
- BALANCE
SHEET
- Financial statement
showing assets and liabilities at a specific time.
- BOND
- A third party
obligation promising to pay if a vendor does not fulfill its valid
obligations under a contract. Types of bonds include LICENSE, PERFORMANCE,
BID, INDEMNITY & PAYMENT. (Also see SURETY BOND)
- BREAK-EVEN
POINT
- The point at
which sales equal total costs.
- CAPITAL
ASSET
- An asset that
is purchased for long-term use such as machinery and equipment.
- CASH ACCOUNTING
- The simplest
form of accounting in which income is considered earned when received
and expenses are not taken into account until paid.
- CAVEAT EMPTOR
- "Let the buyer
beware"
- CERTIFIED
LENDERS
- Banks that
participate in the SBA's
guaranteed loan program.
- COLLATERAL
- An asset that
can be sold for cash and which has been pledged to a creditor to secure
a future obligation. (For example, if you finance a car it is the
collateral for the loan).
- COMPOUND
INTEREST
- Interest earned
on previously accumulated interest plus the original principal. Most
spread sheets can calculate this easily for you but for the curious,
the formula is C = P(1 + r/n)n, where C=compound amount,
P=original principal, r=annual interest rate, n=total number of periods
over which interest is compounded.
- CONTRACT
- An agreement
between two (or more) parties in which each promises to perform in
some way. Contracts can be complex and should always be reviewed by
an attorney. A contract may not be binding if not correctly drafted
and executed .
- CREDIT REPORT
- A listing of
an individual or company's history of repaying past loans and other
liabilities.
- DEBT FINANCING
- This is financing
in which you get a loan from someone or somewhere and go into debt!
You are obligated to repay the money at some predetermined interest
rate.
- DEPRECIATION
- Decrease in
the value of equipment over time. Depreciation of equipment used for
business is a tax-deductible expense.
- DROP SHIPMENT
- A shipment
directly from the manufacturer to the end user.
- DUNS (Data
Universal Numbering System)
- A database
maintained by Dun and Bradstreet that is used by the Government to
identify each contractor and their location(s). This number is required
to register with the Central Contractor Register (CCR) that is used
by the government's electronic commerce/electronic data interchange
(EC/EDI) system called FACNET. You can obtain a DUNS number at no
cost by calling Dun and Bradstreet at 800-333-0505.
- EMPLOYER
IDENTIFICATION NUMBER (EIN)
- A number obtained
by a business from the IRS by filing form SS-4. If you are a sole
proprietorship, your EIN is your social security number.
- ENTREPRENEUR
- Someone who
is willing to assume the responsibility, risk and rewards of starting
and operating a business.
- EQUITY FINANCING
- This involves
"selling" a portion of your company to an outside investor. You have
no obligation to repay the funds. In general, venture capital firms
provide this type of funding.
- ESCROW
- Temporary monitary
deposit with an independent third party by agreement between two parties.
The escrow money is released when certain agreed conditions have been
met.
- ESOP
- (Employee Stock
Ownership Plan). A plan where employees have a vested interest (stock
ownership) in the company
- FACTORING
- The buying
and selling of invoices or accounts receivables.
- FIDUCIARY
- A person or
company entrusted with assets owned by another party (beneficiary),
and responsible for investing the assets until they are turned over
to the beneficiary.
- FISCAL YEAR
- Any 12-month
period used by a company or government as an accounting period.
- FIXED COST
- A production
cost which does not vary significantly with the volume of output.
An example would be administrative costs. (Also see VARIABLE COST).
- FRANCHISE
- A franchise
is a form of licensing. The franchiser provides his services through
a series of franchisees. Before investing in any franchise, check
with the International Franchise Association at 1 800 543 1038 to
see if the franchise is a member in good standing.
- FREE ON
BOARD (FOB)
- Commercial
term in which the seller's obligations are fulfilled when the goods
reach a point specified in the contract.
- GRACE PERIOD
- Time allowed
a debtor in which legal action will not be undertaken by the creditor
when payment is late.
- GUARANTEE
- Pledge by a
third party to repay a loan in the event that the borrower cannot.
A special case is a PERSONAL guarantee in which you personally guarantee
an obligation.
- GUARANTEED/INSURED
LOANS
- Programs in
which the federal government makes an arrangement to indemnify a lender
against part or all of any defaults by those responsible for repayment
of loans. An example is a small business loan guaranteed by the SBA.
- INDEMNITY
- Obligation
of one party to reimburse another party for losses which have occurred
or which may occur.
- JOB SHARING
- Arrangement
in which the responsibilities and hours of one job position are carried
out by two people.
- LIEN
- Legal right
to hold property of another party or to have it sold or applied in
payment of a claim.
- LIQUIDATION
- Sale of the
assets of a business to pay off debts.
- MARGINAL
COST
- Additional
cost associated with producing one more unit of output.
- MINORITY
BUSINESSES
- The Small Business
Administration defines minorities as those who are "socially and economically
disadvantaged." The U.S. Code of Federal Regulations (CFR) contains
the specific requirements.
- MLM (Multi
Level Marketing)
- Multilevel
marketing (MLM) plans, are a way of selling goods or services through
distributors. These plans promise that if you sign up as a distributor,
you will receive commissions -- for both your sales of the plan's
goods or services and those of other people you recruit to join the
distributors. Be careful of plans that offer to pay commissions for
recruiting new distributors. This is called "pyramiding" and is illegeal
in most states.
- OSDBU (Office
of Small and Disadvantaged Business Utilization)
- These offices
offer small business information on procurement opportunities, guidance
on procurement procedures, and identification of both prime and subcontracting
opportunities with the United States Government.
- OVERHEAD
- Business expenses
not directly related to a particular good or service produced. An
example would be utilities.
- PASS
- This is the
Procurement Automated Source System managed by the Small Business
Administration. Registering with this central referral system of small
businesses interested in selling to the government can bring you business
with almost no effort. Registration is free. Call 1 800 231 7277.
- POWER OF
ATTORNEY
- An agreement
authorizing someone (generally an attorney) to act as your agent.
This agreement may be general (complete authority) or special (limited
authority).
- PREFERRED
LENDERS
- Banks which
have a special written agreement with the SBA which allows them to
make a guaranteed SBA
loan without prior SBA approval.
- PROFIT &
LOSS (P & L) STATEMENT
- A listing
of income, expenses, and the resulting net profit or loss. This
is also called an income statement.
- PROMPT PAYMENT
ACT
- A federal law
that requires federal agencies to pay interest to companies on bills
not paid within 30 days of invoice or completion of work.
- SBC
(Small Business Centers)
- These 12 GSA
centers located throughout the United States can help you tap the
multi-billion-dollar GSA "market" for goods and services. Contact
a center nearest you.
- SBDC
- Small Business
Development Centers are are located throughout the United States and
are administered by the SBA. They provide management assistance to
entrepreneurs and new business owners.
- SBIC (Small
Business Investment Corporation)
- SBICs are licensed
by the SBA as federally funded private venture capital firms. Money
is available to small businesses under a variety of agreements.
- SCORE
- The Service
Corps of Retired Executives is a volunteer management assistance program
of the SBA. SCORE volunteers provide one-on-one counseling and workshops
and seminars for small businesses. There are hundreds of SCORE offices
throughout the United States.
- SIC (Standard
Industrial Classification Code)
- A four-digit
number assigned to identify a business based on the type of business
or trade involved. The first two digits correspond to major groups
such as construction and manufacturing, while the last two digits
correspond to subgroups such as constructing homes versus constructing
highways. A business can determine its SIC number by looking it up
in a directory published by the Department of Commerce, or by checking
in the SIC book in the reference section of a local library. SBA size
standards are based on SIC codes.
- SIMPLE INTEREST
- Interest paid
only on the principal of a loan.
- SOLE PROPRIETORSHIP
- The simpliest
(and most popular) form of business organization. The individual is
personally liable for all debts of the business to the full extent
of his or her property. On the other hand, the owner has complete
control of the business.
- SURETY BONDS
- Surety bonds
provide reimbursement to an individual, company or the government
if a firm fails to complete a contract. SBA guarantees surety bonds
in a program much like SBA's guaranteed loan program.
- SWEAT EQUITY
- A common form
of "investment." This refers to the investment in time owners make,
with no salary, to a new business.
- TAX NUMBER
- A number assigned
to a business that enables the business to buy wholesale without paying
sales tax on goods and products. Contact your local court house for
additional information.
- VARIABLE
COST
- Any costs which
change significantly with the level of output. The obvious example
is cost of materials.
- VENTURE
CAPITAL
- Money used
to support new or unusual undertakings; equity, risk or speculative
investment capital. This funding is provided to new or existing firms
which exhibit potential for above-average growth.
Business Information At a Glance
Excellent Business Books to Read:
- The Advertising Handbook for Small Business: Make a Big Impact With a Small Budget - by Dell Dennison
- Business Captial for Women - by Emily Card and Adam Miller
- Look Before You Leap: Market Research Made Easy - by Don Doman, Dell Dennison and Margaret Doman
- Ogilvy on Advertising - by David Ogilvy
- Out of Work? Get Into Business - by Don Doman
You can order any of these books or most other business related books through Amazon.com. Please, use the handy search feature on this page if you would like more book information.
Here's a great business related video and CD-ROM training link for you: The Richardson Company - Training Media. The Richardson Company has hundreds of training oriented selections to choose from.
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