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Accounts payable: Business debts that generally are payable within thirty days.
Accounts receivable: Money that customers presently owe the company.
Accrual basis accounting: An accounting method that records sales, expenses or other events at the time they occur, rather than when cash changes hands.
Accrued payroll and payroll taxes: Accrued payroll is payment owed for employee work already done. Accrued payroll taxes are employment taxes for work already performed by employees, which have not yet been turned over to the state or federal revenue services.
Amortization: The gradual payment of a debt through a schedule of payments or the writing off of an intangible asset against expenses over the period of its useful life.
Appraisal: See "Valuation."
Articles of Incorporation: A document filed with the secretary of state of a state which sets forth certain required information about the corporation.
Assets. Anything with monetary value that a business owns. See "Current Assets" and "Fixed Assets."
Balance sheet: A financial statement showing the assets, liabilities, and net worth of a business as of a specific date.
Board of Directors: A group of individuals, elected by the shareholders of a company, who oversee the management of the company.
Book value: Total assets, without the inclusion of intangibles such as goodwill, minus total liabilities. The book value of a company is its base liquidation value.
Break-even analysis: The method of determining the exact point at which a company makes neither a profit nor a loss.
Business name: "Business name" is a catchall term referring to all of a business's names -- its legal name, its corporate name, its fictitious business name, and the names of its products and services. When used in this context, "business name" should be recognized as a generic term, since it does not differentiate between more specific types of business names.
Business plan: A written document that describes a business, its objectives, strategies, market and financial forecast.
Capital: Monies invested in a business enterprise.
Cash basis accounting: A method of accounting that records sales and expenses when the transfer of cash occurs.
Cash flow statement: A charting of sources and uses of cash of a business.
Certificate of Incorporation: A certificate issued by the secretary of state of a state indicating that a company's articles of incorporation have been accepted for filing and that the company is incorporated.
Collateral: Business or personal property that a borrower pledges to a lender as security to ensure repayment of a loan.
Corporate name: When a business incorporates, it must register a corporate name. Similarly, a limited liability company (LLC) registers an LLC name and a limited partnership (LP) registers an LP name. These entities' names must be approved by the secretary of state (or whatever other state office oversees corporations, LLCs, and limited partnerships) before the name will be registered. If a corporation, LLC, or limited partnership operates under the registered name, then the corporate, LLC, or limited partnership name is both the legal name and trade name.
Corporation: An organization formed under state law for the purpose of carrying on a business enterprise is such a manner as to make the enterprise distinct from its owners.
Cost approach to valuation: This valuation approach considers the replacement cost of the company's assets as an indication of what a prudent buyer would pay for the business.
Current assets: Cash, accounts receivable, securities, inventory, and any other assets that can be converted into cash within one year or during the normal course of business.
Current liabilities: Liabilities payable within one year. They include accounts payable, notes payable, accrued expenses such as wages and salaries, taxes payable, and the portion of long-term debts due within one year.
Current ratio: Current Ratio = Total Current Assets/Total Current Liabilities. The current ratio shows a company's financial solvency.
Debt financing: The use of borrowed money to finance a business.
Debt/worth ratio: Debt/Worth Ratio = Total Liabilities/Net Worth. Debt/worth ratio is a measure of how dependent a company is on borrowing rather than equity.
Depreciation: An accounting method to take into account an asset's physical deterioration. It allocates the asset's cost over its useful life.
Depreciation: The process of expensing the value of a business asset over its useful life.
Equity: The net value of assets minus liabilities.
Equity financing: The securing of a monetary investment from an investor in which the investor becomes a part owner of the business.
Fair market value: A price at which a willing buyer and a willing seller, both knowing the relevant facts about the business, would transfer a company.
Fictitious business name: A fictitious business name is used when the trade name is different from the legal name of the entity (individual, partnership, LLC, or corporation) that owns the business. For example, if Frank Farmer called his sole proprietorship "American Appliances," "American Appliances" would be considered a fictitious name because it does not contain the owner's last name. A fictitious business name is sometimes referred to as a d/b/a (doing business as) name. Fictitious business names must be registered.
Fiscal year: The twelve-month period established by a business for accounting, planning and tax purposes.
Financial reports: Reports that show the financial status of a company at a given time.
Financial statement: A presentation of financial information derived from the accounting records. Financial statements include a Balance Sheet, Income Statement (or Profit and Loss Statement), and Cash Flow Statement.
Fixed assets: Assets that are used to produce revenue and are not intended for sale, such as office furniture, vehicles, real property, building improvements, and factory equipment. Also called "long-term" assets.
Fixed costs: Business costs that do not vary with sales volume.
Forecasting: The calculation of reasonable probabilities about a business' financial future.
Generally accepted accounting principles (GAAP): Accepted conventions, rules, and procedures that define accounting practice.
Goodwill: Goodwill is based on a company's reputation and relationships with customers, vendors and the community, and its participation in trade-related activities. In broad terms, goodwill is a measure of how willing these individuals would be to continue doing business with a company.
Goodwill: An intangible asset of a business derived from the perceived value of the business' assets.
Gross profit: Net sales minus the cost of goods sold.
Guaranty: A promise by a third party to repay a loan in the event the primary borrower fails to do so.
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Income approach to valuation: Any valuation method that is based on the company's expected income stream.
Income statement: A presentation of the sales, expenses, and profit or loss of a business on a periodic basis. See "Profit/Loss Statement."
Intangible assets: Business assets that are not material in nature, which have been created through time and effort. Some examples of intangible assets are patents, specialized mailing lists, and goodwill.
Intangible asset: An asset that does not have a physical presence, such as goodwill, a patent or a trademark.
Inventory: Goods ready to be sold, raw materials, and partially completed goods that will be sold.
Inventory financing: The process of obtaining capital for a business by borrowing money with inventory used as collateral.
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Joint venture: An agreement between two or more businesses to mutually accomplish a business objective.
Legal name: A legal name is the official name of the entity that owns a business. A sole proprietorship's legal name is the owner's full name. If a general partnership has given a name to itself in a written partnership agreement, then that name is the general partnership's legal name. Otherwise, a general partnership's legal name is the last names of the owners. For limited partnerships, LLCs, and corporations, the legal name is the name that was registered with the secretary of state.
Leverage: The use of borrowing to increase the ability of a business to conduct its operations.
Liabilities: Debts owed by the business. See "Current Liabilities" and "Long-Term Liabilities."
Limited liability company: An organization, distinct from a corporation, formed under state law for the purpose of carrying on a business enterprise is such a manner as to make the enterprise distinct from its owners.
Line of credit: A commitment by a lender to lend up to a certain amount of money to a business.
Liquidation: Selling the business's assets rather than the entire business as a going concern.
Liquidation value: The estimated total amount that could be realized from selling the business's individual assets, after satisfying all of the business's liabilities.
Liquidity: How quickly and easily an asset can be converted into cash.
Long-term assets: See "Fixed Assets."
Long-term liabilities: Debts owed by the business which must be repaid more than one year from the date of the balance sheet.
Market approach to valuation: Any valuation method that compares the company's financial data with multiples from acquisitions of similar businesses or from stock prices of comparable publicly traded companies.
Market value: See "Fair Market Value."
Net profit after taxes: A company's net profit before taxes, minus federal, state or local income or franchise taxes.
Net profit before taxes: Net sales or total receipts of a business minus all expenses except taxes.
Net sales: Total sales of a business minus discounts, returns and pricing adjustments.
Net worth: The net value of assets minus liabilities.
Operating expenses: The expenses of a business not directly associated with the making of a product or providing of a service, such as administrative, technical or selling expenses.
Partnership: An association of two or more persons to carry on as co-owners of a business for profit.
Price/earnings (P/E) ratio: The relationship between the selling price of a company's common stock to the company's annual profits per share.
Prepaid expenses: The cost of goods or services already paid for but not yet fully used or consumed. Prepaid insurance premiums and prepaid rent are examples of prepaid expenses.
Profit/loss statement: A financial statement summarizing the results of business activities (income and expenses) for a given period of time. Also called an “income statement”.
Public offering: The sale by a company of shares of its stock to the public in the financial market.
Quick ratio: Quick Ratio = (Current Assets - Inventory)/Current Liabilities. The quick ratio shows a company's liquidity, and helps determine whether a business can meet its obligations in hard times.
Retained earnings: Net profit after taxes that is retained in the business as working capital.
Securities: Notes, stocks, bonds, debentures, investment contracts, or any other interests or instruments commonly known as "securities."
Securities and Exchange Commission: The federal governmental agency that maintains order of the stock and securities exchanges.
Small Business Administration: The federal governmental agency that guarantees loans made by banks to small businesses.
Sole proprietorship: A business that is owned and operated by an individual owner without incorporation or partners. The owner is liable for the business' debts to the full extent of his or her personal property.
Subchapter S corporation: A corporation that has elected under Subchapter S of the Internal Revenue Code not to pay any corporate taxes on its earnings, and instead to have its shareholders pay taxes on it.
Trade name: A trade name is the name by which the business is commonly known to the public, which may or may not be the same as the legal name of the owner(s). Frank Farmer's Fridges and Cold Stream Guard Services are examples of trade names. Trade names are seen wherever the business puts itself out to the public, such as on business signs or in the telephone book. For many transactions, such as opening a bank account or applying for a loan, both the business's legal name and its trade name must be given.
Trademark: A trademark (or "mark") is any word, phrase, design or symbol used to market a product or service. A mark used to market a service is called a service mark, though "trademark" is commonly used to refer to both types of marks. Under certain circumstances, trademark owners have the power under federal and state law to prevent others from using their trademarks to market goods or services.
Under-capitalization: When available funds are consistently insufficient for a business, hampering its efficient operations.
Unsecured loan: A loan made with no collateral posted to ensure repayment.
Valuation: A value estimate or opinion, or the process of estimating value. A valuation report is usually a written document setting forth an opinion of a business's value as of a specified date, supported by the presentation and analysis of relevant data.
Variable cost: A cost that varies directly with sales, such as raw materials, labor and sales commissions.
Working capital: The capital available to the business on a short term, calculated by subtracting current liabilities from current assets.
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