Enjoy the read, TCB360 Smart Business Network listeners – LaTanya Junior, Your Brand Friend

 

Source: www.Bplans.com

 

Business Definitions – A

Accounts Payable (AP) – Bills to be paid as part of the normal course of business. This is a standard accounting term, one of the most common liabilities, which normally appears in the Balance Sheet listing of liabilities. Businesses receive goods or services from a vendor, receive an invoice, and until that invoice is paid the amount is recorded as part of “Accounts Payable.”

Accounts Receivable (AR) – Debts owed to your company, usually from sales on credit. Accounts receivable is business asset, the sum of the money owed to you by customers who haven’t paid. The standard procedure in business-to-business sales is that when goods or services are delivered the come with an invoice, which is to be paid later. Business customers expect to be invoiced and to pay later. The money involved goes onto the seller’s books as accounts receivable, and onto the buyer’s books as accounts payable.

accrual-based accounting – Standard business accounting, which assumes there will be Accounts payable (Bills to be paid as part of the normal course of business) and/or sales on credit (Sales made on account; shipments against invoices to be paid later) , as opposed to Cash-Basis only. For example, most businesses have regular bills such as rent, utilities, and often inventory purchase which are not paid for at the exact moment of purchase, but are invoiced. Most businesses will also not be able to collect on all of their sales immediately in cash, but must bill the purchaser or wait for payment on at least some percentage of their sales (the exact percentage varies by industry).

accumulated depreciation – Total accumulated depreciation reduces the formal accounting value (called book value) of assets. Each month’s accumulated balance is the same as last month’s balance plus this month’s depreciation. Business Plan Pro shows accumulated depreciation in the Balance Sheet.

acid test – Short-term assets minus accounts receivable and inventory, divided by short-term liabilities. This is a test of a company’s ability to meet its immediate cash requirements. It is one of the more common business ratios used by financial analysts.

acquisition costs – The incremental costs involved in obtaining a new customer.

adaptive firm – An organization that is able to respond to and address changes in their market, their environment, and/or their industry to better position themselves for survival and profitability.

adventure capital – Capital needed in the earliest stages of the venture’s creation before the product or service is available to be provided. (As mentioned in Entrepreneurship for the ’90′s by Baty.)

advertising opportunity – A product or service may generate additional revenue through advertising if there is benefit from creating additional awareness, communicating differentiating attributes, hidden qualities or benefits. Optimizing the opportunity may involve leveraging strong emotional buying motives and potential benefits.

agent – A business entity that negotiates, purchases, and/or sells, but does not take title to the goods.

asset turnover – Sales divided by total assets. Important for comparison over time and to other companies of the same industry. This is a standard business ratio.

assets – Property that a business owns, including cash and receivables, inventory, etc. Assets are any possessions that have value in an exchange. The more formal definition is the entire property of a person, association, corporation, or estate applicable or subject to the payment of debts. What most people understand as business assets are cash and investments, accounts receivable, inventory, office equipment, plant and equipment, etc. Assets can be long-term or short-term, and the distinction between these two categories might be whether they last three years, five years, 10 years, or whatever; normally the accountants decide for each company and what’s important is consistency. The government also has a say in defining assets, because it has to do with tax treatment; when you buy a piece of equipment, if you call that purchase an expense then you can deduct it from taxable income. If you call it an asset you can’t deduct it, but you can list it on your financial statement among the assets. The tax code controls how businesses decide to categorize spendings into assets or expenses.

Business Definitions – B

back end (websites) – Front end and back end describe program interfaces relative to the user. The front end, here, is the appearance of your website. It is the graphic design and HTML portion — some people call this the user interface or UI. In contrast, the portion of the application you or your developers work with is the back-end. The back end handles the dynamic parts of the site, such as a newsletter, an administration page, a registration database, a contact page or more complicated Web applications. Your back end interfaces with your UI and makes your website work.

benchmark – A benchmark is a standard or guideline used to compare some aspect of a business to some objective or external standard measure. For example, when a banker compares a business’ profitability to standard financial ratios for that type of business, the process is sometimes referred to as “benchmarking.” Business Plan Pro creates a chart that it calls “Business Benchmarks,” which it uses to compare five standard business measures (sales, gross margin, net profits, collection days, and inventory turnover) as they change over time. In this case the benchmark is the business itself, so it compares past results to planned future results.

brand – A name, term, sign, symbol, design, or a combination of all used to uniquely identify a producer’s goods and services and differentiate them from competitors.

brand equity – The added value a brand name identity brings to a product or service beyond the functional benefits provided.

brand extension strategy – The practice of using a current brand name to enter a new or different product class.

brand recognition – Positions customer’s relative perceptions of one brand to other competitive alternatives.

break-even analysis – A technique commonly used to assess expected profitability of a company or a single product. The process determines at what point revenues equal expenditures based on fixed and variable. Breakeven is usually expressed in terms of the number of units sold or in total revenue. The break-even analysis is a standard financial analysis that measures general risk for a company by showing the sales level needed to cover both fixed and variable costs. That level of sales is called the break-even point, which can be stated as either unit sales volume or sales as dollar (or other currency) sales. The break-even analysis uses three assumptions to determine a break-even point: fixed costs, variable costs, and unit price. Fixed costs and variable costs are both included in this glossary, and unit price is the average revenue per unit of sales. The formula for break-even point in sales amount is: =fixed costs/(1-(Unit Variable Cost/Unit Price)) The break-even analysis is often confused with payback period (also in this glossary), because many people interpret breaking even as paying back the initial investment. However, this is not what the break-even analysis actually does. Despite the common and more general use of the term “break even,” the financial analysis has an exact definition as explained above. One important disadvantage of the break-even analysis is that it requires estimating a single per-unit variable cost, and a single per-unit price or revenue, for the entire business. That is a hard concept to estimate in a normal business that has a collection of products or services to sell. Another problem that comes up with break-even is its preference for talking about sales and variable cost of sales in units. Many businesses, especially service businesses, don’t think of sales in unit, but rather as sales in money. In those cases, the break-even analysis should think of the dollar as the unit, and state variable costs per unit as variable costs per dollar of sales.

break-even point – The output of the standard break-even analysis. The unit sales volumes or actual sales amounts that a company needs to equal its running expense rate and not lose or make money in a given month. The formula for break-even point in units is: The formula for break-even point in sales amount is: =Regular running costs/(1-(Unit Variable Cost/Unit Price)) This should not be confused with the recovering initial investment through the regular operation of a business. That concept, often confused with break-even, is called the payback period. see break-even analysis for more background.

broker – An intermediary that serves as a go-between for the buyer or seller.

bundling – The practice of marketing two or more product or service items in a single package with one price.

burden rate – Refers to personnel burden, the sum of employer costs over and above salaries (including employer taxes, benefits, etc.). Business Plan Pro uses an assumed burden rate to calculate these extra personnel costs. The rate assumption is in the general assumptions table, as a percentage. Business Plan Pro applies this percentage to the straight wages and salaries. For example, if wages and salaries amount to $10,000 and the burden rate is 15%, then the personnel burden is $1,500, which is 15% of $10,000. The personnel burden is an operating expense, so it belongs with other expenses in the Profit and Loss table. It is also a personnel cost, so it also shows in the Personnel Plan table.

business mission – A brief description of an organization’s purpose with reference to its customers, products or services, markets, philosophy, and technology.

business plan – The written document that details a proposed or existing venture. It seeks to capture the vision, current status, expected needs, defined markets, and projected results of the business. A business plan “tells the entrepreneur’s story” by describing the purpose, basis, reason and future of the venture.

buy-sell agreement – An agreement designed to address situations in which one or more of the entrepreneurs wants to sell their interest in the venture.

Business Definitions – C

C Corporation (C Corp) – Corporations are either the standard C corporation or the small business S corporation. The C corporation is the classic legal entity of the vast majority of successful companies in the United States. Most lawyers would agree that the C corporation is the structure that provides the best shielding from personal liability for owners, and provides the best non-tax benefits to owers. This is a separate legal entity, different from its owners, which pays its own taxes. Most lawyers would also probably agree that for a company that has ambitions of raising major investment capital and eventually going public, the C corporation is the standard form of legal entity. The S corporation is used for family companies and smaller ownership groups. The clearest distinction from C is that the S corporation’s profits or losses go straight through to the S corporation’s owners, without being taxed separately first. In practical terms, this means that the owners of the corporation can take their profits home without first paying the corporation’s separate tax on profits, so those profits are taxed once for the S owner, and twice for the C owner. In practical terms the C corporation doesn’t send its profits home to its owners as much as the S corporation does, because it usually has different goals and objectives. It often wants to grow and go public, or it already is public. In most states an S corporation is owned by a limited number (25 is a common maximum) of private owners, and corporations can’t hold stock in S corporations, just invidivuals. Corporations can switch from C to S and back again, but not often. The IRS has strict rules for when and how those switches are made. You’ll almost always want to have your CPA and in some cases your attorney guide you through the legal requirements for switching.

Compound Average Growth Rate (CAGR) – The standard formula is: (last number/first number)^(1/periods)-1 For more detailed examples, CAGR is explained in the Market Analysis chapter of the online book Hurdle: the Book on Business Planning and in the Market Forecast section of the online book On Target: the Book on Marketing Plans.

cannibalization – The undesirable tradeoff where sales of a new product or service decrease sales from existing products or services and minimize or detract from the total revenue contribution of the organization.

capital assets – Long-term assets, also known as Plant and Equipment, or fixed assets. These terms are interchangeable. Assets are generally divided into short-term and long-term assets, the distinction depending on how long they last. Usually the difference between short term and long term is a matter of accounting and financial policy. Five years is probably the most frequent division point, meaning that assets that depreciate over more than five years are long-term assets. Ten years and three years are also common. Business Plan Pro sets a starting value for capital assets in either the Start-up or the Past Performance table, depending of course on the nature of the company, whether it is start-up or ongoing. In the start-up table, the capital assets are called “.” In the Past Performance table, they are labeled “Capital Assets.” As the plan unfolds into months and year, depreciation decreases the net value of capital assets, and capital expenditure increases total assets. Depreciation appears in the Profit and Loss table, because it is an expense. Capital expenditure appears in the Cash Flow table, because it isn’t an expense. Amounts typed into the Capital Expenditure row of the cash flow will increase the Capital Assets total in the Balance Sheet Table.

capital expenditure – Spending on capital assets (also called plant and equipment, or fixed assets, or long-term assets). Business Plan Pro tracks capital expenditure in the Cash Flow table, because purchasing or selling assets affects cash flow, and the Balance Sheet table, but doesn’t affect profit or loss. A positive amount typed into the Capital Expenditure row in the Cash Flow table will result in an increase in Capital Assetes in the Balance Sheet, and a negative amount will result in a decrease in Capital Assets.

capital input – This could also be called investment, or new investment. It is new money being invested in the business, not as loans or repayment of loans, but as money invested in ownership. This is also money at risk. It will grow in value if the business prospers, and decline in value if the business declines. This is closely related to the concept of paid-in capital, on the Balance Sheet table. Paid-in capital is the amount of money actually invested in the business as money, checks written by investors. Paid-in capital increases only when there is new investment. It is different from retained earnings. Business Plan Pro sets the initial amount of Paid-in Capital as an input into either the Start-up table (for start-up companies) or the Past Performance table (for ongoing companies.) After either of those initial entries, only New Investment Received (called “capital input” in earlier versions), in the Cash Flow table, increases Paid-in Capital. An entry as New Investment Received will increase your cash, and will also increase the total amount of paid-in capital. The amounts planned should be typed into the New Investment Received row of the Cash Flow table, and they will automatically increase Paid-in Capital in the Balance Sheet table.

cash – Cash normally means bills and coins, as in paying in cash. However, the term is used in a business plan to represent the bank balance, or checking account balance. Business Plan Pro builds its financial analysis around cash and cash flow used in this second sense, as the balance of the checking account in the bank, plus other liquid securities used to bolster the checking account.

cash basis – An accounting system that doesnt use the standard accrual accounting. It records only cash receipts and cash spending, without assuming sales on credit (Sales made on account; shipments against invoices to be paid later) or Accounts payable (Bills to be paid as part of the normal course of business).

cash flow – The cash flow in a business plan is the change in the cash balance. For example, the cash flow for a month would be a positive $10,000 if the balance was $10,000 at the beginning of the month and $20,000 at the end of the month. It is important to distinguish cash flow, which is the change in the balance, from cash or cash balance, which is the resulting ending balance. More formally, cash flow is an assessment and understanding of cash coming into and flowing out of the venture in specific periods of time. This can be based on projections or actual cash flow.

cash flow budget – A budget that provides an overview of cash inflows and outflows during a specified period of time. This is often called the cash flow, or the cash budget. Just as cash flow is one of the most critical elements of business, the cash flow projection or table is one of the most critical elements of a business plan.

cash flow statement – One of the three main financial statements (along with Income Statement and Balance Sheet), the Cash Flow shows actual cash inflows and outflows of the business over a specified period of time. The Cash Flow Statement reconciles the Income Statement (Profit and Loss) with the Balance Sheet.

cash sales – Sales made in cash, or with credit cards, or by check. The opposite of sales on credit (Sales made on account; shipments against invoices to be paid later).

cash spending – Money a business spends when it pays obligations immediately instead of letting them wait for a few days first.

central driving forces model – An entrepreneurial based model that considers the positives and negatives of three areas of the venture; founder(s), opportunities, and resources. The model then evaluates these areas regarding the “fits and gaps” that indicate correlating strengths or weaknesses for the venture. The CDF model also considers industry and market information in the overall analysis.

channel conflicts – A situation where one or more channel members believe another channel member is engaged in behavior that is preventing it from achieving its goals. Channel conflict most often relates to pricing issues.

channels of distribution – The system where customers are provided access to an organization’s products or services.

click-through rate – A way of measuring the success of an online advertising campaign. A CTR is obtained by dividing the number of users who clicked on an ad on a Web page by the number of times the ad was delivered (impressions). For example, if your banner ad was delivered 100 times (impressions delivered) and 1 person clicked on it (clicks recorded), then the resulting CTR would be 1%.

co-branding – The pairing of two manufacture’s brand names on a single product or service.

Cost of Goods Sold (COGS) – The cost of goods sold is traditionally the costs of materials and production of the goods a business sells. For a manufacturing company this is materials, labor, and factory overhead. For a retail shop it would be what it pays to buy the goods that it sells to its customers. For service businesses, that don’t sell goods, the same concept is normally called “cost of sales,” which shouldn’t be confused with “sales and marketing expenses.” The cost of sales in this case is directly analogous to cost of goods sold. For a consulting company, for example, the cost of sales would be the compensation paid to the consultants plus costs of research, photocopying, and production of reports and presentations. In standard accounting, costs of sales or costs of goods sold are subtracted from sales to calculate gross margin. These costs are distinguished from operating expenses, because gross profit is gross margin less operating expenses. Costs are not expenses.

collection days – Collection days is supposed to represent the average number of days business waits, on average, between delivering an invoice and receiving payment. The formula for calculating collection days is: =(Accounts_receivable_balance*360)/(Sales_on_credit*12) See Collection period, below.

collection period (days) – The average number of days that pass between delivering an invoice and receiving the money. The formula is: =(Accounts_receivable_balance*360)/(Sales_on_credit*12)

commission – In business, a commission is the compensation paid to the person or entity based on the sale of a product; commonly calculated on a percentage basis. The most frequent commission formula is gross margin multiplied by the commissions percentage. To handle commissions with Business Plan Pro, use the spreadsheet programming capabilities to make one row of operating expenses depend on sales, or gross margin.

commission percent – An assumed percentage used to calculate commissions expense as the product of commission percent multiplied by sales, gross margin, or related sales items.

Community Interest Company (CIC) – (U.K.): A CIC is a new type of limited company in the United Kingdom, designed for social enterprises that want to use their profits and assets for the public good. CICs will be easy to set up, with all the flexibility and certainty of the company form, but with some special features to ensure they are working for the benefit of the community. This is achieved by a “community interest test” and “asset lock”, which ensure that the CIC is established for community purposes and the assets and profits are dedicated to these purposes. Registration of a company as a CIC has to be approved by the Regulator who also has a continuing monitoring and enforcement role.

competitive advantage – The strategic development where customers will choose a firm’s product or service over its competitors based on significantly more favorable perceptions or offerings.

competitive analysis – Assessing and analyzing the comparative strengths and weaknesses of competitors; may include their current and potential product and service development and marketing strategies.

competitive entry wedges – Strategic competitive advantages and justification for entering an established market or activity that provides recognizable and known value. The four competitive entry wedges include: 1) New product or service 2) Parallel Competition 3) Franchise Entry 4) Twists

completed store transactions – A conversion value measuring the number of purchases made on the website.

concentrated target marketing – A process that occurs when a single target market segment is pursued.

contribution – Contribution can have different meanings in different context. When contribution is applied to a product or product line, it means the difference between total sales revenue and total variable costs, or, on a per-unit basis, the difference between unit selling and the unit variable cost and may be expressed in percentage terms (contribution margin) or dollar terms (contribution per unit). Contribution is also frequently expressed as contribution margin for a whole company or across a group or product line, in which case it can be taken as gross margin less sales and marketing expenses. For example, Marketing Plan Pro produce a table named that shows sales, cost of sales, gross margin, sales and marketing expenses, and contribution margin. The contribution is gross margin less sales and marketing expenses.

contribution margin – Contribution can have different meanings in different context. When contribution is applied to a product or product line, it means the difference between total sales revenue and total variable costs, or, on a per-unit basis, the difference between unit selling and the unit variable cost and may be expressed in percentage terms (contribution margin) or dollar terms (contribution per unit). Contribution is also frequently expressed as contribution margin for a whole company or across a group or product line, in which case it can be taken as gross margin less sales and marketing expenses. For example, Marketing Plan Pro produces a table named Contribution Margin that shows sales, cost of sales, gross margin, sales and marketing expenses, and contribution margin. The contribution is gross margin less sales and marketing expenses.

conversion rate – The percentage of unique website visitors who take a desired action upon visiting the website. The desired action may be submitting a sales lead, making a purchase, viewing a key page of the site, downloading a file, or some other measurable action.

core marketing strategy – A statement that communicates the predominant reason to buy to a specific target market.

corporation – Corporations are either the standard C corporation or the small business S corporation. The C corporation is the classic legal entity of the vast majority of successful companies in the United States. Most lawyers would agree that the C corporation is the structure that provides the best shielding from personal liability for owners, and provides the best non-tax benefits to owers. This is a separate legal entity, different from its owners, which pays its own taxes. Most lawyers would also probably agree that for a company that has ambitions of raising major investment capital and eventually going public, the C corporation is the standard form of legal entity. The S corporation is used for family companies and smaller ownership groups. The clearest distinction from C is that the S corporation’s profits or losses go straight through to the S corporation’s owners, without being taxed separately first. In practical terms, this means that the owners of the corporation can take their profits home without first paying the corporation’s separate tax on profits, so those profits are taxed once for the S owner, and twice for the C owner. In practical terms the C corporation doesn’t send its profits home to its owners as much as the S corporation does, because it usually has different goals and objectives. It often wants to grow and go public, or it already is public. In most states an S corporation is owned by a limited number (25 is a common maximum) of private owners, and corporations can’t hold stock in S corporations, just invidivuals. Corporations can switch from C to S and back again, but not often. The IRS has strict rules for when and how those switches are made. You’ll almost always want to have your CPA and in some cases your attorney guide you through the legal requirements for switching.

corridor Principal – The principal where an entrepreneurial venture may find that it has significantly changed it’s focus from the initial concept of the venture as it has continually responded and adapted to it’s market and the desire to optimize profitability potential.

cost of sales – The costs associated with producing the sales. In a standard manufacturing or distribution company, this is about the same as the cost of the goods sold. In a services company, this is more likely to be personnel costs for people delivering the service, or subcontracting costs. This term is commonly used interchangeably with “cost of goods sold,” particularly when it is for a manufacturing, retail, distribution, or other product-based company. In these cases it is traditionally the costs of materials and production of the goods a business sells. For a manufacturing company this is materials, labor, and factory overhead. For a retail shop it would be what it pays to buy the goods that it sells to its customers. For service businesses, that don’t sell goods, the same concept is normally called “cost of sales,” which shouldn’t be confused with “sales and marketing expenses.” The cost of sales in this case is directly analogous to cost of goods sold. For a consulting company, for example, the cost of sales would be the compensation paid to the consultants plus costs of research, photocopying, and production of reports and presentations. In standard accounting, costs of sales or costs of goods sold are subtracted from sales to calculate gross margin. These costs are distinguished from operating expenses, because gross profit is gross margin less operating expenses. Costs are not expenses.

cross elasticity of demand – The change in the quantity demanded of one product or service impacting the change in demand for another product or service.

current assets – The same as short-term assets.

current debt – Short-term debt, short-term liabilities.

current liabilities – Short-term debt, short-term liabilities.

Business Definitions – D

Doing Business As (DBA) – DBA stands for “Doing Business As,” which is a company name, also commonly called a “Fictitious business name.” When a sole proprietor operates a company using any name except his or her own given name, then the DBA or ficticious business name registration establishes the legal ownership to satisfy banks, local authorities, and customers. So when you start the Acme Restaurant, unless you are named Acme, you need your DBA to open a bank account in that name, pay employees, and do business. You can usually obtain this registration through the county government, and the cost is no more than a small registration fee plus a required newspaper ad, for a total of less than $100 in most states.

debt and equity – The sum of liabilities and capital. This should always be equal to total assets.

depreciation – An accounting and tax concept used to estimate the loss of value of assets over time. For example, cars depreciate with use.

differentiated target marketing – A process that occurs when an organization simultaneously pursues several different market segments, usually with a different strategy for each.

differentiation – An approach to create a competitive advantage based on obtaining a significant value difference that customers will appreciate and be willing to pay for, and which ideally will increase their loyalty as a result.

direct cost of sales – A shortcut for cost of goods sold: traditionally, the costs of materials and production of the goods a business sells, or the costs of fulfilling a service for a service business.

direct mail marketing – A form of direct marketing that involves sending information through a mail process, physical or electronic, to potential customers.

direct marketing – Any method of distribution that gives the customer access to an organization’s products and services without intermediaries; also, any communication from the producer that communicates with a target market to generate a revenue producing response.

directory – A computer term related to the operating system on IBM and compatible computers. Disk storage space is divided into directories.

distinctive competency – An organization’s strengths or qualities including skills, technologies, or resources that distinguish it from competitors to provide superior and unique customer value and, hopefully, is difficult to imitate.

diversification – A product-market strategy that involves the development or acquisition of offerings new to the organization and/or the introduction of those offerings to the target markets not previously served by the organization.

dividends – Money distributed to the owners of a business as profits.

dual distribution – The practice of simultaneously distributing products or services through two or more marketing channels that may or may not compete for similar buyers.

Business Definitions – E

early adopters – One type of adopter in Everett Rogers’ diffusion of innovations framework that describes buyers that follow “innovators” rather than be the first to purchase.

early majority – One type of adopter in Everett Rogers’ diffusion of innovations framework that describes those interested in new technology that wait to purchase until these innovations are proven to perform to the expected standard.

earnings – Also called income or profits, earnings are the famous “bottom line”: sales less costs of sales and expenses.

Earnings Before Interest and Taxes (EBIT) – Earnings before interest and taxes.

Earnings Before Interest Taxes Depreciation and Amortization (EBITDA) – Earnings Before Interest, Taxes, Depreciation and Amortization: equal to the Gross Margin (The difference between total sales revenue and total direct cost of sales) minus Total Operating Expenses (Tax-deductible expenses incurred in conducting normal business operations, such as wages and salaries, rent, etc.) , plus any Depreciation (The loss of value of assets over time) and amortization. This is similar to Earnings Before Interest and Taxes (EBIT). The difference between the two is that EBIT subtracts all expenses, including depreciation, as an expense, and EBITDA subtracts all expenses except depreciation and amortization.

economies of scale – The benefit that larger production volumes allow fixed costs to be spread over more units lowering the average unit costs and offering a competitive price and margin advantage. Producing in large volume often generates economies of scale. The per-unit cost of something goes down with volume because vendors charge less per unit for larger orders, and often production techniques and facilities cost less per unit as volume increases. Fixed costs are spread over larger volume.

effective demand – When prospective buyers have the willingness and ability to purchase an organization’s offerings.

effective tax rate – The effective tax rate is a comparison of final tax payments compared to actual profits. Usually the effective tax rate is somewhat less than the nominal tax rate because of deductions, credits, etc.

Entrepreneur In Heat (EIH) – Entrepreneur in Heat describes an entrepreneur that continues to develop new products and services beyond what the venture can support and inadvertently may diminish the focus and effectiveness of the activities supporting the venture’s primary revenue streams.

entrepreneur – Someone who starts a new business venture; someone who recognizes and pursues opportunities others may not see as clearly, and finds the resources necessary to accomplish his or her goals.

equity – Business ownership; capital. Equity can be calculated as the difference between assets and liabilities.

equity financing – The sales of some portion of ownership in a venture to gain additional capital for start-up.

evaluating ideas and opportunities – The process of considering ideas versus opportunities, and then screening those opportunities using objective criteria as well as personal criteria.

Everett Rogers – Author who studied and published work on the diffusion of innovation.

exclusive distribution – A distribution strategy whereby a producer sells its products or services in only one retail outlet in a specific geographical area.

expense – Websters calls it “a spending or consuming; disbursement, expenditure. What’s important about expenses for the purpose of business accounting is that expenses are deductible against taxable income. Common expenses are rent, salaries, advertising, travel, etc. Questions arise because some businesses have trouble distinguishing between expenses and purchase of assets, especially with development expenses. When your business purchases office equipment, if you call that an expense then you can deduct that amount from taxable income, so it reduces taxes.

experience curve – A visual representation, often based on a function of time, from exposure to a process that offers greater information and results in enhanced efficiency and operations advantage.

Business Definitions – F

Features, Advantages and Benefits Analysis (FAB) – A FAB analysis explores the features, advantages, and benefits of a product or service offering. Marketing plans need to understand these concepts in order to develop effective marketing programs. People often confuse features and benefits. For example, in an automobile, air bags are a the feature that produce the benefit of greater safety. Advantages fall in between, features become advantages that offer benefits to the end user.

failure rule, common causes – Entrepreneurial ventures most often fail due to one or more of these four issues: 1) Inadequate sales (39%) 2) Competitive weaknesses (21%) 3) Excessive operating expenses (11%) 4) Uncollected receivables (9%).

failure rule, exceptions to the rule – Exceptions to the failure rule include: 1) High potential ventures 2) Threshold concept 3) Promise of growth 4) Venture Capital backing.

fatal 2% rule – The concept that if a venture can just get “2%” of total market share it will be successful. This percentage can be unattainable based on the approach, limited resources, and/or structure of the industry.

fighting brand strategy – Adding a new brand to confront competitive brands in an established product category.

first mover – A company that attempts to gain an unchallengeable, privileged market position by being the first to establish itself in a given market.

first mover advantage – Key first mover advantages include: 1) Reputation effect 2) Experience curve 3) Customer commitment and loyalty.

first mover disadvantage – These factors can turn first-mover advantages into weaknesses. They include: 1) Resolution of technological uncertainty 2) Resolution of strategic uncertainty 3) Free-rider effect – others duplicate based on the leader’s success 4) Complementary assets to exploit core technological expertise.

fiscal year – Standard accounting practice allows the accounting year to begin in any month. Fiscal years are numbered according to the year in which they end. For example, a fiscal year ending in February of 1992 is Fiscal 1992, even though most of the year takes place in 1991.

five forces model – Porter’s model that considers these forces as they impact and industry and the overall competitive climate: 1) Risk of entry by potential competitors 2) Bargaining power of suppliers 3) Bargaining power of buyers 4) Threat of substitute products 5) Rivalry among established firms.

fixed cost – Running costs that take time to wind down: usually rent, overhead, some salaries. Technically, fixed costs are those that the business would continue to pay even if it went bankrupt. In practice, fixed costs are usually considered the running costs. These are static expenses that do not fluctuate with output volume and become progressively smaller per unit of output as volume increases. Fixed costs are an important assumption for developing a break-even analysis. The standard break-even formula estimates a break-even point of sales based on per-unit price or revenue, per-unit variable costs, and fixed costs. For more on this, see the discussion on break-even analysis in the free online book Hurdle: the Book on Business Planning

fixed liabilities – Debts; money that must be paid. Usually, debt on terms of longer than five years are fixed liabilities. (Also called Long-term Liabilities.) Fixed Liabilities, in contrast to Floating Liabilities, are secured by assets with a stable value, such as a building or a piece of equipment.

floating liabilities – Debts; money that must be paid. Floating Liabilities, in contrast to Fixed Liabilities, are secured by assets with a constantly changing value, such as a company’s Accounts Receivable (debtors). These are usually short-term loans.

focus group – Small groups of people, usually between 9 and 12 in number, representing target audiences, that are brought together to discuss a topic that will offer insight for product development and/or marketing efforts.

forms of market researchMarket research can be casual, affordable, and effective for the entrepreneur. Jay Conrad Levinson provides examples of this form of market research approach in “Guerrilla Marketing Attack.”

frequency marketing – Activities which encourage repeat purchasing through a formal program enrollment process to develop loyalty and commitment from the customer base. Frequency marketing is also referred to as loyalty programs.

front end (websites) – Front end and back end describe program interfaces relative to the user. The front end, here, is the appearance of your website. It is the graphic design and HTML portion — some people call this the user interface or UI. In contrast, the portion of the application you or your developers work with is the back-end. The back end handles the dynamic parts of the site, such as a newsletter, an administration page, a registration database, a contact page or more complicated Web applications. Your back end interfaces with your UI and makes your website work.

full-cost price strategies – Costs that consider variable and fixed cost (total cost) in the pricing of a product of service.

future value projections – The process of projecting the future value of a venture and/or an investment in the venture. It typically considers an expected rate of return, inflation, and the period of time to assess future value.

Business Definitions – G

goodwill – When a company purchases another company for more than the value of its assets — which is quite common — the difference is recorded as an asset named “Goodwill.” This is not a general term for the value of a brand, for example, but a very specific accounting term. For example, if one business buys another business for $1 million then it needs to show the $1 million spent as an asset. If there are only $500 thousand in real assets, the accounting result should be $500,000 in real assets purchased and another $500,000 in “Goodwill.”

gross margin – The difference between total sales revenue and total cost of goods sold (also called total cost of sales). This can also be expressed on a per unit basis, as the difference between unit selling price and unit cost of goods sold. Gross margin can be expressed in dollar or percentage terms.

gross margin percent – Gross margin divided by sales, displayed as a percentage. Acceptable levels depend on the nature of the business. There are providers who can deliver standard gross margins for different types of industries based on SIC (Standard Industry Classification) codes that categorize industries.

guerrilla marketing investment strategy – This is a inverse approach to traditional marketing budgeting. Levinson states: Invest 10% in the “universe” Invest 30% in you prospects Invest 60% in your customers.

guerrilla marketing – Examples of mini, maxi,and non-media tools: Mini: canvassing, personal letters, calls, circulars, brochures, classified ads, Maxi: yellow pages and signs Non-Media: public relations, advertising.

guerrilla marketing concept – Effective and pragmatic marketing can be done with limited resources and should focus on meeting the needs of existing customers in everything that is done, while building the base of prospects through creating additional awareness within the market.

Business Definitions – H

harvesting – Harvesting is most often referring to selling a business or product line, as when a company sells a product line or division or a family sells a business. Harvesting is also occasionally used to refer to sales of a product or product line towards the end of a product life cycle.

Business Definitions – I

ideas vs opportunities – Ideas are the basis of potential business opportunities. Good ideas do not necessarily represent good opportunities.

impressions – An impression occurs each time an advertisement is seen by a potential customer. For example, in online marketing, an impression happens when an advertisement such as a banner ad loads on a user’s screen, whether for the first time, when returning to a page, or when the ad cycles through dynamically.

income statement – Also called Profit and Loss statement. An income statement is a financial statement that shows sales, cost of sales, gross margin, operating expenses, and profits or losses. Gross margin is sales less cost of sales, and profit (or loss) is gross margin less operating expenses and taxes. The result is profit if it’s positive, loss if it’s negative.

Initial Public Offering (IPO) – A corporation’s initial efforts of raising capital through the sale of securities on the public stock market.

innovation (evolutionary or revolutionary) – The determination if an innovation is a “new and improved” concept taken to the next level (evolutionary), or the rare innovation that revolutionizes a technology or concept to the product or services.

innovators – One type of adopter in Everett Rogers’ diffusion of innovations framework describing the first group to purchase a new product or service.

integrated marketing communications – The practice of blending different elements of the communication mix in mutually reinforcing ways.

intensive distribution – A distribution strategy whereby a producer attempts to sell its products or services in as many retail outlets as possible within a geographical area without exclusivity.

interest expense – Interest is paid on debts, and interest expense is deducted from profits as expenses. Interest expense is either long-term or short-term interest.

intrapreneurship – Entrepreneurial-based activities within a corporation that receive organizational support and resources commitments for the purpose of an innovative new business experience within the organization itself.

inventory – Goods in stock, either finished goods or materials to be used to manufacture goods.

inventory turnover – Total cost of sales divided by inventory. Usually calculated using the average inventory over an accounting period, not an ending-inventory value.

inventory turns – Inventory turnover (above). Total cost of sales divided by inventory. Usually calculated using the average inventory over an accounting period, not an ending-inventory value.

Business Definitions – J

jobber – An intermediary that buys from producers to sell to retailers and offers various services with that function.

Business Definitions – L

labor – The labor costs associated with making goods to be sold. This labor is part of the cost of sales, part of the manufacturing and assembly. The row heading refers to fulfillment costs as well, for service companies.

laggards – One type of adopter in Everett Rogers’ diffusion of innovations framework describing the risk adverse group that follows the late majority that is generally not interested in new technology and are the last group of customers to buy.

Leveraged Buy-Out (LBO) – A type of purchase of a business that relies heavily on the venture’s cash receipts with expectations of positive cash flow continuing based on historical or other performance indicators.

liabilities – Debts; money that must be paid. Usually debt on terms of less than five years is called short-term liabilities, and debt for longer than five years in long-term liabilities.

life cycle – A model depicting the sales volume cycle of a single product, brand, service or a class of products or services over time described in terms of the four phases of introduction, growth, maturity and decline.

limited (public) company (AUS) – (Australia) A public Limited Company is one where the right to transfer shares and the number of members is not limited. In addition, the company may invite the public to subscribe for its shares and, to deposit money with the company.

Limited Liability Company (LLC) – The LLC form is different for different states, with some real advantages in some states that aren’t relevant in others. An LLC is usually a lot like an S corporation, a combination of some limitatiuon on legal liability and some favorable tax treatment for profits and transfer of assets. This is a newer form of legal entity, and often harder to establish than a corporation. Why would you establish an LLC instead of a corporation? That’s a tough legal question, not one we can answer here. In general, the LLC has to be missing two of the four characteristics of a corporation (limited liability, centralized management, continuity of life, and free transferability of ownership interest). Still, with the advisability and advantages varying from state to state, here again, this is a question to take to a good local attorney with small business experience.

limited liability partnership (U.S., UK, Japan) – A form of business organization combining elements of partnerships and corporations, in which both managing and non-managing partners are protected from liability to some degree, and have a different tax liability than in a corporation. Although this form of business is available in the U.S., the UK, and Japan, legal details of forming and operating such a company vary from one country to another, and by state within the U.S.

long-term assets – Assets like plant and equipment that are depreciated over terms of more than five years, and are likely to last that long, too.

long-term interest rate – The interest rate charged on long-term debt.

long-term liabilities – This is the same as long-term loans. Most companies call a debt long-term when it is on terms of five years or more.

loss – Loss is an accounting concept, the exact opposite of profit, normally the bottom line of the Income Statement, which is also called Profit or Loss statement. Start with sales, subtract all costs of sales and all expenses, and that produces profit before tax. Subtract tax to get net profit. If the end result is negative, then instead of profit it is called loss.

loyalty programs – Activities designed to encourage repeat purchasing through a formal program enrollment process and the distribution of benefits. Loyalty programs may also be referred to as frequency marketing.

Business Definitions – M

manufacturer’s agent – An agent who typically operates on an extended contractual basis, often sells in an exclusive territory, offers non-competing but related lines of goods, and has defined authority regarding prices and terms of sale.

market – Prospective buyers, individuals or organizations, willing and able to purchase the organization’s potential offering.

market development funds – The monetary resources a company invests to assist channel members increase volume sales of their products or services. Hereafter referred to by the acronym MDF.

market development strategy – A product-market strategy whereby an organization introduces its offerings to markets other than those it is currently serving. In global marketing, this strategy can be implemented through exportation licensing, join ventures or direct investment.

market evolution – Changes in primary demand for a product class and changes in technology.

market penetration strategy – A product market strategy hereby an organization seeks to gain greater dominance in a market in which it already has an offering. This strategy often focuses on capturing a larger share of an existing market.

market plan: its purpose and components – Often found within the business plan, the market plan provides details regarding the overall marketing strategy, pricing, sales tactics, service and warranty policies, advertising and promotion and distribution plans for the venture.

market redefinition – Changes in the offering demanded by buyers or promoted by competitors to enhance its perception and associated sales.

market sales potential – The maximum level of sales that might be available to all organizations serving a defined market in a specific time period.

market segmentation – The categorization of potential buyers into groups based on common characteristics such as age, gender, income, and geography or other attributes relating to purchase or consumption behavior.

market share – Total sales of an organization divided by the sales of the market they serve.

market development strategy – A product-market strategy whereby an organization introduces its offerings to markets other than those it is currently serving. In global marketing, this strategy can be implemented through exportation licensing, join ventures or direct investment.

market penetration strategy – A product market strategy hereby an organization seeks to gain greater dominance in a market in which it already has an offering. This strategy often focuses on capturing a larger share of an existing market.

marketing – The set of planned activities designed to positively influence the perceptions and purchase choices of individuals and organizations.

marketing audit – A comprehensive and systematic examination of a company’s or business unit’s marketing environment, objectives, strategies, and activities with a view of identifying and understanding problem areas and opportunities, and recommending a plan of action.

marketing cost analysis – Assigning or allocating costs to a specified marketing activity or entity in a manner that accurately captures the financial contribution of activities or entities to the organization.

marketing mix – The activities controllable by the organization and include the product, service, or idea offered, the manner in which the offering will be communicated to customers, the method for distributing or delivering the offering, and the price to be charged for.

marketing plan – A written document containing description and guidelines for an organization’s or a product’s marketing strategies, tactics and programs for offering their products and services over the defined planning period, often one year.

marketing-cost analysis – Assigning or allocating costs to a specified marketing activity or entity in a manner that accurately captures the financial contribution of activities or entities to the organization.

materials – Included in the cost of sales. These are materials involved in the assembly or manufacture of goods for sale.

materials included in the cost of sales – These are materials involved in the assembly or manufacture of goods for sale.

mission statement – A statement that captures an organization’s purpose, customer orientation and business philosophy.

moving weighted average – Moving weighted average is a statistical method to forecast the future based on past results. It is a subset of time series analysis. Detailed explanation goes beyond the scope of a glossary of terms, but should be included in any text on forecasting, statistics, or business forecasting.

multiple-channel system – A channel of distribution that uses a combination of direct and indirect channels where the channel members serve different segments.

Business Definitions – N

net cash flow – This is the projected change in cash position, an increase or decrease in cash balance.

Net Present Value (NPV) – The method of discounting future streams of income using an expected rate of return to evaluate the current value of expected earnings. It calculates future value in today’s dollars. NPV may be used to determine the current value of a business being offered for sale or capitalized.

net profit – The operating income less taxes and interest. The same as earnings, or net income.

net profit margin before taxes – The remainder after cost of goods sold, other variable costs revenue, or simply, total revenue minus total cost. Net profit margin can be expressed in actual monetary values or percentage terms.

net worth – This is the same as assets minus liabilities, and the same as total equity. Other short-term assets These might be securities, business equipment, etc.

new visitors – In online marketing, a website visitor who has not made any previous visits to the site or page in question.

new-brand strategy – The development of a new brand and often a new offering for a product class that has not been previously served by the organizations.

newsletter subscriptions – In online marketing, a conversion value measuring the number of users who voluntarily include themselves in your database and are willing to accept unsolicited email from you.

Not Invented Here (NIH) – A negative response to innovations and inventions from sources outside the venture’s own research and development activities.

Business Definitions – O

obligations incurred – Business costs or expenses that need to be paid, but wait for a time as Accounts payable (Bills to be paid as part of the normal course of business) instead of being paid immediately.

offering – The total benefits or satisfaction provided to target markets by an organization. An offering consists of a tangible product or service plus related services such as installation, repair, warranties or guarantees, packaging, technical support, field support, and other services.

offering mix or portfolio – The complete array of an organization’s offerings including all products and services.

on-costs – (Australia): Labor costs in addition to salaries and wages; that is, payroll tax, workers’ compensation and other liability insurance, the cost of subsidized services to employees, training costs, etc.

operating expenses – Expenses incurred in conducting normal business operations. Operating expenses may include wages, salaries, administrative and research and development costs, but excludes interest, depreciation, and taxes.

operating leverage – The extent to which fixed costs and variable costs are used in the production and marketing of products and services.

operations control – The practice of assessing how well an organization performs marketing activities as it seeks to achieve planned outcomes.

opportunities vs. ideas – Ideas are the basis of potential business opportunities. Good ideas do not necessarily represent good opportunities (that is, actual business opportunities).

opportunity analysis – The process of identifying and exploring revenue enhancement or expense reduction situations to better position the organization to realize increased profitability, efficiencies, market potential or other desirable objectives.

opportunity cost – Resource use options that are given up as a consequence of pursuing one activity among several possibilities. Potential benefits foregone as a result of choosing an alternative course of action.

Original Equipment Manufacturer (OEM) – The process that is facilitated through licensing or other financial arrangements where the initial producer of a product or service enters into an agreement to allow another entity to include, remanufacture, or label products or services under their own name and sell through their distribution channels. It typically results in a “higher volume, lower margin” relationship for the original producer, and offers access to a broader range of products and services the buyer can offer their consumers at more attractive costs.

other ST liabilities – These are short-term debts that don’t cause interest expenses. For example, they might be loans from founders or accrued taxes (taxes owed, already incurred, but not yet paid).

outsourcing – Purchasing an item or a service from an outside vendor to replace performance of the task with an organization’s internal operations.

Business Definitions – P

page views – In online marketing, a request for a file whose type is defined as a page in log analysis. This is generally what people mean when they talk about Web page “hits,” but is a more accurate way of tracking this metric because of the way log analysis works. A single page view (one visitor looking at one page) may generate multiple “hits” in log analysis, as all the resources required to view the page (images, .js and .css files) are also requested from the Web server.

paid-in capital – Real money paid into the company as investments. This is not to be confused with par value of stock, or market value of stock. This is actual money paid into the company as equity investments by owners.

partnership – Partnerships are harder to describe because they change so much. They are governed by state laws, but a Uniform Partnership Act that has become the law in most states. That act, however, mostly sets the specific partnership agreement as the real legal core of the partnership, so the legal details can vary widely. Usually the income or loss from partnerships pass through to the partners, wiuthout any partnership tax. The agreements can define different levels of risk, which is why you’ll read about some partnerships that have general partners and limited partners, with different levels of risk for each. The agreement should also define what happens if a partner withdraws, buy and sell arrangements for partners, and liquidation arrangements if that becomes necessary. If you think a partnership might work for your business, make sure you do this right. Find an attorney with experience in partnerships, and check for references of present and past clients. This is a complicated area and a mistake in the agreement will cause a lot of problems.

payables – Short for Account Payables; Bills to be paid as part of the normal course of business. This is a standard accounting term, one of the most common liabilities, which normally appears in the Balance Sheet listing of liabilities. Businesses receive goods or services from a supplier, receive an invoice, and until that invoice is paid the amount is recorded as part of “Accounts Payable.”

payback period – The number of years required for an organization to recapture an initial investment. This may apply to an entire business operation or an individual project.

payment days – The average number of days that pass between receiving an invoice and paying it. It is not a simple estimate; it is calculated with a financial formula: =(Accounts_payable_balance*360)/(Total entries to accounts payable*12)

payment delay – The number of days on average a business waits between receiving a bill and paying a bill. Also called payment days.

payroll – Wages, salaries, employee compensation.

payroll burden – Payroll burden includes payroll taxes and benefits. It is calculated using a percentage assumption that is applied to payroll. For example, if payroll is $1,000 and the burden rate is 10 percent, the burden is an extra $100. Acceptable payroll burden rates vary by market, by industry, and by company.

penetration pricing strategy – Setting a relatively low initial price for a new product or service.

perceived risk – The extent to which a customer or client is uncertain about the consequences of an action, often relating to purchase decisions.

perceptual map – A two or three-dimensional illustration of customer’s perceptions of competing products comparing select attributes based on market research.

personal selling – The use of face-to-face communication between the seller and buyer.

Political, Economic, and Social Trends (PEST) analysis – PEST is a popular framework for situation analysis, looking at political, economic, and social trends. Analyzing these factors can help generate marketing ideas, product ideas, etc.

plant and equipment – This is the same as long-term, fixed, or capital assets. These are generally assets that are depreciated over terms of more than five years, and are likely to last that long, too.

Point of Purchase (POP) advertising – A retail in-store presentation that displays product and communicates information to retail consumers at the place of purchase.

portfolio – The complete array of an organization’s offerings including all products and services. Also called an offering mix.

positioning – Orchestrating an organization’s offering and image to occupy a unique and valued place in the customer’s mind relative to competitive offerings. A product or service can be positioned on the basis of an attribute or benefit, use or application, user, class, price, or quality.

premiums – A product-oriented promotion that offers some free or reduced-price item contingent on the purchase of advertised or featured merchandise or service.

price elasticity of demand – The change in demand relative to a change in price for a product or service.

privately owned – 1) A company whose shares are not publicly traded on a stock market. Such companies usually have less restrictive reporting requirements than publicly traded companies. 2) A company which is not owned by the government (state owned).

pro forma income statement – A projected Income Statement. Pro forma in this context means projected. An income statement is the same as a profit and loss statement, a financial statement that shows sales, cost of sales, gross margin, operating expenses, and profits.

pro forma statements – Financial statements that project the results of future business operations. Examples include a pro forma balance sheet, a pro forma income statement, and a pro forma cash flow statement.

product definition – A stage in a new product development process in which concepts are translated into actual products for additional testing based on interactions with customers.

product development – Expenses incurred in development of new products (salaries, laboratory equipment, test equipment, prototypes, research and development, etc.).

product development strategy – A product-market strategy whereby an organization creates new offerings for existing markets innovation, product augmentation, or product line extensions.

Product Life Cycle (PLC) – The phases of the sales projections or history of a product or service category over time used to assist with marketing mix decisions and strategic options available. The four stages of the product life cycle include introduction, growth, maturity, and decline, and typically follow a predictable pattern based on sales volume over a period of time.

product line – A group of closely related products with similar attributes or target markets.

product-line pricing – The setting of prices for all items in a product line involving the lowest-priced product price, the highest price product, and price differentials for all other products in the line.

profit – Profit is an accounting concept, normally the bottom l;ine of the Income Statement, which is also called Profit or Loss statement. Start with sales, subtract all costs of sales and all expenses, and that produces profit before tax. Subtract tax to get net profit.

profit before interest and taxes – This is also called EBIT, for Earnings Before Interest and Taxes. It is gross margin minus operating expenses.

profit or loss – Also called Profit and Loss statement. An income statement is a financial statement that shows sales, cost of sales, gross margin, operating expenses, and profits or losses. Gross margin is sales less cost of sales, and profit (or loss) is gross margin less operating expenses and taxes. The result is profit if it’s positive, loss if it’s negative.

proprietary (private) limited company – pty limited – (Australia): A Proprietary Limited Company is a private company, in which the right to transfer shares is restricted and the number of members is limited to no more than fifty. In addition, the company is prohibited from inviting the public to subscribe for its shares and, from inviting the public to deposit money with the company.

public relations – Communications often in the form of news distributed in a non-personal form which may include newspaper, magazine, radio, television, Internet or other form of media for which the sponsoring organization does not pay a fee.

publicly traded – A company owned by shareholders who are members of the general public and trade shares publicly, as on the stock market.

pull communication strategy – The practice of creating interest among potential buyers, who then demand the offering from intermediaries, ultimately “pulling” the offering through the channel.

push communication strategy – The practice of “pushing” an offering through a marketing channel in a sequential fashion, with each channel focusing on a distinct target market. The principal emphasis is on personal selling and trade promotions directed toward wholesalers and retailers.

Business Definitions – Q

questionable costs – Costs that may be considered as variable or as fixed costs, depending on the specifics of the situation.

Business Definitions – R

receivables – Short for Account Receivables; Debts owed to your company, usually from sales on credit. Accounts receivable is a business asset, the sum of the money owed to you by customers who haven’t paid. The standard procedure in business-to-business sales is that when goods or services are delivered they come with an invoice, which is to be paid later. Business customers expect to be invoiced and to pay later. The money involved goes onto the seller’s books as accounts receivable, and onto the buyer’s books as accounts payable.

receivables turnover – Sales on credit for an accounting period divided by the average accounts receivables balance.

regional marketing – The practice of using different marketing mixes to accommodate unique preferences and competitive conditions in different geographical areas.

relevant cost – Expenditures that are expected to occur in the future as a result of some marketing action and differ among other potential marketing alternatives.

repositioning – The process of strategically changing the perceptions surrounding a product or service.

resource requirements – (Websites) Your resource requirements are the personnel, time, space and equipment necessary to create and maintain your website. Remember that a website is never done; it will always require resources, some of which will be used to periodically create new content.

retained earnings – Earnings (or losses) that have been reinvested into the company, not paid out as dividends to the owners. When retained earnings are negative, the company has accumulated losses.

return on assets – Net profits divided by total assets. A measure of profitability.

Return On Investment (ROI) – Net profits divided by net worth or total equity; yet another measure of profitability. Also called ROI.

return on sales – Net profits divided by sales; another measure of profitability.

return visitors – In online marketing, a website visitor who has made at least one previous visit to the site or page in question.

rich-gumpert evaluation system – A method of analysis that associates a numeric value between 1 and 4 regarding the spectrums of product development and the entrepreneur and management team. For example, the most desirable “4/4″ rating represents a fully developed product with an established market that is supported by a fully staffed and experienced management team.

Rogers, Everett – Author who studied and published information on the theory of diffusion of innovation.

Business Definitions – S

S Corporation (S Corp) – Corporations are either the standard C corporation or the small business S corporation. The C corporation is the classic legal entity of the vast majority of successful companies in the United States. Most lawyers would agree that the C corporation is the structure that provides the best shielding from personal liability for owners, and provides the best non-tax benefits to owers. This is a separate legal entity, different from its owners, which pays its own taxes. Most lawyers would also probably agree that for a company that has ambitions of raising major investment capital and eventually going public, the C corporation is the standard form of legal entity. The S corporation is used for family companies and smaller ownership groups. The clearest distinction from C is that the S corporation’s profits or losses go straight through to the S corporation’s owners, without being taxed separately first. In practical terms, this means that the owners of the corporation can take their profits home without first paying the corporation’s separate tax on profits, so those profits are taxed once for the S owner, and twice for the C owner. In practical terms the C corporation doesn’t send its profits home to its owners as much as the S corporation does, because it usually has different goals and objectives. It often wants to grow and go public, or it already is public. In most states an S corporation is owned by a limited number (25 is a common maximum) of private owners, and corporations can’t hold stock in S corporations, just invidivuals. Corporations can switch from C to S and back again, but not often. The IRS has strict rules for when and how those switches are made. You’ll almost always want to have your CPA and in some cases your attorney guide you through the legal requirements for switching.

sales break-even – The sales volume at which costs are exactly equal to sales. The exact formula is =Fixed_costs/(1-(Unit_Variable_Cost/Unit_Price))

sales forecast – The level of sales a single organization expects to achieve based on a chosen marketing strategy and assumed competitive environment.

sales on credit – Sales made on account; shipments against invoices to be paid later.

scrambled merchandising – The practice by wholesalers and retailers that carry an increasingly wider assortment of merchandise.

seed capital – Seed capital is investment contributed at a very early stage of a new venture, usually in relatively small amounts. It comes even before what they call “first round” venture capital. How much is that “relatively small amount?” I’ve heard some high-end high-tech ventures in the heart of Silicon Valley call an investment of $500K seed capital, and I’ve known of other ventures that called $35K investment seed capital, and the following $300K investment the first round. It depends on the point of view.

selective distribution – A strategy where a producer sells its products or services in a few exclusively chosen retail outlets in a specific geographical area.

selling approaches – Five potential selling resources based on the sales value and the distribution of the product.

Senior Corps of Retired Executives (SCORE) – A no-cost consulting and resources service offered through the Small Business Administration.

shareholders – Individuals or companies that legally own one or more shares of stock in a company.

short-term – Normally used to distinguish between short-term and long-term, when referring to assets or liabilities. Definitions vary because different companies and accountants handle this in different ways. Accounts payable is always a short-term liability, and cash, accounts receivable and inventory are always short-term assets. Most companies call any debt of less than five-year terms short-term debt. Assets that depreciate over more than five years (e.g., plant and equipment) are usually long-term assets.

short-term assets – Cash, securities, bank accounts, accounts receivable, inventory, business equipment, assets that last less than five years or are depreciated over terms of less than five years. Also called Current Assets.

short-term notes – These are the same as short-term loans. These are debts with terms of five years or less.

short-term liabilities – These are debts with terms of five years or less. These are also called current liabilities, short-term loans, or short-term (current) debts. These may also include short-term debts that don’t cause interest expenses. For example, they might be loans from founders or accrued taxes (taxes owed, already incurred, but not yet paid).

simple linear regression – A linear correlation that offers a straight-line projection based on the variables considered.

situation analysis – The assessment of operations to determine the reasons for the gap between what was or is expected, and what has happened or will happen.

skimming pricing strategy – Setting a relatively high initial price for a new product or service when there is a strong price-perceived quality relationship that targets early adopters that are price insensitive. The price may be lowered over time.

slotting allowances – Payments to store chains for acquiring and maintaining shelf space.

Small Business Investment Council (SBIC) – A division of the Small Business Administration that offers “venture capital-like” resources to higher risk businesses seeking capital.

sole proprietorship – The simplest form is the sole proprietorship. Simply put, your business is a sole proprietorship if you don’t create a separate legal entity for it. This is true whether you operate it in your own name, or under a trade name. If it isn’t your own name, then you register a company name as a “Fictitious business name,” also called a DBA (“Doing Business As”). Depending on your state, you can usually obtain this through the county government, and the cost is no more than a small registration fee plus a required newspaper ad, for a total of less than $100 in most states.

sole trader – (U.K.) This is the easiest and quickest form of corporation for a small, privately-owned business. Your Memoranda and Articles of Association are usually fairly straightforward to obtain, and your taxes will be lower than those of a public company. However, the owner of a Sole Trader is personally liable for all of its actions and debts, and may not be entitled to benefits, like unemployment payments, that would accrue to those running public companies.

starting date – The starting date for the entire business plan.

stock – 1) Goods on hand, either finished goods or materials to be used to manufacture goods. Also called Inventory. 2) Stock can also refer to privately held or publicly traded shares or securities representing investment in, or partial ownership of, a business. Public trading of such stock occurs on the stock market.

stock market – The organized trading of stocks, bonds, or other securities, or the place where such trading occurs.

stock turnover – Total cost of sales divided by inventory (materials or goods on hand). Usually calculated using the average inventory over an accounting period, not an ending-inventory value. Also called Inventory Turnover.

strategic control – The practice of assessing the direction of the organization as evidenced by its implicit or explicit goals, objectives, strategies, and capacity to perform in the context of changing environmental and competitive actions.

strategic marketing management – The planned process of defining the organization’s business, mission, and goals; identifying and framing organizational opportunities; formulating product-market strategies, budgeting marketing, financial, and production resources; developing reformulation.

success factors – Primary success factors include considerations regarding 1) The choice of business based on the status of the market 2) Education and experience 3) People and collaboration 4) Creativity and innovation versus business skills and networks 5) Incubation potential 6) Leveraging available resources 7) Management practices

success requirements – The basic tasks that must be performed by an organization in a market or industry to compete successfully. These are sometimes “key success factors.”

sunk cost – Past expenditures for a given activity that are typically irrelevant in whole or in part to future decisions. The “sunk cost fallacy” is an attempt to recoup spent dollars by spending still more dollars in the future.

surplus or deficit – (Nonprofit) Also called Profit and Loss statement, in for-profit plans. An income statement is a financial statement that shows funding, cost of funding, gross surplus, operating expenses, and surplus or deficit. Gross surplus is funding less cost of funding, and surplus (or deficit) is gross surplus less operating expenses and taxes. The result is surplus if it is positive, deficit if it is negative.

switching costs – The costs incurred in changing from one provider of a product or service to another. Switching costs may be tangible or intangible costs incurred due to the change of this source.

SWOT analysis – A formal framework of identifying and framing organizational growth opportunities. SWOT is an acronym for an organization’s internal Strengths and Weaknesses and external Opportunities and Threats.

systematic innovation – Innovation resulting from an intentional and organized process to evaluate opportunities to introduce change, based on a definition provided by Peter Drucker. The sources of innovation may be internal or external to the enterprise.

Business Definitions – T

tactics – A collection of tools, activities and business decisions required to implement a strategy.

target market – The target market is a defined segment of the market that is the strategic focus of a business or a marketing plan. Normally the members of this segment possess common characteristics and a relative high propensity to purchase a particular product or service. Because of this, the member of this segment represent the greatest potential for sales volume and frequency. The target market is often defined in terms of geographic, demographic, and psychographic characteristics.

target marketing – The process of marketing to a specific market segment or multiple segments. Differentiated target marketing occurs when an organization simultaneously pursues several different market segments, usually with a different strategy for each. Concentrated target marketing occurs when a single market segment is pursued.

tax rate percent – An assumed percentage applied against pre-tax income to determine taxes.

taxes incurred – Taxes owed but not yet paid.

telemarketing – A form of direct marketing that uses the telephone to reach potential customers.

trade margin – The difference between unit sales price and unit cost and each level of a marketing channel usually expressed in percentage terms.

trading down – The process of reducing the number of features or quality of an offering to realize a lower purchase price.

trading up – The practice of improving an offering by adding new features and higher quality materials or adding products or services to increase the purchase price.

traffic – In broad, general terms, the number of visitors and visits a website receives.

types of entrepreneurs – Entrepreneurs may be categorized into 11 areas including:

  • Solo self-employed individuals
  • Team builders
  • Independent innovators
  • Pattern multipliers
  • Economy of scale exploiters
  • Capital aggregators
  • Acquires
  • Buy – sell artists
  • Conglomerates
  • Speculators
  • Apparent value manipulators

Business Definitions – U

user interface (UI) – User Interface. It is the graphic design and appearance of a website, its function as seen and used by the person on the user end, at the website in a browser. The UI of a website is ultimately how it lets users know what it has to offer them. If it lacks an easy navigation scheme users get lost, and never find the information on a site. The full potential of any website is unleashed through the UI.

unique user sessions – In online marketing, a website metric tracking the number of uniquely identified clients generating requests on the Web server (log analysis) or viewing pages (page tagging). A visitor can make multiple visits.

unit variable cost – The specific labor and materials associated with a single unit of goods sold. Does not include general overhead.

units break-even – The unit sales volume at which the fixed and variable costs are exactly equal to sales. The formula is UBE=Fixed_costs/(Unit_Price-Unit_Variable_Cost) For more on this, see the discussion on break-even analysis in the free online book Hurdle: the Book on Business Planning

unpaid expensesBusiness Plan Pro uses this term to refer to other short-term liabilities in the Start-up table. Normally these would be expenses incurred with credit cards during the start-up phase, such as expenses for office furniture, fixtures, and equipment. Amounts typed into this cell in the Start-up table become the opening balance for Other Short-term Liabilities in the balance sheet. To pay these amounts when due, enter negative dollar amounts into the corresponding row on the Cash Flow table, the one for “other short-term liabilities.”

user benefits – Understanding and appreciating the base reason an individual purchases a product or service that may not directly correlate with the feature or function of the good or service. These benefits may be intangible.

user registrations – In online marketing, a conversion value measuring the number of website visitors who voluntarily include themselves in your database in order to access the content you provide on your website.

Business Definitions – V

valuation – Used as a noun, Valuation is what a business is worth, as in “this company’s valuation is $10 million.” This would mean that a company is valued at $10 million, or worth $10 million. The term is used most often for discussions of sale or purchase of a company; it’s valuation is the price of a share times the number of shares outstanding, and the price of a share is the total valuation divided by the number of shares outstanding. For more business valuation, read more about Business Valuation.

value – The ratio of perceived benefits compared to price for a product or service.

variable cost – Costs that fluctuate in direct proportion to the volume of units produced. The best and most obvious example are physical costs of goods sold, direct costs, such as materials, products purchased for resale, production costs and overhead, etc. The concept of variable cost is an important component of risk in a company, because generally variable costs are less risky than fixed costs, because variable costs are not incurred unless there are sales and production. See also break-even analysis, fixed costs, contribution.

variance – A calculation of the difference between plan and actual results, used by analysts to manage and track the impact of planning and budgeting.

venture capitalists (VC) – Venture capitalists are thought of in two ways, first, some people think of any wealthy individual who invests in young companies as a venture capitalist. Second, within the more informed investors, analysts, and entrepreneurs, a venture capitalist is a manager of a mainstream venture capital fund.

venture capital – Venture capital nowadays is used two ways, first, people often take venture capital as any investment capital obtained through private investment or public investment funds directed to high-risk and high-potential enterprises. Second, within the more informed and sophisticated business circles, venture capital is defined more narrowly as investment money coming from the mainstream venture capital firms, a few hundred major firms, different from investment money from other private investors, angels, etc. For example, the www.bplans.com web tool that recommends investment strategies treats venture capital in this second way, mainstream venture capital investors, as opposed to angel investors, SBIC companies, banks, or friends and family. A venture capitalist is a professional manager of a venture capital fund.

Business Definitions – W

website – A website (or site) is a virtual location on the World Wide Web, identified and located by a URL (Uniform Resource Locator), an address that can lead you to a file on any connected machine anywhere in the world.

website metrics – In online marketing, metrics are measurement tools used to evaluate how effectively a website is marketing a business. These can include:

  • Page Views
  • Impressions
  • Unique User Sessions
  • New Visitors
  • Return Visitors
  • Click-through Rate
  • Conversion Rate

website traffic – In broad, general terms, the number of visitors and visits a website receives. This traffic can be measured by a variety of website metrics.

wholesaler – A channel member that purchases from the producer and supplies to the retailer and primarily performs the function of physical distribution and amassing inventory for rapid delivery.

working capital – The accessible resources needed to support the day-to-day operations of an organization. Working Capital is commonly in the form of cash and current (short-term) assets, including Accounts Receivable, prepaid expenses, Accounts Payable for goods and services, and current unpaid income taxes.

 

 

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