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GlOSSARY
Select one of the letters below to
move to the related section of the glossary.
A
ACCOUNT NUMBER
A unique sequence of numbers assigned to a cardholder
account that identifies the issuer and type of financial transaction
card.
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ACCOUNTING PROFIT
A profit that appears on the financial statements
that is the result of an administrative or accounting procedure or change,
as opposed to resulting from an actual change in operation.
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ACID TEST
An accounting ratio for measuring the amount of liquid
assets a company has on hand for paying its short term bills.
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ACQUIRER
A licensed member that maintains the merchant relationship
and acquires the data relating to a transaction from the merchant or card acceptor
and submits that data into interchange, either directly or indirectly.
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ACQUISITION TARGET
A company that you decide to investigate in earnest for
potential purchase.
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ACTIVE CUSTOMER
A customer who has purchased within a timeframe defined by two
or three purchase phases.
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ADVERTISING
Mass market exposure for your company, usually in newspapers
or magazines, on TV or radio, or in the yellow pages.
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ASSETS
Items owned by a company that have some value, such as cash,
account receivable, inventory, buildings, equipment, goodwill and other tangible or
intangible items.
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AUTHORIZATION
A process defined in operations regulations whereby a transaction
is approved by or on behalf of an issuer; commonly understood to be receiving of a sales
validation by the merchant, by telephone, or authorization terminal.
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AUTOMATED TELLER MACHINE (ATM)
An unattended, magnetic stripe-reading terminal that dispenses
cash; accepts deposits and loan payments; enables a bank customer to order transfers
among accounts and make account inquiries.
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B
BAD DEBT RATIO
The ratio of the uncollectible funds divided
by total sales, expresses as a percent.
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BAILING
The act of removing water from a sinking boat and of
extracting yourself from a sinking business.
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BANKCARD
A debit or credit card issued by a bank or other financial
institution, such as a MasterCard.
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BANK RATE
Also known as "Discount Rate". This is a percentage of
each sale that the bank.
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BEAN COUNTER
An accountant who ruthlessly proves that your idea is far too
risky.
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BRAND EQUITY
The asset value associated with a particular trademarked name,
such as Harrods. Increasing the perceived market value of products bearing the brand
name increases its equity.
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BREAKEVEN
This is the point at which you are making just enough money to cover
your expenses. You are just living at a subsistence level, paying the rent and putting
food on the table with no extra money for movies and popcorn.
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BUSINESS INERTIA
Resistance to change even though the business needs it.
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BUSINESS JUDGEMENT RULE
A legal foundation that assumes management and board members operate from
a good faith basis in making decisions that they feel are best for the company and its shareholders.
A conflict of interest situation puts this protection in jeopardy.
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C
CALENDAR FISCAL YEAR
When the companies financial reporting period is the same as the calendar
year, extending from January 1st to December 31st.
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CLOSE
A request by the salesperson for a specific action on the
part of the customer. Asking for the order is the ultimate close, but smaller closes
occur at each stage of the selling process.
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COMPARATIVE BUDGET ANALYSIS
Defined budget that is compared to the current period.
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CONTEXT
The interrelated conditions in which something exists or occurs.
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CONTINGENCY PLAN
A plan of attack that kicks in if the initial plan does not work
out as expected.
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CONTRACT
A legal agreement between the buyer and the person providing a product or service.
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CORPORATION
A separate legal business entity with a board of directors and shareholders.
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COST PLUS PRICING
When the offering price is calculated using the offering cost plus whatever profit margin is desired.
So a product that costs $1 to produce added to a desired 50% profit margin would sell for
$2 ($1/0.5 = $2).
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CURRENT ASSETS
Assets that can be converted into cash within a 12 month period.
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CURRENT ASSETS AND LIABILITIES
Current assets are easily used to pay off debts. Current liabilities have duration of 12 months or less.
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CURRENT LIABILITIES
Debts that must be paid off within a 12 month period.
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CYBERSPACE
A generic term used to describe the new computer networking technology.
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D
DEBT FINANCING
Occurs when a company takes out a loan to pay for
things, such as special research projects, expansion, or the company purchase.
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DEPRECIATION
The percentage of the initial purchase price of an asset that it is assumed
to devalue in a given year of operation. For example, a piece of equipment might cost $50000 and might
have an assumed depreciable accounting life of five years. This means that the equipment devalues,
or depreciates, by $10000 ($50000/5years) per year.
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DIRECT MAIL
A piece of marketing literature that is mailed to a specific group of people to
get a specific response.
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DISCLOSURE DOCUMENT
A required filing with the federal trading commission and many state regulatory agencies.
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DISCOUNT
The decrease in price from the list price for a product or service discount factor the amount
used to decrease the current effect of a future financial event. The larger the discount the less the current effect.
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DISCOUNT RATE
The percentage amount that a financial company takes for providing you with cash for your
account receivables. This is also called factoring.
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DIVERSIFICATION PROCEDURE
The business practice of spreading important business purchases or sales activities over multiple
companies. In this way, should one company have trouble, the other can be relied on until an alternative new source is
found. Without diversification, a single company on which you are heavily dependent could go under, taking your company
with it.
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DOUBLE TAXATION
When the business pays taxes on its annual profits and then passes the income to you who then gets taxed at
the personal level. The same dollar has been taxed twice.
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DUE DILIGENCE
The evaluation process performed by the buyer to verify the underlying, often hidden, aspects of a seller’s
company. This phase of the acquisitions process requires in-depth exposure to typically proprietary company operations and
confidential information.
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E
EMPLOYER IDENTIFICATION NUMBER (EIN)
A number given to any company that has employees other than its owner.
All corporations must have an ein, since all personnel are officially employees.
Call the irs to get your ein and federal tax deposit coupon book (irs form 8109).
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ELECTRONIC FUNDS TRANSFER (EFT)
A paperless transfer of funds initiated from a terminal, computer, telephone instrument or magnetic tape.
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EQUITY STAKE
The transfer of a percentage of company ownership, usually in the form of a stock transfer, in exchange for the financial
investment.
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EXPENSES
The amount of money that you spend to operate your business for the fiscal period.
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F
FACTORING
The percentage amount that a financial company takes for providing you
with cash for your account receivables. This is also called discounting.
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FINISHED GOODS
Items that are ready for sale to a customer. Notice that raw inventory
combined with some type of process creates finished goods.
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FISCAL PERIOD
The period of time over which the finances of a company are monitored.
It can be for any period, but generally, it is assumed to be a month, a quarter (3 months) or a
year.
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FISCAL QUARTER
A 3 month period that existed during a given companies fiscal
year, which includes 12 months, or 4 quarters.
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FISCAL YEAR
The 12 month period over which a company tracks its financial
performance. Most companies use a fiscal year that matches the calendar year, but it is
not an absolute requirement. For example, the federal government has a fiscal year that
starts on October 1 and ends on September 30.
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FIXED COSTS
Costs that remain constant and that are independent of the sales
level. Typical fixed costs include mortgage payments, utilities, executive salaries and
state licensing fees. This may be expressed either as a dollar figure or as a % of sales.
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FIXED EXPENSE
An expense that occurs whether you sell something or not.
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FLOAT
The timeframe over which you are paying bills out of your own funds that should
have been paid by clients funds if received on time. Float, generically, refers to the timing between
financial transactions.
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Foreign Corporation
A foreign corporation is a corporation which was incorporated in another state.
Corporations need to obtain permission from each state which the corporation is doing
business in.
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FRANCHISEE
The person or company that purchases the proprietary business model.
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FRANCHISER
A company that offers to replicate its proprietary business model for others
in exchange for an initial fee and a recurring franchise royalty (fee).
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G
GOOD WILL
The value attached to the good name of a company. Just having the company
name associated with an organization is worth something and that value is tracked as good
will.
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GROSS MARGIN
Subtract the cost of producing the product or service from the
amount of money someone paid you to provide the offering.
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GROWING MARKET
A market with total revenues that increase from one year to the
next, preferably over a five-year period or so.
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H
HOLDING COMPANY
A company that owns enough shares of stock in a particular company that
it has effective control over its disposition. A firm can be a holding company for several companies
at once.
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HORIZONTAL ACQUISITION
Where one competitor acquires another within the same industry.
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I
INCOME
This is the amount of money that you actually take home after everyone is paid.
This should be calculated both before and after taxes are taken out.
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INPUT
Refers to the various items and/or skills required to make a process work properly.
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INTELLECTUAL PROPERTY
Asset items owned by a company that are not tangible in nature, but that have
commercial value. Typically, these assets involve legal protections, such as patents, trademarks and
copyrights.
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INVENTORIES
Items used in the generation of income, which could be either finished products that are ready for sale or
the components that are involved in the manufacture of finished goods.
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J
JOB DESCRIPTION
A detailed listing of the duties to be performed by the person filling the job in
question and a listing of the required skills, education and certification levels and other criteria
directly related to the job in question.
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K
L
LIABILITIES
Money owed by the company to some other company
or person. These may include loans for the purchase of equipment or
a building, a credit card debt, a bank line-of-credit, or unpaid
payroll taxes. If it is owed to someone, it is a liability.
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LINEAR REGRESSION
Assumes that past and future values will fall
along a straight line. Works well for numbers that change at a fixed
rate.
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LOAN-TO-VALUE RATIO
The total percentage of an asset’s value
against which a loan will be provided. For example, an asset worth
$10000 against which the bank will loan up to a 60% loan to value
ratio, means that you can borrow up to $6000 using this asset as
collateral.
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LOCAL AREA NETWORK
Technology used to connect several computers
together. A LAN allows the sharing of data and printers.
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M
M
& A
Merger and acquisition.
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MAIL ORDER
Where your customers order from a catalog or
other mailed information piece. Person to person selling is not
involved.
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MAJORITY SHAREHOLDER
The person or company that owns most of the
outstanding shares in a corporation.
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MARKET DRIVEN PRICING
Pricing a product or service at a level
comparable to the competitive market as opposed to pricing that is
based on product cost.
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MARKET NICHE
A segment of the market that has an existing
need for a product or service that nobody is currently offering.
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MARKET POSITIONING
Creating a beneficial perception in the minds of
potential and existing customers.
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MARKET SEGMENTATION
Dividing the total available market into smaller
groups, or segments by specific attributes such as location or
industry.
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MARKET SHARE
The percentage of total market segment revenues
attributed to the target companies sales activities.
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MARKETING
Marketing is work that includes research,
pricing decisions, product or service change and literature
preparation.
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MATERIALITY
1.An accounting term that designates a number or
accounting assumptions as having a substantial impact on the final
results. The larger the impact the more “material” it is assumed to
the analysis.
2.When including or deleting a
number from financial statements will make a substantial difference
to the resulting statements.
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MERCHANT
A retailer, or any other person, firm or
corporation that agrees to accept credit cards, debit cards when
properly presented.
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MERCHANT NUMBER
A number given to your company that is used for
all credit card related transactions. This number is given to you by
the credit card companies.
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N
NEED TO KNOW
Refers to when a person reveals information only
to those people who absolutely must know that particular piece of
information.
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NON-LINEAR REGRESSION
Assumes that past and future values fall along a
curve instead of a straight line. This method is used for predicting
values if using rapidly changing values.
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O
ON-LINE SERVICES
Services that are accessed by computer and
companies that provide services, such as electronic mail and
information retrieval.
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OPPORTUNITY COST
The profit that would have been gained by
pursuing another investment instead of the one currently in
progress.
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P
PAPER PROFIT
A profit that appears on the financial
statements which are the result of an administrative or accounting
procedure or change, as opposed to resulting from an actual change
in operation.
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PARENT COMPANY
A company that owns the majority, or all, of the
stock in another company. For example, a company that purchases all
of the stock in another company would become the purchased companies
parent company.
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PARTNERSHIP
A legal form of business in which two or more
people share the business’s legal obligations.
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PERCEIVED VALUE
The overall value that the customer places on
the offering. This includes much more than price and it considers
other features, such as delivery leadtime, quality of salesmanship,
service.
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POLICIES
The internal laws around which employees
operate. These typically include guidelines for vacation, sick leave
and other rules.
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PREPAID EXPENSES
Expense items paid in advance of when they are
actually due, such as taxes or credit balances with vendors.
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PRICE-EARNINGS RATIO
Compares the price of a stock to its last 12
month’s earnings.
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PROCEDURES
Deal with operational topics, such as the
creation of a final report, performing an audit, or testing a
particular product. They often include detailed, step-by-step
instructions for performing specific tasks.
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PRO-FORMA FINANCIAL STATEMENTS
Statements that predict the
future based on a combination of historical performance and
projected future performance. Used to project a companies financial
statements as they might appear months, or years into the future.
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PROSPECTUS
A document that outlines the opportunity
presented by a specific investment. Fundamentally, it is a sales
document, aimed at potential investors.
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PUBLIC RELATIONS
Work done on your part to secure media coverage
including newspaper, radio, television and magazine.
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PURCHASE PHASE
The length of time between purchases. For large
capital equipment, this might be a long time, whereas commodity
products, such as wheat, might have a short purchase phase.
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Q
QUICK RATIO
An accounting ratio for measuring the amount of
liquid assets a company has on hand for paying its short-term
bill.
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QUORUM
The minimum attendance required to conduct
business at a meeting. Usually, a quorum is achieved if a majority
of directors are present (for directors meetings) or outstanding
shares are represented (for shareholder meetings). The percentage
needed for a quorum may be modified in the bylaws.
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R
RATIO ANALYSIS
Comparing one set of financial numbers to
another to determine a ratio. This ratio is then compared against
past performance or industry standard ratios to determine a
business’s financial health.
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RAW INVENTORY
Asset items that were purchased so that they can
be combined to create a finished product. These include items like
nuts and bolts.
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RECASTING
The process of removing unnecessary expenses
from historical financial statements so that they more accurately
reflect a realistic financial assessment of performance. Often done
by small companies to remove special expenses incurred to decrease
net income and taxes.
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REGRESSION ANALYSIS
The process of mathematically determining a
future value based on existing data. The procedure, usually
performed on a computer, determines an equation that matches the
existing data and then inputs values into the equations to
mathematically estimate future values.
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REORDER CYCLE
The amount of time that it takes a customer to
go from the close date of the prior purchase to the close of the
next purchase opportunity. A repeat customer with a 2 month reorder
cycle will order from you approximately 6 times per year.
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REVENUE
The total sales for the company expressed for a
fiscal period.
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REVENUE MATCHING
The accounting procedure that ensures that sales
revenues and associated expenses for a given period are tracked and
recorded so that they appear on financial statements for the same
fiscal period.
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RISK
1.The possibility that things will not turn out
as you expect and that it could cost you a portion or all of your
investment.
2.The uncertainty associated with
an action or investment. The higher the risk the more reward the
investor expects.
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ROUTINE TASKS
Things that you do that are much the same as the
last time you did them, except for minor variations. The level of
personal or business risk associated with the task is small and the
outcome of the task is definite.
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S
SALE GESTATION PERIOD
The time that it takes to close a sale from the
point of initial customer contact to the time the deal actually
closes.
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SALES
The activities directly associated with getting
the customer to pay cash for your product or service.
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SCORE
A part of the small business administration
(sba) that provides experienced, often retired, executives who will
consult with small business owners on a wide variety of business
matters. Contact the sba for a local SCORE office.
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SERVICE MARK
Similar to a trademark except related to a
service procedure instead or a particular product. These are
commonly used by service organizations, such as accounting and
training companies.
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SHARES
Shares are defined as being a unit of interest
in a particular corporation. The total ownership of a corporation or
business is divided into shares of stock.
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SHAREHOLDER WEALTH
The underlying value of a share of stock as
determined by its assessed market value. Actions that increase
market value increase shareholder wealth.
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SOLE PROPRIETORSHIP
The simplest form of business to establish where
the owner is responsible for all legal liabilities.
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STANDARD INDUSTRIAL CODE
A numbering system used to
categorize companies by their primary business activities. It is
helpful in comparing companies from the same industry since they can
be grouped by SIC.
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STOCK
1.The legal device used to determine ownership
of a corporation. People or companies that own stock are called
shareholders.
2.The portion of a corporation
that is sold to a shareholder.
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STOCK DILUTION
Offering more company stock for sale when the
net income of the company does not increase. The extra shares have
the effect of dividing the same net income by more shares. This in
turn decreases the earnings per share. This decrease will typically
decrease the stock price via the price-earnings ratio.
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STRATEGIC PLAN
A business plan that sets the overall direction
of a company over a 3 to 5 year period.
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STRATEGY
A careful plan or method; devising or employing
plans toward a goal.
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SUBORDINATE LENDER
A lender who is paid only after some other
lender is paid in full.
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SUNK COST
An expense already incurred based on past events
that cannot be easily recovered. Often used in conjunction with
events that, negatively, turned out differently than initially
expected.
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T
TACTICAL
Of or relating to the small actions that relate
to a larger overall purpose or goal.
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TARGET MARKETING
A marketing approach that defines a special
group of potential buyers. All marketing and sales efforts are based
on convincing this group to purchase your companies offerings.
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TELEMARKETING
A marketing approach using the telephone for
quick access to sales prospects or existing customers with the
intent of closing more business.
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TIRE KICKERS
People who appear interested in buying a car (or
your business), who ask a lot of questions (kick the tires) and who
take up a lot of your time only to ultimately find out for
themselves that they really aren’t interested.
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TRANSITION COUNSELOR
A person who is trained to deal with the various
personnel reactions to major change. Some counselors specialize in
helping personnel deal with the changes associated with the
transition of company ownership. They also guide the buying
companies management regarding optimal ways of dealing with the
situation to minimize negative reactions.
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TRIANGULAR MERGER
A merger involving the target company and a
subsidiary corporation of the buyer’s corporation.
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UNIFORM FRANCHISE OFFERING CIRCLE (UFOC)
A detailed set of franchise
information disclosure guidelines adopted by many states.
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U
UP ECONOMY
A period of positive overall economic growth.
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UNANIMOUS WRITTEN CONSENT
Nearly all states allow directors
and shareholders to act without a meeting if they each give their
consent to specific corporate actions in writing.
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ULTRA VIRES
Traditionally, the purpose of a corporation was
closely spelled out in its articles of incorporation. If the
corporation acted beyond its described purposes these actions were
unenforceable against the corporation or by the corporation.
However, most modern statutes allow corporate purposes to be any
lawful activity.
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V
VARIABLE COST
A cost of doing business that varies directly
with the sales level, such as paper cost for the newspaper
industry.
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VARIABLE EXPENSE
An expense that varies with the amount of
product or service sold.
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VERTICAL ACQUISITION
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