Glossary of Terms
AAAA: American Association of Advertising Agencies.
Account Management: A sub-category of the order-getter sales classification in which sales people are responsible for all aspects of building customer relationships from initial sale through to follow-up account servicing.
Accounts Payable: This represents what a business owes to its suppliers and other creditors at a given point in time.
Accounting Period: A period of time, (month, quarter, year), for which a financial statement is produced.
Accounts Receivable: This represents the amount due to a business by its customers at a given point in time.
Accounts Receivable Turnover: A measure used to determine a company’s average collection period for receivables. Usually computed by dividing net sales (or net credit sales) by average accounts receivable.
Accrual Basis Accounting: The practice of bookkeeping when income is recorded when earned and expenses are recorded when they are incurred. Accrual Basis accounting turns out to be a truer way of showing the profitability of your business (See also Cash Basis).
Actual Product: A component of the Total Product offered by the marketer, this represents part of the product that is used (i.e., product features) as well as other elements that are included such as branding, packaging and labeling.
Advertising: A non-personal form of promotion delivered through media outlets that generally require the marketer pay for message placement.
Advertising Clutter: Also known as Promotional Clutter, A concept in advertising (and promotion in general) that suggests that the existence of a large number of advertising messages within media outlets (e.g., television, newspaper, radio, etc.) makes it difficult for viewers to recognize and remember specific messages (e.g., ad for specific brand).
Advocacy Advertising: A type of advertising intended to influence a target audience on some matter, such as political or social issue, that also impacts the marketing organization.
Amortization: The gradual and periodic reduction of an amount over time. It can apply to either the periodic write-down of an asset (see depreciation) or a gradual extinguishment of a debt (payments reducing loan principal).
Agent: See Broker.
Annual Percentage Rate: Also known as effective annual rate, is used to put investments with varying interest compounding periods (daily, monthly, semiannually) on a common basis. It is computed as follows:
APR = (1 + r/m)m – 1.0 where r = the stated, nominal, or quoted rate, and m = the number of compounding periods per year.
Assets: Economic resources owned or controlled by a person or company.
Assisted Marketing Systems: A direct distribution system where the marketer relies on others (e.g., agents and brokers) to communicate the marketer’s products but the marketer handles distribution directly to the customer.
Audience Tracking: Media market research technique to monitor and learn how customers access and use media (e.g., television viewing, website activity).
Audit: The result of an independent accountant’s review of the financial statements and their footnotes to ensure compliance with generally accepted accounting principles (GAAP) and to express an opinion on the fairness of the financial statements.
Audit Opinion: The official result of an audit. A CPA’s “unqualified opinion” means that the financial statements he/she has audited present fairly the financial position and operating results of the company in conformity with GAAP. A “qualified opinion” occurs under a number of circumstances, for instance, if the financial statements do not follow GAAP and the client refuses to make the needed changes.
Augmented Product: A component of the Total Product offered by the marketer, this represents goods and services that surround the Actual Product in order to provide additional value to the customer’s purchase and include guarantees, warranties and training services.
Bad Debt: An un-collectible Account Receivable.
Balance sheet: A balance sheet is an itemized statement which lists the total assets and the total liabilities of a given business to show its net worth at a given moment in time (like a snapshot).
Bank Reconciliation: Verification that your bank statement and your checkbook balance.
Bankruptcy (Business Failure): This involves a discharge of the debtor’s obligations through court order. The purpose of bankruptcy is to provide the debtor with a fresh start and to have an equitable distribution of the debtor’s assets among the creditors. A major federal law concerning bankruptcy in the USA is the Bankruptcy Reform Act of 1978. Chapter 7 deals with corporate bankruptcy; Chapter 9 involves procedures for municipal bankruptcy; and Chapter 13 pertains to individual bankruptcy. Chapter 11 deals with reorganization (can be either voluntary or involuntary).
Barter: The direct exchange of merchandise and/or services between two different businesses.
Banner Ad: A standard advertisement on the internet that usually appears at the top of a web page.
Board of Directors: Individuals elected by the stockholders to govern a corporation.
Bond: A third party obligation promising to pay if a vendor does not fulfill its valid obligations under a contract. Types of bonds include LICENSE, PERFORMANCE, BID, INDEMNITY & PAYMENT (Also see Surety Bond).
Bookkeeping: The act of systematically recording the financial transactions affecting a business.
Book Value: The net amount (original value plus or minus any adjustments such as depreciation) shown in the accounts for an asset, liability, or owners’ equity item.
Branding: Involves marketing decisions that have the objective of establishing an identity for a product using brand names, symbols and other distinctive measures with the goal of distinguishing the product from those offered by competitors.
Breakeven Analysis: A forecasting tool used by marketers that considers product price, fixed cost and variable costs in order to determine the minimum sales volume required before a company realizes a profit.
Breakeven Point: The volume point of sales at which revenues and costs are equal; a combination of sales and costs that will yield a no profit/no loss operation.
Breakeven Pricing: A cost pricing method used to set a product’s initial price that is used in association with Breakeven Analysis and the determination of minimum sales levels needed at different pricing points in order for a company to cover fixed costs.
Broker: A specialty service firm found within a marketer’s channel of distribution that, for a fee, works to bring the marketer together with buyers.
Budget: A formal statement of management’s expectations of sales, expenses, volume, and other financial transactions of an organization. A budget is a tool for planning and control. In the beginning it can act as a plan and in the end it can act as control to measure performance against so that future plans can be improved.
Bundle Pricing: A form of promotional price adjustment that offers discounted pricing when customers purchase several products at the same time.
Calendar Year: An entity’s reporting year, covering 12 months and ending on December 31. (See Fiscal year)
Capital: Property or money used and owned by a business and used to acquire future income or benefits.
Capital Account: An account where an owner’s or partners’ interest in the business is recorded. It is increased by owner investment and net income and decreased by withdrawals and net losses.
Capital Gain or Loss: The difference between the market and book value at purchase or other acquisition realized at the sale or disposition of a capital asset.
Capital Expense: A capital expenditure is one that will benefit one year or more. It can increase the quantity or quality of services to be gained from the asset. It is charged to an asset account.
Capital Lease: Although the lessee does not legally own rental property, the property is theoretically acquired and recorded as an asset with the related liability.
Capital Stock: The ownership shares of a corporation authorized by its articles of incorporation, including preferred and common stock.
Cash Basis Accounting: A bookkeeping method that recognizes revenue and expenses at the time of cash receipt or payment. This is the same method utilized to balance a personal checkbook. Cash basis accounting is opposite of accrual basis.
Cash Flow: Generally refers to the difference between cash receipts and disbursements over a specific period of time.
Certified Public Accountant: A designation given to an accountant who has passed a uniform CPA examination and has met other certifying requirements. CPA certificates are issued and monitored by state boards of accountancy or similar agencies.
Chart of Accounts: A listing (usually in account number order) of all accounts used by a company.
Charter: Also known as Articles of Incorporation. A document issued by a state that gives legal status to a corporation and details its specific rights, including the authority to issue a certain maximum number of shares of stock.
Click-Through Rates: The number of times a web page ad is clicked on as a percentage of the number of times the web page ad is displayed.
Co-branding: A branding strategy where a marketer with its own brand seeks to partner with an established brand owned by another organization in hopes the synergy of the two brands is even more powerful than a single brand alone.
Co-op Advertising: Also known as Advertising Support Program, a form of trade sales promotion where a marketer offers channel members some level of financial support for including the marketer’s products in channel member’s advertising.
Common Stock: A class of stock issued by a corporation. It is the most frequently issued type of stock. It carries with it a voting right, however is secondary in priority to preferred stock in dividend and liquidation rights.
Compounding Period: The period of time for which interest is computed (e.g. semi-monthly, monthly, quarterly, annually, etc).
Consignment: In a consignment, the consignor (owner of the goods) transfers goods to the consignee. The consignor retains legal title and includes the goods in his inventory. The consignee is acting as an agent in an attempt to sell the goods. Although the consignee is temporarily holding the goods, the inventory is not an asset on his books. If a sale occurs, the consignee deducts from the selling price his commission and related expenses, remitting the balance to the consignor.
Corporation: A type of business organization chartered by a state and given many of the legal rights as a separate entity. Ownership is represented by transferable shares of stock.
Cost of Goods Sold (COGS): The amount determined by subtracting the value of the ending merchandise inventory from the sum of the beginning merchandise inventory and the net purchases for the fiscal period.
Cost-Per-Click (CPC): Unique to internet advertising, this is the fee paid to the web publisher each time a visitor clicks on an internet ad.
Cost-Per-Thousand (CPM): The cost of an advertisement per 1,000 impressions (views of a web banner, television ad, readers of a print ad).
CPA (Cost-Per-Action): Metric for assessing advertising expenditure determined by dividing the total cost for a certain advertisement by how many people actually responded (e.g., purchase activity, phone inquiries, website traffic, etc.) within a specified time after the promotion was delivered.
CPI (Cost-Per-Impression): Metric for assessing advertising expenditure determined by dividing the total cost for a certain advertisement by how many times an advertisement is experienced (e.g., seen, heard).
CPTI (Cost-Per-Targeted-Impression): Metric for assessing advertising expenditure determined by dividing the total cost for a certain advertisement by the percentage of an audience who experience the advertisement (e.g., seen, heard) are actually within the marketer’s target market.
Credit: An entry on the right side of a ledger account.
CRM (Customer Relationship Management): A strategic approach whose goal is to get everyone in an organization, not just the marketer, to recognize the importance of customers.
CRM Technology: Computer and information systems that allow nearly anyone in an organization that comes into contact with a customer (e.g., sales force, service force, customer service representatives) to have timely access to necessary customer information.
Current Assets: Current assets are those assets of a company that are expected to be converted to cash, sold, or consumed during the normal operating cycle of the business (usually one year). Examples are cash, accounts receivable, short-term investments, US government bonds, inventories, and prepaid expenses.
Current Liabilities: Liabilities to be paid within one year of the balance sheet date.
Current Ratio: Also known as Working Capital Ratio. This ratio is a measure of liquidity of the business. Equal to current assets divided by current liabilities.
Customer Contact Points: The different methods a customer uses to communicate with a company such as in-person, by telephone, over the Internet, etc.
Debit: An entry on the left side of a ledger account.
Demographics: Concerns statistics that describe a population such as age, education level, income, etc., and in marketing is used as a market segmentation variable.
Depreciation: The expense recognized in writing off the cost of a plant or machine over its useful life, giving consideration to wear and tear, obsolescence, and salvage value. Methods vary. Examples are straight line (SL), accelerated methods such as sum-of-the-years digits (SYD), and double-declining balance (DDB) methods. Primarily accelerated depreciation is chosen for a business’ tax expense but straight line is chosen for its financial reporting purposes.
Direct Mail Marketing: A mailed advertisement that is addressed to specific individuals, rather than a blanket mailing over a geographic area.
Direct Marketing Systems: A direct distribution system where customers place orders either through information gained from non-personal contact with the marketer (e.g., marketer’s website or print catalog) or through personal communication with a company representative who is not a salesperson (e.g., placing order by telephone).
Dividend: That portion of a corporation’s earnings that is paid to the stockholders.
Drawings: Distribution to the owner(s) of a sole proprietorship or partnership.
Drawings Account: The account used to show the withdrawals of earnings by the owner(s) of a sole proprietorship or partnership.
Early Adopters: The second category within the Diffusion of Innovation consisting of a sizeable though not large percentage of a market who are primarily characterized as being enthusiastic but practical about new products and often communicate their experiences with the next category (i.e., Early Majority) and in this way serve as Opinion Leaders.
Earnings per Share: The computation of a corporation’s earnings based on the number of stock shares outstanding at a given point in time.
Embezzlement: The act of an employee stealing money or assets of the company.
Employer Identification Number: A number obtained by a business from the IRS by filing form SS-4. If you are a sole proprietorship, your EIN is your social security number.
e-Tailer (Electronic Retailer): Retail format represented by retailers that confine most of their selling through Internet websites thus providing customers with the convenience of anytime shopping.
Equity Financing: This involves “selling” a portion of your company to an outside investor. You have no obligation to repay the funds. In general, venture capital firms provide this type of funding.
Factor: To sell accounts receivable at a discount before they are due.
Fair Market Value: The price at which a willing seller will sell, and a willing buyer will buy, when neither is under compulsion to sell or buy and both have reasonable knowledge of relevant facts.
FASB: Financial Accounting Standards Board. The private organization responsible for establishing the standards for financial accounting and reporting in the United States.
FIFO: First In First Out type of inventory valuation. The first goods purchased are assumed to be the first goods sold.
Fiscal Year: A business’ reporting year, covering a 12-month month period (not necessarily ending on December 31).
Fixed Assets: Permanent assets of a company required for the regular conduct of business which will not be converted into cash during the next year. Examples are land, building, furniture and fixtures.
Fixed Cost: Fixed costs are operating expenses that are incurred when providing necessities for doing business and have no relation to the volume of production and sales (as opposed to “variable costs”). Examples are rent, property taxes, and interest expense.
FOB: Free-On-Board Destination. The seller of merchandise bears the shipping costs and maintains ownership until the merchandise is delivered to the buyer.
Focus Groups: Method of data collection often associated with Qualitative Research, in which a group of respondents (generally numbering 8-12) are guided through discussion by a moderator in the hope that group interaction will stimulate comments that may not otherwise be elicited.
Franchise: A business that has been licensed to sell the product of a manufacturer or to offer a particular service in a given area.
GAAP: Generally Accepting Accounting Principles. A priority listing made up of statements of accounting principles issued by the AICPA (American Institute of Certified Public Accountants) and FASB (Financial Accounting Standards Board).
General Journal: (GJ) A book or original entry in a double-entry system. The journal lists transactions and indicated accounts to which they are posted. The general journal includes all transactions which aren’t included in specialized journals used for cash receipts, cash disbursements, and other common transactions.
General Ledger: (GL) A book in which monetary transactions of a business are posted (in the form of debits and credits) from a journal. It is the final record from which financial statements are prepared. The general ledger accounts are often the control accounts which report totals of details included in subsidiary ledgers.
Goodwill: An intangible asset that exists when a business is valued at more than the fair market value of its net assets. Goodwill is usually due to reputation, good customer relations, etc.
Grace Period: Time allowed a debtor in which legal action will not be undertaken by the creditor when payment is late.
Gross Profit: The amount by which the net sales exceed the cost of goods sold.
Gross Sales: Total recorded sales before deducting any sales discounts or sales returns and allowances.
Guarantee: An assurance offered by a marketer that the product will perform up to expectations or the marketer will support the customer’s decision to replace, have the product repaired or accept a return for a refund.
Guaranteed/Insured Loans: Programs in which the federal government makes an arrangement to indemnify a lender against part or all of any defaults by those responsible for repayment of loans. An example is a small business loan guaranteed by the SBA.
Hardware: A computer and associated physical equipment (as opposed to “software”).
Hard Disk (or Hard Drive): This is the memory that your computer will use to store the results from the programs (and to store those programs). Hard Disk is currently specified in Gigabytes. Single disk drives are currently from 40 Gigabytes to 1 Terabyte (1000 Gigabytes), and you can usually have more than one disk drive in your computer. External hard drives are frequently utilized to back-up important data.
ICANN: a non-profit corporation that is responsible for managing a variety of internet allocations. Its responsibilities include IP address space allocation and domain name system management.
Income Statement: A financial statement for companies that indicates how revenue (money received from the sale of products and services before expenses are taken out, also known as the “top line”) is transformed into net income (the result after all revenues and expenses have been accounted for, also known as the “bottom line”). The purpose of the income statement is to show managers and investors whether the company made or lost money during the period being reported.
Incorporation: The incorporation of a company separates the company from its owners and/or shareholders as its own distinct legal entity. Incorporation is common practice because no owner or employee can be held liable for any of the company’s liabilities. Check with both state and federal governments for more information.
Indemnity: Obligation of one party to reimburse another party for losses which have occurred or which may occur.
Internal Control: Policies and procedures designed to provide reasonable assurance that a company’s objectives will be achieved. It consists of control environment, risk assessment, control activities, information and communications and monitoring.
Internet Marketing: Strategies used to market a product or service online, such as search engine optimization, website design, online promotions, and email marketing.
Interest: The cost of the use of money.
Interest Rate: The cost of money expressed as an annual percentage.
Inventory: Goods held for sale or resale.
Inventory Turnover Ratio: A measure of the management of inventory computed by dividing cost of goods sold (COGS) by the average inventory for a period of time.
Invoice: An itemized list of goods shipped or services rendered with cost.
Job Sharing: An arrangement in which the responsibilities and hours of one job position are carried out by two people.
Journal: A book or original entry in a double-entry bookkeeping system. The journal lists all transactions and indicates the accounts to which they are posted.
Journal Entry: A recording of a transaction where debits equal credits.
Just-in-time Inventory: An inventory system that minimizes inventory costs. It arranges for suppliers to deliver small quantities of raw materials just before those units are needed in production. Storing, insuring, and handling raw materials are costs that add no value to the product, and so are minimized in a just in time system.
Leases: Long-term non-cancelable commitments. In a lease, the lessee acquires the right to use property owned by the lessor. Even though no legal transfer of title occurs, many leases transfer substantially all the risks and ownership benefits.
Lien: Legal right to hold property of another party or to have it sold or applied in payment of a claim.
LIFO: “Last In First Out” assumption of inventory valuation.
Limited Liability: The legal protection given to stockholders of a corporation. A stockholder’s liability extends only to the total of his capital contribution.
Limited Partnership: A limited partnership is one in which one or more partners (but not all) have limited liability up to their investment to creditors in the event of the failure of the business. The general partner manages the business. Limited partners are not involved in daily activities.
Liquidation: The process of dissolving a business by selling the assets, paying the debts, and distributing the remaining equity to the owners.
Liquidity: The availability of cash or ability to obtain it quickly. Also used to determine debt repayment ability.
Long-term Liabilities: These are liabilities in your business that are due in more than one year. For example mortgage payable.
Lower Cost or Market: LCM. A method of valuing assets at the lower of its original cost or current market value.
Loyalty Programs: A form of sales promotion, used in both consumer and business markets, that offers customers rewards, such as price discounts and free products, based on purchase frequency or other activity.
Marginal Cost: Additional cost associated with producing one more unit of output.
Market Segment: A smaller part of a larger market consisting of customers grouped (i.e., segmented) by characteristic shared by others in their group.
Market Segmentation: A key element of a target marketing strategy in which large markets, where customers possess different characteristics, is divided into smaller market segments in which customers are grouped by characteristic shared by others in the segment.
Marketing: Consists of the strategies and tactics used to identify, create and maintain satisfying relationships with customers that result in value for both the customer and the marketer.
Marketing Mix: Describes the decisions made by marketers to appeal to their target markets and includes product, distribution, promotion, pricing and services.
Marketing Research: A critical component needed to make good marketing decisions by presenting a picture of what is occurring (or likely to occur) in a market and then offering alternative courses of action that may be followed by the marketer in order to reach their objectives.
Memory (Computer): See RAM.
Minimum Wage: The lowest compensation you are allowed to pay an employee for hourly work. It is defined by Federal and state laws. State laws may be more restrictive than Federal law, and certainly may differ. Federal regulations can be found on the Department of Labor’s website: http://www.dol.gov/esa/whd/flsa/
Minority Businesses: The Small Business Administration defines minorities as those who are “socially and economically disadvantaged.” The U.S. Code of Federal Regulations (CFR) contains the specific requirements.
Mission Statement: A brief description of your company’s purpose, answering the basic question “Why do we exist?” Coupled with a vision statement, a mission statement can serve as a baseline for all business planning.
MLM (Multi Level Marketing): Multilevel marketing (MLM) plans are a way of selling goods or services through distributors. These plans promise that if you sign up as a distributor, you will receive commissions — for both your sales of the plan’s goods or services and those of other people you recruit to join the distributors. Be careful of plans that offer to pay commissions for recruiting new distributors. This is called “pyramiding” and is illegal in most states.
Modified Accrual: An accounting method that is a combination of cash and accrual basis. Recognition is given to revenue when it is available and measurable. Expenditures are usually reflected in the accounting period in which the liability is incurred.
Mutual Agency: The right of all partners in a partnership to act as agents for the normal business operations of the partnership, with the authority to bind it to business agreements.
NAICS: The North American Industry Classification System aims to provide common definitions of the industries of the three companies in North America. NAICS can be a useful tool to guide research for marketing or forecasting.
Net Assets: Owner’s Equity. The ownership interest in the assets of an entity: total assets minus total liabilities.
Net Income: The difference between your business’ total revenues and its total expenses. This caption and amount is usually found at the bottom of a company Income Statement (also known as “The Bottom Line”).
Net Operating Loss: A net operating loss results when business expenses exceed business income for the operating period.
Niche Market: A small and targetable portion of the market. Typically, this is a market not covered or addressed by the mainstream providers.
Nonprofit Organization: An entity without a profit objective, oriented toward providing services efficiently and effectively.
Operating Lease: A simple rental agreement.
Operating Leverage: The extent to which fixed costs are part of a company’s cost structure; the higher the proportion of fixed costs, the faster income increases or decreases with sales volumes.
Operating Performance Ratio: An overall measure of the efficiency of operations during a period computed by dividing net income by net sales.
Opportunity Cost: A basic term from the disciplines of economics and accounting. In these circles the acceptable definition of the word is, “The advantage forgone as the result of the acceptance of an alternative.”
OSDBU (Office of Small and Disadvantaged Business Utilization): These offices offer small business information on procurement opportunities, guidance on procurement procedures, and identification of both prime and subcontracting opportunities with the United States Government.
Outstanding Stock: Issued stock that is still being held by investors.
Owners’ Equity: Net Assets. The ownership interest in the assets of an entity: this equals total assets minus total liabilities.
Overhead: Business expenses not directly related to a particular good or service produced. An example would be utilities.
Package Inserts: Information included within a package that is used to communicate with customers after they open the product package such as instruction manuals, promotional incentives and information on other company products.
Partnership: A Partnership is an unincorporated business that has more than one owner.
PASS (Procurement Automated Source System): The Procurement Automated Source System is managed by the Small Business Administration. Registering with this central referral system of small businesses interested in selling to the government can bring you business with almost no effort. Registration is free. Call 1 800 231 7277.
Patent: An exclusive right granted for 17 years by the federal government to manufacture and sell an invention. Patents can cover all sorts of inventions, from physical devices to chemical processes, and even software algorithms. The only restrictions are that the invention be novel and not obvious to current practitioners of the art. Perpetual motion machines are specifically disallowed from getting a patent.
Petty Cash Fund: A small amount of cash kept on hand used for making miscellaneous payments.
Power of Attorney: An agreement authorizing someone (generally an attorney) to act as your agent. This agreement may be general (complete authority) or special (limited authority).
Preferred Lenders: Some banks have a special written agreement with the SBA which allows them to make a guaranteed SBA loans without prior SBA approval.
Prepaid Expenses: Amounts paid in advance to a creditor or vendor for goods or services. Insurance premiums are a good example. Prepaid Expenses are a current asset because you paid for goods or services you have not yet received.
Present Value of $1: The value today of $1 to be received or paid at some future date given a specified interest rate.
Profit and Loss (P&L) Statement: See Income Statement.
Profitability: A company’s ability to generate revenues in excess of the costs incurred in producing those revenues.
Profit and Loss Statement: Also known as an Income Statement or P & L. This statement shows your revenues and expenses for a specific period of time.
Prompt Payment Act: A federal law that requires federal agencies to pay interest to companies on bills not paid within 30 days of invoice or completion of work.
Proprietorship: A business owned by one person.
Prospectus: A prospectus is prepared by an entity that wishes to issue securities to investors. Included in the prospectus are financial statements, disclosures (e.g. lawsuit), business plans, overview of corporate operations, and information regarding officers. A “red herring” is a preliminary prospectus that has not been finalized.
Psychographics: Used in marketing for market segmentation, this variable describes and groups customers by combining psychological characteristics (e.g., personality, attitude, lifestyle) with demographic characteristics (e.g., age, gender, income level).
Qualified Opinion: An opinion issued when an auditor determines his audit has been limited in scope or the entity has not followed GAAP.
Qualified Sales Lead: Sales leads that have been evaluated and are determined to meet the requirements to be a sales prospect.
RAM (Random Access Memory): The “conscious memory” of the computer. This is the memory the computer uses while it is running any program, specified in Megabytes and Gigabytes (1,000 Megabytes). At least one Gigabyte is ideal for any computer. Large database handlers may need in excess of two Gigabytes to meet performance goals. RAM is also measured in speed, usually either in Megahertz or Nanoseconds; let your consultant choose the appropriate speed of RAM for your computer.
Reconciliation: A determination of the items necessary to bring the balances of two or more related accounts or statements into agreement.
Recovery Period: The time period designated by Congress for depreciating business assets. Can also be thought of as the “life” of an asset (but is usually shorter).
Retail Sales Tax (RST): Any business that sells products or provides services must collect sales tax for the local or state governments. Sales tax varies depending on the type of product (food, clothing, electronics, etc). Online or telephone sales made in states where no brick-and-mortar company office or store exists can be exempt from RST. Check with your county and state governments.
Retained Earnings: Profits of the business that have not been paid out to the owners as of the balance sheet date. The earnings have been “retained” for use in the business. Retained Earnings is an account in the equity section of the balance sheet.
Return: A key consideration in the investment decision. It is the reward for investing. The investor must compare the expected return for a given investment with the risk involved.
Return on Investment (ROI): A measure of operating performance and efficiency in using assets computed by dividing net income by average total assets.
Revenues: Increases in a company’s resources from the sale of goods or services.
Rich Media: A new Internet media that offers and enhanced experience relative older, mainstream text and picture formats.
S-Corporations: Formerly known as Subchapter S Corporations. A corporation recognized as a regular corporation under state law but is granted special status for federal income tax purposes.
Sales Forecasting: the process of estimating future sales for your business. Inventory management and cash flow are directly dependent on accurate forecasts. Forecasting for new businesses requires research of the target market, competitors, and trading area.
Salvage or Residual Value: Estimated value (or actual price) of an asset at the end of its useful life after disposal costs.
SBC (Small Business Centers): These 12 GSA centers located throughout the United States can help you tap the multi-billion-dollar GSA “market” for goods and services. Contact a center nearest you: http://www.isquare.com/fhome18.cfm#GSActrs
SBDC (Small Business Development Centers): These centers are located throughout the United States and are administered by the SBA. They provide management assistance to entrepreneurs and new business owners. See http://www.sbaonline.sba.gov/gopher/Local-Information/Small-Business-Development-Centers/.
SBIC (Small Business Investment Corporation): SBICs are licensed by the SBA as federally funded private venture capital firms. Money is available to small businesses under a variety of agreements.
SCORE: The Service Corps of Retired Executives is a volunteer management assistance program of the SBA. SCORE volunteers provide one-on-one counseling and workshops and seminars for small businesses. There are hundreds of SCORE offices throughout the United States. Find a location: http://www.sbaonline.sba.gov/gopher/Local-Information/Service-Corps-Of-Retired-Executives/.
Search Engine Optimization: Also known as SEO, search engine optimization is simply making your website easier to find over the internet. When you choose a web designer to construct your business’ website be sure to discuss SEO with him/her to help make your business more accessible over the web.
Shareholders or Stockholders: Individuals or organizations that own shares of stock of a corporation.
SIC (Standard Industrial Classification Code): A four-digit number assigned to identify a business based on the type of business or trade involved. The first two digits correspond to major groups such as construction and manufacturing, while the last two digits correspond to subgroups such as constructing homes versus constructing highways. A business can determine its SIC number by looking it up in a directory published by the Department of Commerce, or by checking in the SIC book in the reference section of a local library. SBA size standards are based on SIC codes.
Simple Interest: Interest paid only on the principal of a loan.
SOHO: Literally, “Small Office Home Office.” Used to distinguish small businesses.
Solvency: A company’s long-run ability to meet all financial obligations.
Sole Proprietorship: A business owned by one person.
Sticky: A website that can keep a visitor on it by providing a lot of useful, interesting or entertaining content. It’s usually measured in how much time the average viewer spends on the site in a month.
Surety Bonds: Surety bonds provide reimbursement to an individual, company or the government if a firm fails to complete a contract. SBA guarantees surety bonds in a program much like SBA’s guaranteed loan program.
Sweat Equity: A common form of “investment.” This refers to the investment in time owners make, with no salary, to a new business.
Sweep Account: A brokerage or bank account whose cash balance is automatically transferred into an interest-bearing investment, such as a money market fund. Use sweep accounts to earn interest on surplus cash. At the end of each business day, a sweep account would transfer excess funds into an interest-bearing account, earn overnight interest, and make the funds available the next day.
Target Marketing: involves breaking a market into segments then concentrating your marketing efforts on one or a few key market segments. Market segmentation makes the promotion, pricing, and distribution of your products and/or services easier and more cost-effective.
Tax Number: A number assigned to a business that enables the business to buy wholesale without paying sales tax on goods and products. Contact your local court house for additional information.
Top Level Domains (TLD): An internet domain at the top of the domain hierarchy. TLD’s include .aero, .biz, .cat, .com, .coop, .info, .jobs, .mobi, .museum, .name, .net, .org, .pro and .travel (See also ICANN).
Trade credit: Credit one firm grants to another firm for the purchase of goods or services.
Trademark: A design, word, number, or visual image, or any combination of the above, used to distinguish a product or service from those of a competitor. A trademark is frequently used for marketing purposes; nearly all businesses choose to register their trademark with the government. This ensures exclusivity of the use of the trademark as well as enables the trademark holder to peruse legal action if anyone else uses the trademark.
Transactions: Exchange of goods or services between businesses or individuals. Can also be other events having an economic impact on a business.
Trial Balance: A listing of all account balances that provides a test of whether total debits equals total credits.
Triple Net: Rental type in which the tenant pays rent to the landlord and additionally assumes all costs regarding the operation, taxes and maintenance of the premises and building.
Turnkey Business: A turnkey business is a business that includes everything you need to immediately start running the business.
Unearned Revenue: Money received by a business before it is earned. It is a liability to your company until it is earned. This is used in the accrual basis accounting.
UPC (Universal Product Code): A system of bar code labeling universally adopted that aides in inventory management and supply chain tracking. Any company commercially offering a product is required to have a bar code for each product.
Useful Life: The life that an asset is expected to be useful to the company. This estimated period may also serve as the basis for depreciation on the balance sheet.
Value: The worth of something. Usually value is defined more precisely as to what particular value of the item being determined, such as “Fair Market Value” or “Present Value.”
Variable Cost: Any costs which change significantly with the level of output. The obvious example is cost of materials.
Venture Capital: Money used to support new or unusual undertakings; equity, risk or speculative investment capital. This funding is provided to new or existing firms which exhibit potential for above-average growth.
Vision Statement: A vision statement serves as a guideline for future strategic decisions. It simply answers the question, “Where do we want to go?”
VoIP: This stands for Voice over Internet Protocol. This new telecom technology permits the user to abandon land-based telephone lines and use their high-speed (DSL or Cable) internet connection as their telephone. Both hardware (such as broadband phones) and software options exist and often monthly rates are much cheaper than traditional telephone lines. A note of warning, some users complain of periodic, poor call quality that interferes with their communications.
Worker’s Compensation Insurance: Insurance that protects employees from work-related illness and injury. Check with local, state, and federal governments regarding rules and regulations.
Working Capital: Current Assets minus Current Liabilities. Some business owners like to think of assets being a use of working capital, and liabilities and capital contributions as being a source of working capital.
Yield: The return on investment that an investor receives from dividends or interest expressed as a percentage of the current market price of the security (or if already owned, price paid).
Z-Score: A z-score is a total arrived at by combining several normal business ratios. The weight given each ratio produces a score which is said to indicate the health of a business. A z-score below 1.5 usually means that the company is close to bankruptcy.