Chapter 22:GLOSSARY

CHAPTER 22

Glossary

accessory goods Products used in operations, for example, office copiers, auxiliary power supplies and air compressors. accounts payable Short-term debts incurred as the result of day-to-day operations such as the purchase of goods for resale. accounts receivable Monies owed to a company as the result of day-to-day operations such as from the sale of goods. accrual based accounting An accounting method that records income and expenses at the time of contract rather than when payment is received or expenses paid. amortization Allocation of a fraction of the original cost of long-term intangible assets to those periods benefited. angel investor A private investor willing to advance funds to an enterprise under favorable terms and conditions. assets Tangible and intangible property having positive financial value. b2b Acronym for business-to-business. A company that provides goods or services to other businesses. b2c Acronym for business-to-consumer. A company that provides goods or services to ultimate consumers. balance sheet Also called Statement of

Financial Position. A company’s primary financial statement showing resources of a business on a particular date as well as claims against those resources on that same date (Assets, Liabilities, Owner’s Equity). barriers to entry Conditions that make it difficulty for competitors to enter a market, for example, copyrights, trademarks, patents, exclusive distribution channels and high initial investment requirements. break-even point The point at which revenues equal expenses. bricks and mortar A business with a physical location (building) open to the public; especially a retail business location. burn rate The rate at which a start-up company spends its investment capital before it becomes profitable. capital Financial investment used to start and operate a business. cash based accounting An accounting method that records income and expenses at time payment is received or expenses paid (opposite of Accrual Accounting). cash flow statement Schedule of expected cash receipts and disbursements during a stated period of time. cash pit Slang term used to describe an enterprise that requires a great deal of investment capital prior to its making a profit. chief executive officer (ceo)

The individual who is responsible for the day-to-day management of a business enterprise. In some countries called a managing director . chief financial officer (cfo)

The individual responsible for the day-today management of financial issues for a business enterprise. chief information officer (cio) The individual responsible for the day-to-day management of information technology for a business enterprise. collateral assets Assets pledged to guarantee a loan. confidentiality agreement An obligation to protect the confidentiality of proprietary information exchanged between parties exploring a commercial relationship. Also referred to as a nondisclosure agreement (NDA). Use of a confidentiality agreement is generally a condition to the availability of trade secret protection in most countries.

convenience goods Products purchased by consumers who are generally willing to pay a premium for easy purchase access. For example, candy, cigarettes, drugs, newspapers, magazines and many grocery products. corporate culture The social and traditional bonds that hold an organization together. It incorporates an organization’s values, norms of behavior, policies and procedures, and is heavily influenced by national cultural values, ownership structure and the nature of the industry in which the corporation operates. cost of goods Direct costs to produce goods or services, including labor and materials. cost of sales Cost of goods plus expenses involved in selling and delivering a product. country risk (economics) The financial risks of a transaction that relate to the political, economic or social instability of a country. current assets Financial assets that can be converted quickly to cash, usually within 12 months. current liabilities Financial liabilities incurred in normal day-to-day business and due within 12 months. debt An obligation to repay a lender the principal and interest due on a loan. debt service The amount due on regularly scheduled payments that keep a loan current. depreciation Allocation of a fraction of the original cost of long-term tangible assets to those periods benefited. direct sales Sales made directly to endusers. disposable income The amount of money a consumer has that is available to spend on products after necessary expenditures (e.g., rent, food, clothing) have been paid. distributor Purchaser of products for resale at a higher price to customers, who are usually retail outlets. distribution channel (1) The path a product follows from manufacturer to enduser. For example, manufacturer–distributor–wholesaler–retailer–end-user. (2) The different types of paths a product can take to get from the manufacturer to the enduser. For example, retail outlets, Internet sales, self service outlets, vending machines, telephone sales and direct mail sales. documentation The financial, commercial and legal documents relating to a transaction. due diligence investigation

Preliminary research and exchange of data between parties contemplating a commercial transaction such as a potential joint venture. The data covers each party’s business and affairs and specific matters relating to the proposed business plan. See confidentiality agreement . escrow A written agreement wherein documents, money or other assets are placed on deposit with a third party to be delivered upon fulfillment or non-fulfillment of certain conditions or obligations. exhibit A document attached to a contract, agreement or plan. For example, a document entitled “Exhibit A” might list product specifications attached to a purchase order. exit strategy A component of a business plan that defines the possible methodologies for investors in a company to recoup their investment after a stated period by selling the enterprise. fashion goods Products whose style is important and price is secondary. For example, certain items of clothing, jewelry, furniture, draperies and dishes. financials The financial documents of a company including, balance sheet, income (profit and loss) statement and cash flow statement. Also included are budgets. fixed assets Also called long-term assets; assets held for more than 12 months on the balance sheet date that are integral to the day-to-day operation of an enterprise. For example, real estate, equipment, patents and furniture.

fixed costs The day-to-day costs of operating an enterprise that are not a function of sales volume, for example, salaries, insurance, lease expenses and utilities. full service retail sales Sales resulting from a sales outlet at retail prices directly to the end-user. going concern A company that is actively engaged in commercial operations. governing law clause A contract provision that specifies the law that the parties have selected for the interpretation of their contract. Whether a court respects the choice of the parties is discretionary, because parties are not permitted to deprive a court of jurisdiction. gross margin Positive difference between net sales revenues and cost of goods sold. gross profit Revenues less cost of sales. human resources The “human capital” or employees of a company. The term typically includes considerations related to their hiring, firing, training and management.

Often simply referred to as HR. impersonal service at customer’s site Service provided to a client at client’s location, but without dealing with factors that customer deems confidential.

Examples include lawn service, copier repairs, office cleaning and trucking services. impersonal service at provider’s site Service provided at the service provider’s location to a client’s property, but without dealing with factors that customer deems confidential. For example, service to an automobile or television. impersonal service, volume

Service that satisfies needs of a large number of customers, with service provider and customer never meeting, for example, classified ads, storage lockers and cash machines. income statement Also called Profit &

Loss Statement or Statement of Earnings.

The primary financial statement that summarizes revenues generated, expenses incurred, and gains or losses of business during a period of time. installation goods Products with long service life requiring large and expensive capital investment. For example, office buildings, manufacturing facilities and equipment such as tractors, printing presses, cranes and robotics. intangible assets The non-physical assets of an enterprise that include goodwill, copyrights, trademarks, patents and trade recognition. joint venture (1) The combination of two or more legal entities who together undertake a transaction for mutual gain or engage in a commercial enterprise with mutual sharing of profits and losses. (2) A form of business partnership involving joint management and the sharing of risks and profits as between enterprises based in different countries. liabilities Financial obligations of a business to external creditors. licensing agreement A contract by which the holder of a trademark, patent or copyright transfers a limited right to use a process, sell or manufacture an article, or furnish specialized services or information covered by the trademark, patent, or copyright to another firm for a stated period and for stated compensation. liquidity Percentage of assets that can be quickly converted into cash. long-term assets Assets expected to be held for more than 12 months of the balance sheet date that are integral to dayto-day operation of an enterprise. For example, manufacturing plants, equipment, patents, furniture and real estate.

Also called fixed assets. long-term liabilities Portions of external debt not deemed payable for 12 months from the date of the balance sheet. managing director The individual responsible for the day-to-day management of a business enterprise. Also called a chief executive officer in some countries. market life cycle The time period during which consumers of a product are willing to purchase the product before it

becomes obsolete, out of style or otherwise undesirable. market penetration pricing strategy A pricing strategy where introductory pricing is low in order to achieve maximize market penetration. market share (1) The percentage of an enterprise’s sales of a given product compared to the total sales of like products in a specified market. For example, market share of an automaker’s compact cars. (2) The percentage of an enterprise’s total sales compared to total sales of a given product market. For example, market share of an automaker in a given country. material goods Raw or processed materials used in the manufacturing of finished goods. For example, steel that will become part of an automobile. m.o.u. or memorandum of understanding A preliminary contract that expresses the interest of two or more parties in continuing negotiations with the goal of forming a joint venture or other commercial contractual agreements. net profit Total revenues less total expenses. net worth See owner’s equity. nondisclosure agreement See confidentiality agreement . on-site sales method Selling directly to end-users using a sales force that calls on customers at their place of business. operating expense A cost incurred in the course of the day-to-day operation of a business enterprise. outsource The external purchase of goods and services. owner’s equity A statement of a business owner’s value in an enterprise as stated in the equation assets – liabilities = owner’s equity. parts/sub assembly goods Unfinished manufactured items that become part of a finished product. For example, screws, bolts, transistors, printed circuits, electric motors and castings. personal service at customer’s

Site One-to-one or one-to-many relationship between a service provider and customer, provided at customer’s site, sometimes dealing with factors customer deems confidential. For example, tutoring and consulting. personal service at service provider’s site One-to-one interaction between customer and service provider at service provider’s site, sometimes dealing with factors customer deems confidential. For example, doctor, lawyer, accountant and educational institution. personal service, volume Services dealing with very high volumes that still require “personal touch.” For example, airline services or a parcel delivery service such as United Parcel Service (UPS). prepaid expense An asset that takes the form of a payment made in advance for items normally charged to expense. proforma Financial forms (for example, balance sheet, income statement, cash flow statement and budget) based on future expectations. product A general term that denotes either goods or services offered by a company for sale. product benefits advertising

Advertising that focuses on the strengths of a product and benefits resulting from those strengths. product comparison advertising Advertising that compares features of a product to detriment of competitors. production capacity The volume of products that can be produced by a business using current resources. profit margin Total revenues less total expenses. proprietary technology Any technology that is unique and/or legally owned by a business enterprise that is incorporated in or used to produce a product. pull promotional strategy

Direct interface by seller with end-user of product that minimizes channels of distribution during first stages of promo-

tion but maximizes advertising. Objective is to “pull” product into the various channel outlets creating a demand that channels cannot ignore. push promotional strategy

Maximum use of available distribution channels to “push” product into the marketplace. Usually requires significant incentives to distribution channels to promote product, but minimum advertising. ramp-up period The period it takes a company to reach full production level for a start-up venture or a new product line. receivables (1) Money due from customers for products sold on credit terms. (2)

Money due from or money loaned. roi Acronym for Return on Investment.

A calculation of operating income (profit) divided by the operating assets utilized.

Expressed as a percentage. sales pitch Business slang for making a sales presentation. More specifically, refers to a short, energetic presentation of the benefits to a sale or transaction. self-service retail sales method Selling from sales outlet directly to end-users, usually at prices less than full list price and with few or no sales personnel. service goods Products viewed by consumers as basically similar, so they

“shop” to get the best price, for example, lawn mowers, refrigerators, television sets and automobiles. service/goods mix Business enterprise that combines the sale of products and follow on services, often where service quality is more important than the goods.

For example, fast food, catering and telecommunications services. stockholders’ equity A statement of shareholder ownership interest in a business enterprise as stated in the equation assets – liabilities = shareholder’s equity. strategic relationship Agreement between two or more businesses jointly to conduct specified business, usually related

to technology development and/or marketing and distribution efforts. supplies goods Products that will not become a part of purchaser’s end product.

For example, drill bits, chemicals, pencils, paper and paper clips. swot Acronym for and process of analyzing a company’s Strengths, Weaknesses, Opportunities and Threats. track record Historical financial performance of a company. trademark The name of a product that has been legally registered. transparency The extent to which laws, regulations, agreements and practices affecting international trade and local business are open, clear, measurable and verifiable. unsought goods or services

Products usually purchased under adversity rather than desire, for example, coffins, medicine, life insurance and encyclopedias.

Since consumer seldom goes out looking for such product, a constant, aggressive selling process is required. venture capital Financing provided to found and support a business, particularly one that is considered innovative or untested such that there is a relatively significant risk of losing the investment, but also a promise of unusually high return in the event the venture succeeds. vertical integration The expansion, acquisition or merger of firms or business activities into different points of the same production and/or distribution path.

For example, a leather shoe manufacturer who acquires a leather manufacturer and a retail shoe chain. In theory, the greater the vertical integration, the less vulnerable business is to outside forces. wholesale sales method Selling at significantly discounted prices to distributors who in turn sell to full-service or selfservice retail outlets. working capital Cash available to business for day-to-day operations.