SME Assistance

Business Terms

Accounts Receivable
Money owed to your company by customers.

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.

Affiliate Marketing
A retailer or service provider advertising its goods or services via a third party in return for a commission on any sales.

APR (Annual Percentage Rate)
This is the annual rate of interest charged on money borrowed

Property that has value owned by a company. Apart from buildings this includes, stock, machinery, equipment, IP (Intellectual Property

An official inspection of a company’s, or individual’s, accounts.

Business to business.

Business to consumer.

Balance sheet
A ‘snapshot’ of a company’s assets, liabilities and capital at a particular point in time

Base Rate
Set each month by the Bank of England, this is the country’s base rate of interest. This influences financial products and services when they set their own cost of borrowing.

Checking your company’s standards by comparing them with certain criteria, e.g. a competitor’s activities.

Blue Chip
This term originates from poker as blue chips are traditionally the highest-valued. Therefore, a blue-chip company is one that is large and considered to be safe or prestigious.

(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 gross profits exactly match expenses.

Business Angel
Also known as an angel investor. An individual who provides capital for a business start-up in return for a stake in the company.

Business Cycle
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 ongoing costs to run a product, service or system.

Cash Flow
The movement of cash into and out of a business

Assets that bowers can use as security against a loan.

This is any item which can be freely bought and sold. Examples include gold, food products and coffee beans.

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 (CSR)
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
This is an element of the business 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. Accountants will use this to amortise out the cost of an asset over time.

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.

Economic Growth
This is the term used to describe an increase in the amount of goods and services produced by the county, known as gross domestic product (GDP).

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.

Represents what would be left if all of a businesses’ assets were liquidated and the debt paid off.

Exit Strategy
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.

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.

Financial management
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.

Fiscal Year
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 6th April and 5th April is most often used for personal taxation. The ‘official’ period for corporation tax runs from 1st April to 31st March, however companies can adopt any yearly period for corporation tax.

Fixed Cost
Any cost that remains the same in the short-term, despite changes in volume. Fixed costs usually include, for example, rent, interest and salaries.

Gross Profit
The total amount of money you have earned in a period of time after deducting costs of goods sold eg. materials, labour, packaging etc.

When a company becomes unable to pay off its creditors, or its liabilities exceed its assets.

Intellectual Property (IP)
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 (KPI)
is a measure of performance to assess the success of a company or a certain activity the company is taking part in.

Liquid Asset
Any asset which can be easily converted into cash.

The ease with which a company’s assets can be converted into cash.

Profit Margin
is a Key Performance Indicator (KPI) how much money a company made. There are two main measures See Gross Profit and Net Profit

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.

Market Share
The percentage or portion of the overall market controlled by one company.

Marketing Mix
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.

National insurance
is a form of tax which everyone currently employed must pay in order to qualify for benefits, including the state pension.

Negative Equity
When the value of an asset you have already bought becomes worth less than what you initially paid.

Net Profit
The amount of profit remaining after all deductions such as cost of goods sold, overheads, variable costs and tax have been made.

Net Asset Value
Take the total value of a businesses assets less its liabilities.

Non-executive Director
This is a director who helps a company and offers an independent view on strategies and performance but is not actively involved in the day-to-day running.

Operating Expenditure (OPEX)
On-going costs for running a business, service or system that includes day-to-day expenditure such as sales and administration. Also see Capital Expenditure (CAPEX)

Operating Profit/Loss
The profit or loss a company makes. These figures reflect how the business is performing.

Ordinary Share
this is one unit of a businesses share capital.

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.

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.

Rate of Return
This is represented as a percentage and is the annual income an investment makes back.

Real Interest Rate
The rate of interest minus the current rate of inflation.

Return on Investment (ROI)
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.

Share Options
A right to buy shares in a company in the future, at a favourable price, in addition to a regular salary if the person meets specific performance targets or predetermined criteria.

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 Enterprise
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.

Supply Chain
The different elements making up the process involved in producing and distributing an item or items.

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.

The total sales of a business or company during a specified period.

Venture Capital
Capital invested into projects with higher risks, usually start-up businesses.

Working Capital
This is the capital a business uses in its day-to-day trading. It’s the difference between current assets and current liabilities. It provides an indication of liquidity and the businesses ability to meet its current obligations.

Work Life Balance
The balance in demands of both life at work and personal life.