Latona's Business Glossary

Those new to business can get bogged down with the terminology, unsure of the differences between bonds and stocks, equity and cost (even seasoned pros can struggle with some acronyms and abbreviations). Below is Latona’s guide to terms you’ll frequently hear in business, and what they mean.

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Accounting Period

An accounting period is the period in which financial statements and management accounts for the business are prepared. The accounting period usually coincides with the business's financial year.

Accounts Payable

Money owed by the business to suppliers - listed as a current liability on the balance sheet.

Accounts Receivable

Money owed to the business that has not yet been paid. Listed as a current asset on the balance sheet.

Acquisition

When one company purchases most or all of another company's shares to gain control of that company. This usually involves buying enough shares to have an absolute majority of them.

Affiliate Marketing

Affiliate Marketing uses third parties to promote the business's products, offering them a commission based on the sales or traffic created by their efforts.

AGM (Annual General Meeting)

A yearly gathering of both shareholders and the board of directors to present performance and the strategy for the coming year.

Asset Stripping

Asset stripping involves buying a company that is undervalued to sell off its assets and generate a profit for its new shareholders. This tends to occur when the assets of the company are more valuable than the company itself, due to poor performance or financial issues.

Balance Sheet

A balance sheet reports on a company's assets, liabilities and equity, giving an indication of the overall financial health of the company.

Bankruptcy

A limited company is described as being bankrupt when it's no longer able to pay its bills or other monthly costs as and when they fall due.

Base Rate

A term specifically related to the United Kingdom, the base rate is the amount of interest lenders pay when borrowing money from the Bank of England. This is important for businesses as it's closely linked to most other interest rates, including those on business loans.

Blue Chip Company

A blue chip company is a recognized company with a long history and solid financials that can survive during economic downturns. They usually offer products or services that are widely recognized and in strong demand.

Bonds

A bond is a type of fixed income instrument that represents a loan, generally given by corporations, governments, municipalities, and states. A bond includes the information relating to a loan and its payments.

Bond Issue

A bond issue, or "debt issue" is a financial obligation whereby the issuer promises to repay the lender over an agreed period of time, and therefore allows the issuer to raise funds.

Bootstrapping

When a company is built using nothing but personal savings and grows using its own revenue stream.

Brand

A brand is a well-known product, service, or company that is recognized for its quality and longevity. Brands are usually established over many years thanks to marketing spend and word of mouth.

Brand Equity

Brand equity is the influence a brand name has on consumers. A product or service that is unique, memorable, and high quality will have brand equity because it's easily identifiable.

Brand Recognition

Brand recognition is frequently used in advertising and marketing to raise awareness of a brand and its products or services. Brands are often recognized by their slogans, logos, jingles, and even color schemes.

Break Even Point

Break even point (BEP) is a formula that calculates the point at which a business makes back the money it has invested. To do this you divide the fixed costs by the revenue per unit, then minus the variable cost per unit.

Bridging Loan

When an individual or company requires a short-term loan until permanent financing becomes available or an existing financial obligation is removed, they will seek a bridging loan. They're usually no longer than a year and will have a high rate of interest.

Budget

A budget is a financial plan that ensures businesses don't overspend. It is an estimation of revenue and costs and set over an agreed period of time.

Budget Planning

The process of deciding upon a budget is known as budget planning. Without this step, it's difficult to analyze a business's finances to accurately estimate a budget.

Business Administration

The operations related to the running of a business, including management and overseeing operations, is known as business administration.

Business Auditing

A business audit will take place to verify your business's financial records are accurate with your own records.

Business Broker

A business broker assists in the sale of a business, working alongside the seller and buyer to ensure the process runs smoothly.

Business Insurance

Business insurance is insurance that covers a business in the event of loss or damage. Insurance can protect a business's property, and covers employees and legal liability.

Business Plan

A business plan is a thorough, formal document that outlines the business's goals, strategies, and timelines.

Capital Gains Tax

You pay capital gains tax to the government when selling assets, such as property or stock - it's based on the profits made on the sale.

Cash Flow

Cash flow is the term used to describe money, either cash or virtual, that comes in and out of a business.

CEO

A chief executive officer (CEO) is the highest-ranking role within a company or organization.

Collateral

Collateral is something a lender will accept as security in the event that a debt cannot be repaid. In the event of a default on a loan, the collateral will likely be seized by the lender.

Commercial Paper

Commercial paper is a short-term, unsecured debt instrument issued for short periods of time, usually less than a year.

Company Growth Rate

A company's growth rate is the speed at which a company expands over time, generally calculated as a percentage. Historical growth rate can be used to estimate a company's future growth rate.

Conversion Rate

A conversion rate calculates the number of sales based on the number of visitors. A high conversion rate will produce more sales from fewer visitors, and a low conversion rate (perhaps involving high-cost or luxury items) will produce low sales from higher numbers of visitors.

Corporation Tax

Corporation tax is the tax paid to the government by businesses and corporations.

Credit Limit

Credit refers to the amount of money promised by a lender that must be repaid in minimum installments over an agreed period of time. This credit will be limited based on a variety of factors that reduce the risk of the borrower defaulting on repayments.

Current Assets

Current assets include cash, inventory, and prepaid liabilities, and are assets the business holds that are sold or used as part of regular operations.

Depreciation

Depreciation refers to the drop in value of an item over time, either due to wear and tear or market changes.

Direct Mail

Direct mail is a common marketing technique whereby unsolicited marketing materials are sent via post.

Direct Marketing

When a business sells directly to the consumer through a website, mail order or phone, bypassing third-party retailers, it's known as direct marketing.

Diversification

Diversification is the process by which a business changes its range of products or services to a more varied, or diverse, offering.

Dividends

An amount of money paid usually on an annual basis, by a company to shareholders, based on profits or reserves.

Earnings per Share

(EPS) Earnings per share is calculated by dividing the annual net income by the total outstanding shares.

Economies of Scale

The more a company produces products, the less they will generally pay per unit, due to several factors such as raw materials costing less when purchased in higher quantities. These cost advantages are known as economies of scale.

Effective Demand

Effective demand is the demand for a product or service when buyers are limited in a different market.

Email Marketing

Email marketing is the process of sending emails to recipients usually as part of a mailing list with the intention of driving traffic to the website or promoting a product or service.

Enterprise Value

Enterprise value (EV) is a thorough measurement of a company's total value, and is often used to value a business during a sale.

Equity

Equity relates to the value returned to the shareholders, should the company liquidate its assets. Equity can be both positive and negative, depending on the current value in relation to the price that was originally paid.

Exit Strategy

An exit strategy is a plan that allows a business or individual to remove themselves from a situation or agreement should the need arise.

Expense

An expense is a cost incurred for goods or services.

Externalities

Externalities are the consequences of an activity undertaken by a business that affects others, but which don't affect market prices.

Financial Year

A financial year is a period of twelve months, unlikely to coincide with the calendar year, which businesses use for tax and accounting purposes.

First Mover Advantage

First mover advantage is a strategy by which a business enters the market before their competitors with a new product or service, and thus gains an advantage.

First Mover Disadvantage

First mover disadvantage is when a business enters the market before their competitors with a new product or service, but is met with challenges, often unexpected.

Fixed Assets

Fixed assets are properties or pieces of equipment that a business owns and uses as part of day-to-day operations. They're long-term assets that remain within the business for a minimum of one year.

Fixed Costs

A fixed cost is a cost to the business that doesn't increase or decrease regardless of revenue, such as rent, salaries, and insurance.

Golden Handshake

A golden handshake is an agreement between an employee and employer that the employer will provide a generous severance package in the event the employee is removed from the business. A golden handshake is usually reserved for top-level employees.

Gross Margin

To calculate a gross margin, you take a business's net sales revenue and subtract the cost of goods sold.

Ground Rent

Ground rent is a fee paid under the terms of a lease to the owner of the land on which a property resides.

Horizontal Merger

When businesses that sit within the same industry and produce and sell the same or similar products merge, it's known as a horizontal merger.

Hostile Takeover

A hostile takeover occurs when one business takes over another business without consent, or with opposition.

Income Statement

An income statement is a record of a business's income and expenses over a period of time. It details net income and can be an indication of how a business is performing.

Inflation

Inflation is the increase in the price of goods and services over a period of time.

Insolvency

Being in a state of insolvency is when a business or individual can no longer repay their debts. There are two forms of insolvency; cash-flow and balance-sheet.

Inventory

Inventory is another term used for "stock", aka the goods a business has in its possession that it intends on selling or utilizing.

Inventory Turnover

Inventory turnover is the rate at which a business sells and replenishes its inventory.

Invoice Factoring

Invoice factoring is a way of improving a business's cash flow by "selling" outstanding invoices to a third party. The company that "buys" those invoices will do so at a reduced rate of the total value, and will then collect payment from the customers.

IPO

Initial public offering (IPO) is when shares in a business are sold to investors, and is usually underwritten by one or more investment banks.

Key Performance Indicator

Key performance indicator (KPI) is an agreed target or goal by which the success of a campaign or activity can be measured.

Liability

A liability is something owed, such as a sum of money, that is settled over a period of time either through the exchange of money, or by providing goods or services.

Liquidity

Liquidity relates to how quickly and easily an asset can be converted into cash the business can use without affecting the market value.

Liquid Assets

A liquid asset is an asset that can quickly and easily be converted into cash the business can use without affecting the market value.

Loyalty Programmes

A loyalty program is a strategy used by businesses to retain customers by offering perks and rewards for continuing to use their services or buy their products.

Long Term Liabilities

Any long-term financial obligations a business has, generally spanning a period of a year or more, are known as long-term liabilities.

Margin

Margin is the difference between the cost of buying a product versus the cost of selling it.

Merger

A merger is when two or more businesses form to create one single business.

Monopoly

A monopoly exists when a business has control over or dominates an industry or market.

Negative Equity

When an item is valued at less than its original price, it's known as negative equity.

Net Asset Value

Net asset value (NAV) is calculated by taking the total value of a business's assets and subtracting the value of the liabilities, and represents the net value of an entity.

Non-executive Director

A non-executive director is an individual who is not involved in day-to-day operations, but will be involved in the big picture planning of the business.

Oligopoly

An oligopoly is when a market is dominated by numerous businesses, with none of them having a significantly larger market share than the others.

Operating Expenses

An operating expense is an expense a business incurs related to day-to-day operations, such as rent and utilities.

Operating Profit

Operating profit is a business's earnings minus interest and taxes. It also excludes profits from any other ancillary investments.

Opportunity Cost

When opportunities are lost due to the decision to proceed with an alternative, it's known as opportunity cost.

Outsourcing

When a business hires an outside contractor to work on tasks that could be performed in-house, it's known as outsourcing.

P&L (Profit and Loss)

Profit and loss (P&L) is a record of a business's income and expenses.

P&L Account

An account belonging to a business used for all income and expenses is known as a profit and loss account.

Patent

A patent is a way of securing exclusive legal rights to make, use, or sell an invention or product over a specific period of time.

Payables

Payables refer to the goods or services a business has not yet paid for.

Personal Selling

Personal selling is the process of meeting with a potential customer in an attempt to secure a deal.

PEST Analysis

Political, economic, social, and technological (PEST) analysis is a technique businesses use to assess external factors that may affect operations, specifically focusing on politics, the economy, social trends, and technology.

Portfolio

A portfolio refers to the investments held by an organization.

Price Elasticity of Demand

Price elasticity of demand measures the change in sales of a product relative to fluctuations in price.

Product Development

The process in which a product is designed (or redesigned) and manufactured before it hits the market is known as product development.

Product Lifecycle

Product lifecycle is the period of time from when a product is released to the market, to when it's removed from shelves. All products have a lifecycle that can be categorized into stages: introduction, growth, maturity, and decline.

Public Relations

Public relations (PR) is the practice of maintaining a business's positive image in the eyes of the public, customers and competitors.

Quarterly Report

A quarterly report is a report collated four times a year detailing the performance and financials of the business.

Receivables

Receivables are debts owed to a business by customers who have received goods or services but not yet paid their invoice.

ROR (Rate of Return)

Rate of return is the change in value of an investment, calculated as a percentage.

ROI (Return On Investment)

Return on investment measures the profitability of an investment based on the original cost.

Seed Capital

Seed capital is the money invested to develop a business or product. It's generally an initial investment that allows for the development of a proposal, with the business requiring further investment from venture capitalists.

Shareholder

A shareholder is somebody who owns shares in a business.

Shares

Shares are equal parts of a company's capital, which are sold to shareholders.

Stakeholder

A stakeholder is an individual or party with an interest in a business who will be affected by the performance of that business, such as the employees, customers or investors.

Sunk Cost

A sunk cost refers to an expense already incurred by a business that cannot be recovered.

Sunk Cost Fallacy

When a business continues with an idea or path they know will have suboptimal results because they have already sunk time and money into it.

Supply and Demand

Supply and demand is the relationship between how quickly a product can be produced and replenished compared to the amount of consumers who are seeking to make a purchase. Usually, with higher demand comes higher prices.

Supply Chain

Supply chain is the process in which a product is manufactured (including the sourcing of raw materials) through to it being available to customers.

Target Market

Target market refers to the demographics (age, location, interests etc) to which a particular product is intended.

Telemarketing

Telemarketing is the use of unsolicited phone calls, or "cold calls" to sell directly to customers. It's often viewed as a "nuisance" marketing tactic.

VAT

Value added tax (VAT) is the tax added to the cost of goods and services, and is usually based on a percentage of the sale price.

Variable Costs

Variable costs are costs that can change depending on the volume purchased.

Working Capital

Working capital is the money a business can comfortably spend, based on cash, assets and expenses.