If you’re new to business you may hear a lot of words and phrases that are unfamiliar to you. Our glossary will explain some of the meanings of the most-commonly used business phrases – so talking to your accountant should be a bit easier in the future.
The time for which profits are being calculated, normally months, quarters or years
Amounts of money owed by your company to external suppliers
Money owed to your company by customers
The purchase of one company or resources by another
There are two meanings relating to this word in business.
(1) The organisation and running of a business.
(2) A business going into administration, meaning that a business has gone bankrupt and its creditors can get in touch to try and claim any money they are owed
A retailer or service provider advertising its goods or services via a third party in return for a commission on any sales
Property that has value owned by a company.
An official inspection of a company’s, or individual’s, accounts.
Business to business.
Business to consumer.
A ‘snapshot’ of a company’s assets, liabilities and capital at a particular point in time.
Checking your company’s standards by comparing them with certain criteria, e.g. a competitor’s activities.
(1) Building a start-up company with very little money, often relying on personal savings and pushing for the lowest possible operating costs, while implementing cost-saving systems such as fast inventory turnaround.
(2) Making a forecast beyond a certain period by using the forecasted data for that period.
The point in time when you will have paid back all your debts, or when revenues exactly match expenses.
Also known as an angel investor. An individual who provides capital for a business start-up in return for a stake in the company.
The tendency for economies to experience peaks and troughs that follows a cyclical pattern – known colloquially as ‘boom and bust.’ Governments are tasked with smoothing the peaks and troughs and limiting the effect of these cycles on consumers and businesses.
Money invested into a company or project by its owners.
Capital expenditure (CAPEX)
Money spent to create future benefits. Capital expenditure is money spent by a company either to buy fixed assets or to add to the value of existing fixed assets with a useful life that extends beyond the taxable year. With regard to tax, capital expenditure cannot be deducted in the year the money is paid. Compare with operating expenditure (OPEX), which refers to on-going costs to run a product, service or system.
The movement of cash into and out of a business
The exclusive legal right, owned by the individual or group who created a work, or by an individual or group assigned by the originator, to use certain material and to allow others the right to use the material.
Corporate social responsibility
Corporate social responsibility (CSR) is a form of self-regulation, where companies integrate social, environmental and ethical policies into their overall business strategy. Companies embracing CSR should take responsibility for their actions and take a proactive approach to having a minimal negative impact on the world.
A person or firm that has lent your business money or to whom you owe money.
Critical success factor
A critical success factor is an element that must occur in order for a business to achieve its ultimate goal.
A person or firm that owes money to you or your business.
The reduction in value of assets over time, usually due to wear and tear.
When new products, services, customers or markets are added to your company’s portfolio. Diversification usually occurs as a risk reduction strategy.
Money paid regularly by a company to its shareholders.
Economies of scale
The cost advantages obtained by a business when buying an item in bulk. The price of an item usually decreases as the amount bought increases.
Elasticity of demand (PED)
The degree to which demand for products or services changes with the price. Essential goods, such as food, do not experience an increase in demand when the price changes but non-essential goods do.
Investments made in companies that are specifically chosen for their environmental or moral credentials. Defence contractors, or companies known to use contentious labour practices, will generally be avoided by ethical investors.
Ethical trade can refer to a number of different things, but is most often used as an umbrella term for any business practices that promote socially and/or environmentally responsible trading.
A plan to enable you to leave your business, either after achieving your goal or deciding you would like to move on to do something else while recouping any capital you invested when starting the company.
Selling your goods or services overseas.
An organised movement enabling producers in developing countries to receive a fair price for the items they produce. Fairtrade certification is becoming much more common in many sectors, particularly food, with several large brands now stating that their products are ‘certified Fairtrade’ on their packaging.
Planning, analysing, monitoring, organising, reviewing and controlling an organisation’s monetary resources. Responsibility for financial management often falls to the finance director, and by extension the financial department.
Also known as a financial year, the fiscal year is a set period used to calculate financial statements. The period used differs between countries and between businesses, although in the UK the year between April 6 and April 5 is most often used for personal taxation. The ‘official’ period for corporation tax runs from April 1 to March 31, however companies can adopt any yearly period for corporation tax.
Any cost that in the short-term remains the same, despite changes in volume. Fixed costs usually include, for example, rent, interest and salaries.
An attractive package (typically a bonus, or stock options) that are offered to a senior employee as an incentive to join the company.
The total amount of money you have earned in a period of time before deductions such as taxes.
Buying goods or services from overseas and bringing them into the country.
When a company becomes unable to pay off its creditors, or its liabilities exceed its assets.
Any works or inventions that are original creative designs. The individual or company responsible for the designs will be entitled to apply for a copyright or trademark on the designs.
Invoice factoring involves a business selling its invoices on to a third party, who will then add their own fee to the charges and seek the money from the debtor.
Key performance indicator
A key performance indicator (KPI) is a measure of performance to assess the success of a company or a certain activity the company is taking part in.
The ease with which a company’s assets can be converted into cash.
A market segment is a division of a market with similar characteristics (e.g. age, gender, religion) that cause them to demand similar products and/or services. For example, in an area with a large Jewish community, kosher foods are likely to be in greater demand.
The percentage or portion of the overall market controlled by one company.
The combination of marketing elements used by a company to encourage consumers to purchase its product or service. Also known as the seven Ps: product, price, promotion, place, people, process, physical evidence.
When two or more companies are combined into one.
The amount of profit remaining after deductions such as tax have been made.
Operating expenditure (OPEX)
On-going costs for running a business, service or system that includes day-to-day expenditure such as sales and administration. Compare with capital expenditure, which is money spent on fixed assets or extensions to already-owned fixed assets. A photocopier, for example, would involve capital expenditure whereas toner and paper for the photocopier would be operating expenditure.
Costs that do not vary regardless of the level of production, and are not usually directly involved with the cost of production, such as rent.
An official legal document confirming that an individual or company has the sole right to make, use or sell a particular invention.
Pay as you earn. A method of collecting income tax on behalf of the Government by taking it directly from your employees’ weekly/monthly pay.
Making donations to charities in order to improve human wellbeing.
Comparison of the money available to the company in the future with the value of money it currently holds, e.g. due to interest.
Private limited company
A type of legal company structure that, among other features, limits the personal liability of the company owners so that they can’t be made bankrupt by company debts.
Profit and loss account
A financial statement that shows any incomes or outgoings of a company over a certain period of time so as to show the net profit or loss for that time.
Return on investment
The earning power of an asset or activity measured as a ratio of the net income of the activity to the operational cost. Return on investment (ROI) lets a company know whether an activity is profitable enough to continue.
Amounts of money received by (or owed to) a company for goods or services provided.
Small and medium-sized enterprises. A small business has fewer than 50 staff and a medium-sized business has fewer than 250 staff. Micro-businesses, with fewer than 10 staff, would also come under the term ‘SME’.
Social mission driven businesses, with social and/or environmental aims, that use market-based strategies to achieve their goals. Social enterprises can be both non-profit and for-profit.
Any individual or party that has an interest in or may be affected by a business and/or its activities. This can include anyone, from shareholders to residents of the local community.
The different elements making up the process involved in producing and distributing an item or items.
The use of natural resources with a minimal impact on the environment; e.g. no depletion of resources. For example, a company that manufactured paper would be sustainable if it only made 100 percent recycled paper or planted a new tree for each one it cut down.
The buying out of one company by another.
A logo, brand name or phrase legally registered by one company to represent them.
Triple bottom line.
People, planet, profit. The bottom line was originally considered as just profit. In recent years, with the growth in popularity of corporate social responsibility, businesses are increasingly measuring project success not only in monetary terms, but also by examining their social and environmental performance.
Capital invested into projects with higher risks, usually start-up businesses.
The balance in demands of both life at work and personal life.