Business Terms Glossary

Tim Berry

68 min. read

Updated February 23, 2024

To start and run a business, you often need to understand business terms that may not be well-defined in a standard dictionary.

Our glossary of business terms provides definitions for common terminology and acronyms in business plans, accounting, finance, funding, and other aspects of small business.

A

Accounts Payable (AP)

Accounts payable (AP) are 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)

Accounts receivables are 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

Accrual-based accounting is 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.

Acid Test

An acid test is a business’s short-term assets minus accounts receivable and inventory, divided by short-term liabilities.

This tests a company’s ability to meet its immediate cash requirements. It is one of the more common business ratios used by financial analysts.

What’s your biggest business challenge right now?

Acquisition Costs

Acquisition costs are the incremental costs involved in obtaining a new customer.

Adaptive Firm

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

To be adaptive, it’s smart to look at your business critically—and a tool like a SWOT analysis can be helpful here.

Adventure Capital

Adventure capital is capital needed in the earliest stages of the venture’s creation before the product or service is available to be provided.

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

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

Asset Turnover

Asset turnover is 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

Assets are property that a business owns, including cash and receivables, inventory, and so on.

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, and so on.

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.

B

Back End (Websites)

Back end and front end describe website program interfaces relative to the user.

The front end of your website is how it looks and how a user interacts with it: the graphic design and HTML portion—some people call this the user interface or UI.

In contrast, the back end handles the dynamic parts of the site, that your website visitors generally don’t see or interact with 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.

Balance Sheet

The balance sheet is one of three essential parts that form the bedrock of a company’s financial statements: cash flow, balance sheet, and income statement.

The balance sheet is a snapshot of your company’s assets, liabilities, and owner’s equity at a specific point in time. It shows what a company owns (assets), what it owes (liabilities), and how much owners and shareholders have invested (equity).

A balance sheet always has to balance: Assets = Liabilities + Equity

For more, read our article here on Bplans that gives an overview of what a balance sheet is.

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.”

Industry benchmarks can tell you whether you are matching the profit margins of your peers, keeping too much inventory on hand, or getting paid faster or slower than others.

For more on small business financials, see The Key Elements of the Financial Plan.

Brand

Your company’s brand includes your business name, logo, sign, symbol, design, or a combination of all used to differentiate your goods or services from competitors.

Brand Equity

Brand equity is the added value a brand name identity brings to a product or service beyond the functional benefits provided. For example, Apple benefits from the fact that its brand name is a household name in smartphones and computers. Apple built a brand that seems fundamentally different from all other computers and smartphones.

Brand Extension Strategy

Brand extension strategy is the practice of using a current brand name to enter a new or different product class. An example of this is the ride-sharing company Uber’s foray into scooters and bike share.

Brand Recognition

Brand recognition refers to a customer’s ability to identify a brand based on its name, logo, colors, or other aspects of a marketing campaign.

Break-Even Analysis

A break-even analysis is used to assess the expected profitability of a company or a single product. It helps you determine at what point revenues and expenditures are equal.

Break-even is usually expressed in terms of the number of units you’ll need to sell or how much revenue you’ll need to generate.

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 the break-even point in sales amount is: = fixed costs/(1-(Unit Variable Cost/Unit Price)).

The break-even analysis is often confused with the 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 variety 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 units, 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 break-even point is the output of a standard break-even analysis. The unit sales volumes or actual sales amounts a company needs to equal its running expense rate and not lose or make money in a given month.

The formula for the 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.

For more detail on the subject, read: What Is Break Even Analysis?

Broker

A broker is an intermediary that serves as a go-between for the buyer or seller.

Check out our latest articles on law and taxes for more information on the legal side of setting up and managing your business.

Bundling

Bundling is the practice of marketing two or more product or service items in a single package with one price.

Burden Rate

Burden rate refers to personnel burden, the sum of employer costs over and above salaries (including employer taxes, benefits, and so on).

Business Mission

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

For more on your business mission, see How to Write a Mission Statement With 10 Examples

Business Plan

A business plan is a strategic roadmap for any new or growing business or startup venture. Formal business plans are generally required by bank lenders, angel investors, and venture capitalists if you’re seeking funding to grow your company. 

A business plan captures the opportunity see for your company: it describes your product or service and your business model, the target market you’ll serve. 

It also includes details on how you’ll execute your plan: how you’ll price and market your solution, and your financial projections.

Check out our full guide covering the basics of business plans.

Buy-Sell Agreement

A buy-sell agreement is an agreement designed to address situations in which one or more of the entrepreneurs want to sell their interest in the venture.

For more on exiting your business, check out our article on selling your business.

C

C Corporation (C Corp)

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. 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 legal entity.

Compound Average Growth Rate (CAGR)

Compound annual growth rate (CAGR) is the rate of return that would be required for an investment to grow from its beginning balance to its ending balance if you reinvest profits every year.

The standard formula for compound average growth rate is: (last number/first number)^(1/periods)-1

Cannibalization

Cannibalization is 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.

Capital Assets

Capital assets are long-term assets, also known as 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.

Capital Expenditure

Spending on capital assets (also called plant and equipment, fixed assets, or long-term assets).

Capital Input

Capital input can 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.

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.

For more on cash, check out our article on forecasting cash flow.

Cash Basis

Cash basis means an accounting system that doesn’t 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

ash flow measures how much money is moving into and out of your business during a specific period of time.

Businesses bring in money through sales, returns on investments, and from loans and investments—that’s cash flowing into the business.

And businesses spend money on supplies and services, as well as utilities, taxes, loan payments, and other bills—that’s cash flowing out.

Cash flow is measured by comparing how much money flows into a business during a certain period of time compared to how much money flows out of that business during that same period. Usually, cash flow is measured over the course of a month or a quarter.

Cash Flow Budget

A cash flow budget is 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

The cash flow statement is one of the three main financial statements (along with the income statement and balance sheet) that shows the financial position and health of a business.

The cash flow statement shows actual cash inflows and outflows of a business over a specified period of time, usually a month or a quarter. The statement then compares cash received to cash spending to determine if a business is cash flow negative or positive.

Cash Sales

Cash sales are sales made in cash, 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

Cash spending is money a business spends when it pays obligations immediately instead of letting them wait for a few days first.

Central Driving Forces Model

The central driving forces model is 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

Channel conflicts refer to 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

Channels of distribution are the system where customers are provided access to an organization’s products or services.

Click-Through Rate

Click-through rate is a way of measuring the success of an online advertising campaign.

A click-through rate (CTR) is obtained by dividing the number of users who clicked on an ad on a webpage 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

Co-branding is the pairing of two manufacturer’s brand names on a single product or service.

Cost of Goods Sold

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 Period (Days)

A collection period is the average number of days 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 commission percentage.

Commission Percent

A commission percent is an assumed percentage used to calculate commission expense as the product of commission percent multiplied by sales, gross margin, or related sales items.

Community Interest Company (CIC)

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

A competitive advantage is 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

Competitive analysis means 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

Competitive entry wedges are 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

Completed store transactions refer to a conversion value measuring the number of purchases made on the website.

Concentrated Target Marketing

Concentrated target marketing is a process that occurs when a single target market segment is pursued.

Contribution

Contribution can have different meanings in different context.

When the 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. It may be expressed in percentage terms (contribution margin) or dollar terms (contribution per unit).

Contribution Margin

Contribution is 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.

Conversion Rate

A conversion rate is 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

Core marketing strategy is 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 most successful companies in the United States. 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 corporation’s owners can take their profits home without first paying the corporation’s separate tax on profits. Profits are taxed once for the S owner, and twice for the C owner. The C corporation doesn’t send its profits home to its owners as much as the S corporation 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 individuals. 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 corridor principle is the principle where an entrepreneurial venture may find that it has significantly changed its focus from the initial concept of the venture as it has continually responded and adapted to its market and the desire to optimize profitability potential.

Cost of Sales

Cost of sales refers to the costs associated with producing the sales.

In a standard manufacturing or distribution company, this is 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 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 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.

For more on costs of goods sold, see our article on the LivePlan blog: What Are Direct Costs?

Cross Elasticity of Demand

Cross elasticity of demand is the change in the quantity demanded of one product or service, impacting the change in demand for another product or service.

Current Assets

Current assets are the same as short-term assets.

Current Debt

Current debt refers to short-term debt and short-term liabilities.

Current Liabilities

Current liabilities refer to short-term debt and short-term liabilities.

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 fictitious 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

Debt and equity is the sum of liabilities and capital. This should always be equal to total assets.

Depreciation

Depreciation is 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

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

Differentiation

Differentiation is 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

Direct cost of sales is 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

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

Direct Marketing

Direct marketing refers to 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 directory is a computer term related to the operating system on IBM and compatible computers. Disk storage space is divided into directories.

Distinctive Competency

A distinctive competency is 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

Diversification is 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

Dividends refers to money distributed to the owners of a business as profits.

Dual Distribution

Dual distribution is the practice of simultaneously distributing products or services through two or more marketing channels that may or may not compete for similar buyers.

E

Early Adopters

Early adopters are 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

An early majority is 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)

EBIT refers to earnings before interest and taxes.

Earnings Before Interest Taxes Depreciation and Amortization (EBITDA)

Earnings before interest, taxes, depreciation and amortization (or EBITDA) is 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, and so on), 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

Economies of scale refers to 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

Effective demand is 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)

The term “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

An entrepreneur is 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

Equity is business ownership—capital. Equity can be calculated as the difference between assets and liabilities.

Equity Financing

Equity financing refers to the sales of some portion of ownership in a venture to gain additional capital for startup.

Evaluating Ideas and Opportunities

Evaluating ideas and opportunities is the process of considering ideas versus opportunities, and then screening those opportunities using objective criteria as well as personal criteria.

Everett Rogers

Everett Rogers is an author who studied and published work on the diffusion of innovation.

Exclusive Distribution

Exclusive distribution is a distribution strategy whereby a producer sells its products or services in only one retail outlet in a specific geographical area.

Expense

For the purposes of business accounting, expenses are deductible against taxable income. Common expenses are rent, salaries, advertising, travel, and so on.

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

The experience curve is 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.

F

Features, Advantages, and Benefits (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 feature that produces the benefit of greater safety. 

Advantages fall in between, and 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

Entrepreneurial ventures most often fail due to one (or more) of the following common issues: inadequate sales, competitive weaknesses, excessive operating expenses, and uncollected receivables.

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 of the fatal 2% rule is 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

A fighting brand strategy is adding a new brand to confront competitive brands in an established product category.

First Mover

The first mover is 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

The fiscal year is a 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 2025 is Fiscal 2025, even though most of the year takes place in 2024.

Five Forces Model

Porter’s model considers these forces as they impact an 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.

Fixed Liabilities

Fixed liabilities are 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

Floating liabilities are 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

A focus group refers to small groups of people, usually between nine 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.

Frequency Marketing

Frequency marketing refers to activities that 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

Full-cost price strategies are costs that consider variable cost and fixed cost (total cost) in the pricing of a product or service.

Future Value Projections

Future value projections refer to 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.

G

Goodwill

Goodwill is 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

Gross margin is 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

The gross margin percent is the 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

The term guerrilla marketing comes from Conrad Levinson’s book Guerrilla Marketing, which refers to marketing via events and stimulated media coverage rather than paid advertisements.

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.

I

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)

An IPO is a corporation’s initial effort to raise capital through the sale of securities on the public stock market.

Innovation (Evolutionary or Revolutionary)

Innovation refers to 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

Innovators refers to 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

Integrated marketing communications is the practice of blending different elements of the communication mix in mutually reinforcing ways.

Intensive Distribution

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

Intraprenuership

Intrapreneurship refers to entrepreneurial-based activities within a corporation that receive organizational support and resource commitments for an innovative new business experience within the organization itself.

Inventory

Inventory refers to goods in stock, either finished goods or materials used to manufacture goods.

Inventory Turnover

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

Inventory Turns

Also known as inventory turnover, inventory turns are the total cost of sales divided by inventory. Usually calculated using the average inventory over an accounting period, not an ending-inventory value.

J

Jobber

A jobber is an intermediary that buys from producers to sell to retailers and offers various services with that function.

L

Labor

Labor, in this context, refers to 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

Laggards are one type of adopter in Everett Rogers’ diffusion of innovations framework describing the risk-averse group that follows the late majority that is generally not interested in new technology and are the last customers to buy.

Leveraged Buy Out (LBO)

A leveraged buy-out is 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

Liabilities are debts or 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 is called long-term liabilities.

Life Cycle

A life cycle is 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)

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 limitation 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

A limited liability partnership is 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 U.K., 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

Long-term assets are 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

A long-term interest rate is the interest rate charged on long-term debt.

Long-Term Liabilities

Long-term liabilities are 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

Loyalty programs are 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.

M

Manufacturer’s Agent

A manufacturer’s agent is 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

A market refers to prospective buyers, individuals, or organizations, willing and able to purchase the organization’s potential offering.

Market Development Funds

Market development funds refer to the monetary resources a company invests to assist channel members increase volume sales of their products or services.

Market Development Strategy

A market development strategy is 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, joint ventures, or direct investment.

Market Evolution

Market evolution refers to changes in primary demand for a product class and changes in technology.

Market Penetration Strategy

Market penetration is the amount that your business is able to sell a product or service to customers compared to the estimated total available market (TAM). 

This is a measurement that can help you define the serviceable available market (SAM), which is the portion you estimate that you can acquire. 

Additionally, it can serve as a baseline for developing a strategy to increase your service obtainable market (SOM), or the subset of customers that you can realistically acquire.

Market Plan

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

Market Redefinition

Market redefinition refers to changes in the offering demanded by buyers or promoted by competitors to enhance its perception and associated sales.

Market Sales Potential

Market sales potential is the maximum level of sales that might be available to all organizations serving a defined market in a specific period.

Market Segmentation

Market segmentation is 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

Market share is the total sales of an organization divided by the sales of the market they serve.

Marketing

Marketing refers to the set of planned activities designed to positively influence the perceptions and purchase choices of individuals and organizations.

Check out our guide on the different ways to market your business.

Marketing Audit

A marketing audit is a comprehensive and systematic examination of a company’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 Mix

Marketing mix refers to the activities controllable by the organization. It includes 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.

Marketing Plan

A marketing plan is a written document containing descriptions 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

Marketing cost analysis refers to 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

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

Materials Included in Cost of Sales

These are materials involved in the assembly or manufacture of goods for sale.

Mission Statement

A mission statement is 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.

Multiple Channel System

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

N

Net Cash Flow

Net cash flow is the projected change in cash position, an increase or decrease in cash balance.

Net Present Value (NPV)

Net present value is a method of discounting future income streams 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

Net profit is the operating income less taxes and interest. The same as earnings, or net income.

Net Profit Margin Before Taxes

Net profit margin before taxes is 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

Net worth is the same as assets minus liabilities, and the same as total equity; other short-term assets. These might be securities, business equipment, and so on.

New Visitors

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

New Brand Strategy

New brand strategy is the development of a new brand and often a new offering for a product class that has not been previously served by the organization.

Newsletter Subscriptions

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

Not Invented Here (NIH)

Not invented here is a negative response to innovations and inventions from sources outside the venture’s own research and development activities.

O

Obligations Incurred

Obligations incurred are business costs or expenses that need to be paid, but wait for a time as accounts payable (in other words, bills to be paid as part of the normal course of business) instead of being paid immediately.

Offering

An offering is 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

An offering mix is an organization’s offerings, including all products and services.

On-Costs

On-costs are labor costs in addition to salaries and wages; that is, payroll tax, workers’ compensation, and other liability insurance, subsidized services to employees, training costs, and so on.

Operating Expenses

Operating expenses are 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

Operating leverage is the extent to which fixed costs and variable costs are used in the production and marketing of products and services.

Operations Control

Operations control is assessing how well an organization performs marketing activities as it seeks to achieve planned outcomes.

Opportunity Analysis

Opportunity analysis identifies and explores revenue enhancement or expense reduction situations to better position the organization to realize increased profitability, efficiencies, market potential, or other desirable objectives.

Opportunity Cost

Opportunity cost refers to the resource use options given up due to pursuing one activity among several possibilities. Potential benefits foregone as a result of choosing an alternative course of action.

Original Equipment Manufacturer (OEM)

An original equipment manufacturer is the process that is facilitated through licensing or other financial arrangements where the initial producer of a product or service agrees to allow another entity to include, remanufacture, or label products or services under their name and sell through their distribution channels.

It typically results in a “higher volume, lower margin” relationship for the original producer. It offers access to a broader range of products and services the buyer can offer their consumers at more attractive costs.

Other Short-Term Liabilities

Other short-term liabilities 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

Outsourcing is purchasing an item or a service from an outside vendor to replace the performance of the task with an organization’s internal operations.

P

Pageviews

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 webpage hits, but is a more accurate way of tracking this metric because of the way log analysis works.

A single pageview (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 is real money paid into the company as investments. This is not to be confused with the par value of stock, or market value of stock. This is actual money to the company as equity investments by owners.

Partnership

Partnerships are hard to describe because they change so much. State laws govern them, but the Uniform Partnership Act 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 passes through to the partners without any partnership tax. The agreements can define different levels of risk, which is why you’ll read about some partnerships with general 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, 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

Payables is 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

A payback period is the number of years an organization requires to recapture an initial investment. This may apply to an entire business operation or an individual project.

Payment Days

Payment days are 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

Payment delay is the number of days on average a business waits between receiving a bill and paying a bill. Also called payment days.

Payroll

Payroll refers to wages, salaries, or 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, industry, and company.

Penetration Pricing Strategy

Penetration pricing strategy refers to setting a relatively low initial price for a new product or service.

Perceived Risk

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

Perceptual Map

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

Personal Selling

Personal selling is the use of face-to-face communication between the seller and buyer.

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, and so on.

Plant and Equipment

Plant and equipment 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 Advertising (POP)

Point of purchase advertising is a retail in-store presentation that displays product and communicates information to retail consumers at the place of purchase.

Portfolio

A portfolio is the complete array of an organization’s offerings including all products and services. Also called an offering mix.

Positioning

Positioning refers to 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

Premiums refers to 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

Price elasticity of demand is the change in demand relative to a change in price for a product or service.

Privately Owned

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

Pro Forma Income Statement

A pro forma income statement is 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

The term “pro forma” in front of any financial statement primarily serves to label that version of the statement as not adhering to the strict “generally accepted accounting principles” (GAAP) standards that all publicly-traded companies must use to produce their financial statements.

Major corporations use pro forma statements to illustrate projected numbers, like in the case of a merger or acquisition, or to emphasize certain current figures.

GAAP standards don’t apply to small businesses, so you don’t really need to worry about distinguishing your financial statements as “pro forma” or not—everyone you show them to expects that they’re not GAAP-compliant. But if you want to be technically correct in your terminology, go ahead and call your financial statements “pro forma.”

Product Definition

A product definition is 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

Product development refers to expenses incurred in the development of new products (salaries, laboratory equipment, test equipment, prototypes, research and development, and so on).

Product Development Strategy

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

Product Life Cycle (PLC)

Product life cycle refers to 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 product line is a group of closely related products with similar attributes or target markets.

Product Line Pricing

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

Profit

Profit is an accounting concept, 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.

Profit Before Interest and Taxes

Profit before interest and taxes 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, a profit or loss statement is 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

A Proprietary Limited Company (often abbreviated as “Pty Ltd”) 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

Public relations refers to 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

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

Pull Communication Strategy

A pull communication strategy creates interest among potential buyers, who demand the offering from intermediaries, ultimately “pulling” the offering through the channel.

Push Communication Strategy

A push communication strategy is 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. 

Q

Questionable Costs

Questionable costs are costs that may be considered as variable or as fixed costs, depending on the specifics of the situation.

R

Receivables

Short for account receivables, this refers to 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 the buyer’s books as accounts payable.

Receivables Turnover

Receivables turnover refers to sales on credit for an accounting period divided by the average accounts receivables balance.

Regional Marketing

Regional marketing is the practice of using different marketing mixes to accommodate unique preferences and competitive conditions in different geographical areas.

Relevant Cost

Relevant cost refers to expenditures that are expected to occur in the future as a result of some marketing action and differ among other potential marketing alternatives.

Repositioning

Repositioning is 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 create new content periodically.

Retained Earnings

Retained earnings are 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

Return on assets is your net profits divided by total assets. It is a measure of profitability.

Return on Investment (ROI)

Return on investment, or ROI is your net profits divided by net worth or total equity. It’s another measure of profitability.

Return on Sales

Return on sales is net profits divided by sales. It’s 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 is considered a return visitor.

Rich-Gumpert Evaluation System

The Rich-Gumpert evaluation system is 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.

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 individuals.

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

Sales break-even is 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

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

Sales on Credit

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

Scrambled Merchandising

Scrambled merchandising is 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?” Some high-end high-tech ventures in the heart of Silicon Valley call an investment of $500K seed capital, and 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

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

Selling Approaches

Selling approaches are potential selling resources based on the sales value and the distribution of the product.

Senior Corps of Retired Executives (SCORE)

SCORE is a no-cost consulting and resources service offered through the Small Business Administration.

Shareholders

Shareholders are individuals or companies that legally own one or more shares of stock in a company.

Short-Term

Short-term is 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

Short-term assets are 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

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

Short-Term Liabilities

Short-term liabilities 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

Simple linear regression is a linear correlation that offers a straight-line projection based on the variables considered.

Situation Analysis

A situation analysis is 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

Skimming pricing strategy refers to 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 who are price insensitive. The price may be lowered over time.

Slotting Allowances

Slotting allowances are payments to store chains for acquiring and maintaining shelf space.

Small Business Investment Council (SBIC)

The SBIC is a division of the Small Business Administration that offers “venture capital-like” resources to higher-risk businesses seeking capital.

Sole Proprietorship

The simplest business structure 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

A sole trader is the easiest and quickest form of corporation for a small, privately-owned business. Your Memorandum 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

Starting date refers to the starting date for the entire business plan.

Stock

Goods on hand, either finished goods or materials to be used to manufacture goods. Also called inventory.

Stock can also refer to privately held or publicly traded shares or securities representing an investment in, or partial ownership of, a business. Public trading of such stock occurs on the stock market.

Stock Market

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

Stock Turnover

Stock turnover is the 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

Strategic control is 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

Strategic marketing management is 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

Success requirements are the basic tasks that must be performed by an organization in a market or industry to compete successfully.

Sunk Cost

Sunk cost refers to 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

Surplus or deficit is a term used by nonprofits. It’s also called profit and loss statement or an income 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, a deficit if it is negative.

Switching Costs

Switching costs are 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 SWOT analysis is 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

Systematic innovation is 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.

T

Tactics

Tactics are a collection of tools, activities and business decisions required to implement a strategy.

Target Market

A 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

Target marketing is 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

Tax rate percent is an assumed percentage applied against pre-tax income to determine taxes.

Taxes Incurred

Taxes incurred are taxes that are owed but not yet paid.

Telemarketing

Telemarketing is a form of direct marketing that uses the telephone to reach potential customers.

Trade Margin

Trade margin is the difference between unit sales price and unit cost and each level of a marketing channel usually expressed in percentage terms.

Trading Down

Trading down is the process of reducing the number of features or quality of an offering to realize a lower purchase price.

Trading Up

Trading up is 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, traffic is the number of visitors and visits a website receives.

Types of Entrepreneurs

Entrepreneurs may be categorized into eleven 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

U

User Interface (UI)

User interface 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.

Unique User Sessions

In online marketing, unique user sessions is 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

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

Units Break-Even

Units break-even refers to 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)

Unpaid Expenses

Unpaid expenses are money owed to vendors for expenses incurred, but not yet paid. In bookkeeping and accounting, this is called accounts payable. A simple example would be the advertising expense from advertising that has already run but not yet been paid for by the advertiser.

User Benefits

User benefits refer to 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, user registrations is 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.

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.

Value

Value is the ratio of perceived benefits compared to price for a product or service.

Variable Cost

Variable costs are 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. 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, and contribution.

For more on this, check out What Is Break-Even Analysis?

Variance

Variance is 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, among 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.

W

Website

A website (or site) is a virtual location, 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, website metrics metrics are measurement tools used to evaluate how effectively a website is marketing a business.

These can include:

  • Pageviews
  • Impressions
  • Unique user sessions
  • New visitors
  • Return visitors
  • Click-through rate
  • Conversion rate

Website Traffic

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

Wholesaler

A wholesaler is 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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Content Author: Tim Berry

Tim Berry

Tim Berry is the founder and chairman of Palo Alto Software , a co-founder of Borland International, and a recognized expert in business planning. He has an MBA from Stanford and degrees with honors from the University of Oregon and the University of Notre Dame. Today, Tim dedicates most of his time to blogging, teaching and evangelizing for business planning.

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