Having an understanding of the common terms used in the business world can be hugely beneficial when starting and running your own business.
At Business Expert, we hate corporate jargon as much as you do, but having a grasp of some of the key terms you’ll encounter on a day-to-day basis can really make your life easier. Below are simple, jargon-free explanations of some of the common business terms you’ll encounter in the course of running your business. Whilst not all will apply to you, there are certainly plenty of terms that will. The key terms are listed alphabetically for your convenience. Want more added? Email: firstname.lastname@example.org.
AAA-Rating – Refers to the best credit rating given to a borrower taking debts into consideration giving indication of risk or not of a default; in the case of an AAA rating the risk of default is minuscule so rated the highest attainable.
A.C.A.S. – Advisory, Conciliation, and Arbitration Service which has the purpose of settling employer – employee/union disputes. Important body when it comes to staffing matters and there are plenty of free downloads to help employers here on the ACAS website.
A.B.F.A. – Asset Based Finance Association sets the standards and recommended procedures for assets based lenders and invoice financing in the UK.
Absenteeism – Represents the amount of time an employee has off work due to illness or other reasons none work related.
Accounts – Generally in business terms this will refer to; business transactions, assets, liabilities, equity (shares), income and expenditure. At the end of the financial year, limited companies must prepare full annual accounts. Companies listed on the stock exchange must produce information on their profits six months into the financial year. These accounts must be sent to Companies House and are used to determine the level of corporation tax they must pay.
Accounting – Companies and individuals must by law keep accurate records of business related expenditure and revenues (see accounts). There can be harsh penalties for failing to maintain accurate records and in the case of limited companies annual accounts must be published at Companies House. You are responsible for your own tax affairs and record keeping and they should be maintained in a safe place. It is generally considered wise to keep records for a minimum of six years but you can learn more here HMRC website.
Accounts Payable – Short-term record of less than 12 months for bills, liabilities, invoices, remaining to be paid.
Accounts Receivable – Short-term of less than 12 months due invoices (payments to the company) were products/goods/services provided/delivered but not paid for by debtors (people/companies owing money).
Accounts Receivable Finance – Can also be known as Factoring or Invoice Finance.
Accrual Accounting – The process recording payment transactions when they take place, now or in the future. Learn more from the ICAEW article.
Acid Test – A strict measurement of a company’s or individual’s liquidity (ability to repay short-term debt) excluding assets.
Added value – Benefit, real or perceived above the actual costs of a product and or service.
Administration (Insolvency) – A solution for an insolvent UK company that allows it to continue to trade in the hope of a better return for creditors and or positive result for the company. Administration can also provide excellent protection to stop creditors winding the company up compulsorily.
Administration (Business) – Commonly used to describe the ‘back office’ management of the day to day business matters such as paying bills, collecting invoices, bookkeeping etc.
Advance Rate – Commonly used by factoring or invoice finance companies as the pre-agreed rate of any invoice advance. Advance Rate Calculation – Calculations will vary wildly but typically the most influential dynamics are the quality of the debtor, agreed sector, its ability to pay and previous track record of payments.
Advertising – Promotion of your business services and or products to third parties via a defined marketing channel, such as, TV, Newspaper, Internet, etc. The aim of advertising your business is to sell your business products and or services.
Advertising Standards Authority (ASA) – Independent body regulating all advertising no matter where in the UK. You can learn more here at the ASA website.
After Sales Service – Some would argue this is the most important of all sales activity as it provides an opportunity to create another sales opportunity and ensure you have a happy customer. A happy customer on average will tell seven others about your services.
AGM – Stands for Annual General Meeting as company shareholders meet each year to vote on key matters for the company such as dividends, appointments etc.
Aim (Business) –This usually means a none specific direction of a company as opposed to a target which is usually a specific ‘goal’ another term used. For example Bruce Lee once said “to aim at something provides direction not necessarily something to hit”. In business terms this can be quite useful when first setting out and having a clear direction is not always so ‘clear’.
Amortisation – This is the ‘writing down’ process for intangible assets over time.
Annuity – This is a type of insurance policy that provides a regular income in exchange for a lump sum that is paid on retirement.
Ansoff’s Matrix – Refers to a marketing and planning tool used to help directors plan marketing and product development strategy. Named after the Russian Igor Ansoff who came up with the concept in the 50’s and you can learn more here.
Appraisal –Usually refers to the annual review and assessment of an employee’s performance. Could be associated with a salary review for example.
APR (Business) – Means the Annual Percentage Rate (APR) which is the annualised rate of interest paid when borrowing money. In the past when financial products were sold the actual interest rate bore no resemblance to what was repaid. Guidelines were set out by the government regulators that were an interest rate is advertised it must provide a representative example. The Department of Business Skills & Innovation (BiS) states clearly that all advertising of the interest rate must include a clear, concise explanation of the interest rate and include all costs associated with the APR – the representative example.
Aptitude Test –Refers to a test usually taken at the recruitment stage to test a particular skill/ability/propensity/capacity of an interviewee. These tests are controversial with some larger employers swearing by them and with others putting them in the bin.
Arbitration – Refers to the process where two or more parties in dispute agree to explain their cases individually, to an independent adjudicator and the adjudicator’s decision is accepted by all parties.
Asset Based Lending – A term describing type of lending that involves the lending being secured on a particular asset. The assets can be varied but there must be a real value in excess over that which is being loaned in order for it to become a recognised asset. The excess will vary dependent upon the lending required.
Assets (company) – Typically a company will have two kinds of assets, tangible and intangible assets. Tangible (fixed) assets can be plant, machinery, buildings, essentially if you can touch it, it is owned by the company and it has a value and 12 month lifespan it will be a tangible asset. Intangible assets will often be the intellectual property such as the debtor book, trademarks, stock and even goodwill or company name.
Asset-Stripping – The act of taking over another company with the aim of selling of its assets at a profit, rather than running the business as a going concern.
Audit (company) – Usually performed by an approved auditor to check the company’s accounting affairs are in order and as they should be.
Auditors – Auditors are simply accountants who certify that a company’s accounts give a ‘true and fair view’ of a company’s financial position.
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BCC – Refers to the British Chambers of Commerce which is a national organisation with local branches which provides support for business members.
Bad Debt Protection – Usually bought as protection against a debtor becoming insolvent or unable to pay. Typically this can be purchased to protect your company against one or a number of debtors defaulting. Also used by Factors to underwrite potential bad debts so they have no recourse to hold the company and or director responsible for bad debts accrued.
Bad Debts (company) – Overdue invoice payments you are very unlikely to obtain in the foreseeable future so are written off and accepted as a loss to the company.
Bailiff – A bailiff can be a Court official or employed by a business. Bailiffs can seize goods on behalf of creditors when collecting debts. Not all bailiffs have the same powers and there are four different types of bailiffs:
- Civilian Enforcement Officers
- County and Family Court Bailiffs
- Certificated Enforcement Agents
- High Court Enforcement Officers
Bailiffs do not have unlimited powers and cannot force entry and to learn more visit the government website here.
Balance of Payments – A record of all flows of money in and out of a country. This results from exports (inflows) and imports (outflows).
Balance Sheet – Provides a photograph as opposed to a movie of a company’ overall position and who owns what assets. A good balance sheet should normally include profit & loss, cash-flow, assets and liabilities (short and long term), debt to equity ratio, reserves, stock, capital assets and cash shareholder values and so on.
Balloon Payment – Many leasing/finance arrangements have a final balloon payment. This ‘payment’ allows lower payments to be made in the earlier payment period, than would have been possible had the balloon payment not been allowed for. Typically this balloon payment is secured against an asset which will produce a better than average value at the end of the term.
Bank of England –Refers to the UK central bank and responsible for the issue of UK currency, setting of UK interest rates, stabilising the economy and setting monetary policy. The bank was founded in 1694 and you can learn more here.
Bank Reconciliation – Check that make sure bank statements and payments/cashbook balance.
Bankrupt – Relates to an individual (not a company) who owes more than £750 and cannot repay those debts or reach agreement with creditors. An individual who has been made bankrupt cannot be a company director without appealing to the Official Receiver who is an employee of the government’s Insolvency Service.
Bankruptcy – Term used to describe process where the assets of an individual who owes more than £750 have been passed to the Official Receiver who takes control of them for the benefit of creditors. In the UK, the Official Receiver is a civil servant and works for the Insolvency Service. The aim of the bankruptcy will be to obtain a return for creditors after Official Receiver fees have been deducted (up to 17.5%).
Base Rate (BoE) – Overnight lending rate set by the Bank of England (BoE) to banks borrowing from them which has a subsequent bearing on the lending rate banks lend out at. The BoE usually reviews the base rate the first Wednesday morning each month and announces it shortly afterwards.
Basel Accords – Derives its name from the town Basel in Switzerland where the initial meeting took place. In essence a committee called the Basel Committee on Bank Supervision (BCBS) impose the minimum liquidity and capital adequacy requirements along with associated regulations. Learn more here.
Basic Pay – Refers to the salary paid to an employee for his/her agreed number of hours but not including bonuses or overtime.
Basis Point – One percentage point equals 100 base points.
BBA – the British Bankers’ Association represents all major banks based in London and agrees the rate at which interest is charged between inter-bank lending called the Libor rate.
Bear Market – Represents a share market where prices are falling aggressively due to over selling. Fear is usually driving the market down. Bear market is the opposite of a Bull market where share prices are driven up by optimism.
Benchmark – One or more settings which a product and or service may be measured against.
BIBA – The British Insurance Brokers Association is the UKs largest general insurance intermediary organisation and governing body.
Bill of Exchange – A formal instruction for a third party (drawer) to pay another party (drawee) at a specified date. Be aware the document is transferable and parties may be interchangeable.
Bill of Sale – An Americanisation of a purchase invoice which is a legal document providing the details of any purchase.
Bookkeeper – An individual who records the financial details and or transactions of a business, usually on behalf of the business owner.
Bookkeeping – The process used by an individual to record business transaction details on behalf of the business owner.
Bootstrap (IT) – A mechanism for loading a computer programme without human intervention .
Bootstrapping – Where a business owner has funded growth by way of personal finance and or revenue from the business solely. No external finance has been used.
Bond – A secured debt or more likely an IOU between parties (Issuer and Holder). Typically any bond will state the when, how, why and what in detail and they can be issued by companies, investment houses, banks or even governments to raise capital. The more secure the issuer the more likely the poorer the rate is likely to be.
Bottom Line (Business) – Similar to net profit but recognised as the very final outcome of a balance sheet or accounts. Also used in business as the ‘deciding factor’ when considering options.
Breakeven Point – The point at which a company makes sufficient revenue to pay the overheads.
Bridging Loan – A type of short term finance commonly used by individuals and companies in property deals. The finance is used to buy the property and ‘bridge’ the gap until a more sustainable source of finance can be arranged.
Broker – An intermediary between a buyer and a seller that helps a buyer find the best deal. Examples include mortgage brokers and insurance brokers.
Budget (Business) – The amount determined that will be spent over a given period usually on specific outcomes. For example “in order for us to make a profit the overall budget for costs on this job is £500”.
Bulk Buying –Means of buying larger than normal volumes so as to take advantage of any economies of scale. For example rather than buying smaller quantities weekly delivered by van, it may be more cost effective to buy a truck load.
Bull Market – Describes a rising share price market where optimism and confidence are great. Bull market is the opposite of a Bear market.
Business Name – The trading name which a business is known by, by consumers as opposed to the limited company name.
Business Plan – A comprehensive forecast of the objectives, key milestones along the way, timing involved and should also include: basic financial details, sales forecast, marketing requirements, operational requirements and summary outlining who, why, what when of the plan.
Business Overdraft – This is a, usually, short term borrowing facility usually provided by a bank and was the most easily accessible for SMEs but banking attitudes have changed and they are more difficult to obtain, as banks are more risk averse. Typically an agreed amount will be made available by a bank and once accessed any lending agreements will become ‘live’. Depending on the bank and the facility amount personal guarantees may be required.
Business to Business (B2B) – Commercial transactions or activities between businesses and not involving consumers.
Business to Consumer (B2C) – Transactions in which business sell their goods and services to the end consumer, which is not a business.
Buy-out – A buy-out occurs when a single party buys a controlling proportion of a company’s shares. Management buy-outs take place when a company’s management team ‘buys-out’ the company shares and become the owners of the company.
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CBI – refers to the Confederation of British Industry which is a national organisation representing UK business views and lobbying usually associated with the larger companies.
Capacity –This term usually refers to the maximum output of an individual or company.
Capital (Business) – Refers to property and or cash held by a company.
Capital Adequacy Ratio (CAR) – The ability of a bank to soak up any losses. Your IFA will usually draw the CAR to your attention before suggesting you invest or deal with a bank. The regulations are set by the Basel accord. See Basel.
Capital Cost – Usually a one-off cost for a company tangible purchase.
Capital Gain – The amount between purchase price and the selling price.
Capital Gains Tax – The tax paid on any capital gain you make from selling an asset. Everyone has an allowance before they become liable for capital gains tax. Capital gains tax is paid at an individual’s highest rate of income tax, although reliefs and exemptions are available.
Capital Growth – The increase in the value of an asset held by a company.
Cartel –Refers to an illicit arrangement formal or informal to fix pricing to the detriment of consumers and or competitors.
Carry Trade (Business) – Borrowing money at a low interest and buying assets/products likely to produce a higher return than the rate borrowed at.
Cash (Business) – Denotes the amount of accessible cash is available upon demand.
Cash Accounting – Refers to the system of recording cash transactions, incoming, or outgoing whilst making note of the date and time of the transaction.
Cash Advance (Business) – A service provided by finance houses for providing a cash advance based on the amount of card payments received via a credit card terminal. Typically a set amount is repaid via % of credit card takings and a minimum turnover of card transactions is required.
Cash-Book – Provides a daily account of cash movements in and out of a business.
Cash-Flow – Denotes the measure of income and expenditure flowing in and out of the business. Cash-flow has often been called the lifeblood of the business for very good reason. A company with poor cash-flow will struggle to survive so it is a key indicator of the health of any business.
Cash-Flow Statement – Along with the profit and loss and the balance sheet this is a critical measurement of the overall liquidity of the business. Ideally the statement should provide indicators cash consumption at any given point ideally weekly, monthly, quarterly and annually. This will help you manage critical expenditure decisions and expansion.
Chattel Mortgage – The purchaser owns the asset from the outset (similar to buying your home) and makes ongoing monthly (normally) payments. Due to the inherent value of the asset being purchased there may be a balloon payment to reduce the regular repayments making the purchase easier on cash-flow.
CHOCs – Stands for client handles own collections. Usually used to describe a variation of a factoring agreement where the collections are normally handled by the factor (company purchasing the invoices). Usually there may be a fixed date at when the CHOCs may cease.
Client Account – Usually a trustee account discernible by the banks as such so the movement of a client’s money can be monitored, identified and recorded. These funds must not be used for the company’s benefit (improving cash-flow for example) as they belong to the client.
Client Manager – Usually an employee of a company whose roles and responsibilities dictate the service required for a large/significant client or a particular set of clients.
Collateral (Business) – Usually something of a valuable nature used as security for a lender or to be used as part of a business deal.
Collect Out – Describes the event of recovering the advances made against invoices via invoice finance/factoring arrangements.
Commercial Bill – A means of raising short term finance usually secured against stock or minor assets.
Commodity (Business) – Anything useful that can be bought, sold or traded.
Company Voluntary Arrangement (CVA) – A corporate insolvency procedure in which an affordable repayment plan is drawn up and payments are made usually up to a maximum of five years. A company can continue to trade under the terms of a CVA.
Competition Markets Authority –An independent body that regulates anti-competitive behaviour in the UK, such as, stopping cartel arrangements and taking advantage of a company’s monopoly to the detriment of the consumer.
Compulsory Liquidation – The forced closure (winding-up) of an insolvent company after a petition to the court, usually by a creditor or the Insolvency Service.
Concentration Limit (Factoring) – Refers to the % limit determined by a factor (invoice finance provider) as the amount of risk they will take with a particular sector debtor book, or client debtor balance.
Confederation of British Industry (CBI) – The CBI is a lobbying organisation which works to protect the rights of employers at a national and international level.
Constructive dismissal – Refers to an employee who has been pressured into leaving the company by his /her employer. See ACAS.
Consultant – An individual or company providing a service (as opposed to materials and manual labour) for a specific undertaking. Consumer (Business) – Refers generally to be an individual who buys goods and or services for their own personal use (not for business use).
Consumer Price Index (CPI) – A measure of the prices of essential household goods and services in the UK provided by the Office of National Statistics and used by the Bank of England as a key government target. The goods and services are reviewed from time to time to reflect the changing nature of the UK consumer.
Consumer Prices Index (CPI) – The CPI tracks the changes in the prices of the goods and services a typical household might buy to measure whether prices are rising (inflation) or falling (deflation) overall.
Contingent Liability (Business) – A future liability that will only become payable should a specific event occur.
Contract – An agreement written or verbal outlining a common objective in the pursuit of profit. There must be an offer and acceptance to form the contract.
Contractor – An individual or business that provides a service and or materials usually for a specific undertaking for an agreed job or contract term. See Freelancer.
Core Inflation – Refers to the measure of inflation without the more volatile items were price fluctuations can affect the accuracy of the index (food, electricity, gas etc.). Financial markets are more likely to use this core index as an indicator of inflation than the Consumer Price Index.
Corporation Tax –This is the tax paid by a limited company on its net profits. As of 2015 there are two rates of corporation tax, the small company rate which is currently below £300,000 profits, but these may change and you can learn more here at the HMRC website.
Cost of Debt Ratio (Business average) – Used to identify a company’s overall strength and is calculated by taking the cost of interest paid divided by the balance of the debt owed. It provides an indicator of the company’s ability to pay its debts.
Cost Of Goods Sold (COGS) – Refers to the hard costs of goods and or services sold. See cost of sales.
Cost Of Sales (COS) – HMRC may take an interest in this as it has a direct bearing on the amount and type of tax your business will pay. The actual calculation may vary depending on the size and nature of your business and it’s important to ensure all related costs are attributed correctly. For example the simple calculation of: opening stock + stock purchased – closing stock, is unlikely to produce an accurate figure if, for example, stock was held previously, sold via different channels which in turn had differing costs. Unless you are a financial expert you should seek professional accountancy help.
County Court Judgement – County Court action against a business if it becomes and county court judgement will impact on your business credit rating for 6 years so do not ignore it.
Creditor – A person or company to which money is owing.
Credit Controller (Business) – An employee whose role and responsibilities involve preparing, managing invoices and collecting payments for invoiced work completed.
Credit Controller (Factoring) – An individual or team designated to collect outstanding invoiced work completed.
Creditors’ Voluntary Liquidation – A corporate insolvency procedure in which a company’s directors choose to voluntarily bring a business to an end when it can’t pay its debts.
Credit – An agreement for a customer to purchase goods with the intention paying for them later, usually at a pre agreed interest rate, and or set of conditions called a credit agreement.
Credit Crunch – A time when banks see far greater risk lending money than they would in normal circumstances. Typically they will impose far stricter lending criterion to minimise any risk to the bank.
Credit History (Business) – A company’s payment track record of key bills, such as utility and credit repayments is usually collated and monitored by Experian, Equifax or Creditsafe. This information will form the basis for any lender considering lending you money and will usually be raised at the application stage.
Credit Limit – This is the limit of any finance that will be allowed and generally impacted by your credit score from your credit rating.
Credit Rating – A company’s credit rating determines the risk of lending to and or working with that company. Your credit rating will have a real and direct impact on such things as your ability to obtain credit, utility bill charges, and the interest rate you are likely to be charged. The three biggest credit rating agencies in the UK are Equifax, Creditsafe and Experian. See Credit History above.
Credit Score – This is a numerical illustration of the risk a potential lender takes when considering providing any finance – your creditworthiness. Typically your credit score will have been calculated using information provided by the credit bureaus such as Equifax, Creditsafe and Experian and is based on relevant collated historical financial data. See Credit History above.
Creditor – Can be an individual or company and they can be a lender or a supplier who you owe money to.
Credit Rating – The position given to a company or individual, based on their credit history that represents the ability to repay its debts.
Cross Guarantees (Business) – Inter-company guarantees (usually associated) are typically used to spread and reduce the risk of a lender incurring a default. Where a default does occur the lender has recourse to the assets of companies signing up to the guarantees. Cross guarantees may also be used by individual directors as part of an insured inter-director share purchase agreement in the event of death or permanent disability.
Current Asset – Any asset that can be realised (converted) into cash normally within a 12 month period.
Current Liability – Any company liability due to be paid within the next 12 months.
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Dead Cat Bounce – The false rise (rebound) that often takes place following a dramatic fall share prices. The meaning is that the share price is not fully recovered.
Debenture – A charge on a company’s assets usually by a lender or finance provider and in which case will be on a fixed and floating charge basis. Fixed and floating essentially means anything with a value in the company will be secured by the debenture for example: intellectual property, invoices, plant and machinery and even company name. Please note any legal charge (Debenture) must be registered at Companies House.
Debt – Any monetary amount owed out by a company.
Debt Consolidation – An arrangement whereby several loan amounts may be reapplied for with one loan in order to reduce the interest rate and repayments made making it more cost effective.
Debt Restructuring – Refers to the renegotiating of several creditor debts with the aim of improving cash-flow. This may involve renegotiating the length of the agreement terms, interest rates applying and or debt for equity exchange. The overall aim though is always the same to improve the position of the debtor (company owing the money).
Debtor – Company or individual that owes you or your company money.
Debt Turn – Usually refers to the number of days it takes for your customers to pay their invoices.
Deed of Partnership – A legal document which sets out how a partnership is to be run and the rights of the partners. Although it’s not compulsory, a deed of partnership can help to avoid misunderstandings or disputes further down the line.
Default – A failure to repay, an obligation and, or, a given amount on a pre-agreed date.
Deficit – The overall amount your company expenditure exceeds your revenue over a twelve month period.
Deflation – This refers to the overall fall in the price of the basket of consumer price index (CPI) goods and services which causes negative inflation. In the short term this can be a good thing for consumers but if sustained it can impact on business sales as consumers delay spending waiting for further falls in prices. These delays in spending can cause a downward spiral in a major economy.
Depreciation – Describes the writing down (reduction in value) process of an asset’s usefulness over a specific period of time.
Director – An individual who is appointed to oversee and run a company.
Disbursements – Money usually paid out by your company for costs/expenses incurred.
Disclosure (Business) – Term usually related to a period allowed to disclose relevant facts pertaining to a specific company contract and or obligation.
Discount – A reduction to the normal sales price for goods or services being provided.
Dividend – This refers to a distribution of profit in the company year and allocated proportionately in relation to the amount of shares held. There is flexibility as to whether and when the dividend may be paid and this decision is made at the annual general meeting.
Drawings (Business) – This refers to the gross amount of money taken as income by a sole trader and is subject to tax after deduction of expenses.
Earnings statement (Business) – Refers to a statement of income derived from a business over a given period. Also known as: profit and loss or income or operating statement and usually includes the revenue generated, less costs and business expenses, providing a net (bottom line) figure.
EBA – Refers to the European Banking Authority which aims to provide, general standardisation, regulation, bonus payment guidance for banks and financial institutions across Europe.
EBITDA – This is a recognised measurement by a potential lender of a company’s cash-flow’s ability to repay its debts.
ECB – This is the european central bank for the EU and sets euro policy and interest rates with the aim of maintaining stability via fiscal and inflationary control.
Economies of Scale – The benefits that come with being a larger organisation. In manufacturing, the more units you make, the cheaper each unit costs to produce
EFG – Refers to the Enterprise Financial Guarantee whereby 75% of the business loan provided by a bank is guaranteed by the government. The loan is provided to those businesses who would not qualify for a loan due to insufficient security being available. A 2% fee of the outstanding balance is payable to fund the government scheme – this product is not an insurance.
EIB – This is the European Investment Bank is a development bank owned by European members. Some of the key objectives of the bank are to develop and support infrastructure developments; provide loans to the poorer countries and support general environmental aims.
Elasticity – A term used to describe the consumers’ response to a change in price. An elastic product is one where the level of demand is sensitive to a change in price.
Employee Ownership – This is a business model in which the employees of a business are significant or majority shareholders, resulting in a higher level of loyalty and commitment. The John Lewis Partnership is one of the most well known examples of employee ownership.
Employment Law – The branch of law that regulates the relationship between employees and employers. It includes the rights of employees, workplace safety, discrimination, compensation and more.
Encumbered – An asset which is secured by a lender for the purpose of providing a loan.
Enforcement (Business) – Following a successful law suit a judgment will be made against the business and or owner. This may include forcefully recovery of tangible/fixed assets brought about by an ‘enforcement order’. This enforcement may be carried out by an officer of the court and or a bailiff to carry out the enforcement.
Equity-Based Crowdfunding – The sale of equity in a business to smaller investors usually but not always at an early stage of development.
Equity (Business) – The value of a business remaining after adding up the value of all business assets plus business value less any debts held by the business. Also known as the ‘stake’ an individual, company or group of individuals has in a business interest and or company. A simple calculation to arrive at the ‘stake’ in a company, say would be to assess the value of the business plus assets, less liabilities multiplied by the share percentage.
Equity Finance – Money (finance) provided to procure a share in a business venture. The finance is usually used for expansion purposes but have no restrictions placed on it. The source of finance can come from anywhere and often does in the early stages of business such as family and friends and at the later stages may come from a more ‘professional’ source such as a business angel or venture capitalist company.
European Stability Mechanism (ESM) – The ESM is a permanent mechanism is funded by European members only (not UK) and provides finance support to promote stability within the Euro zone.
Eurozone – Describes the countries as a whole who use the Euro as their common currency.
Excise Duty (UK Business) – This is an indirect taxation that is monitored and enforced by HMRC and may be placed on the flow of goods in and out of the UK or on certain goods within the UK borders. Excise may require security bonding and you can learn more here at the HMRC Excise website.
Facility (Business) – Usually refers to the limit of banking support that will be provided by an institution, such as an overdraft (facility) limit.
Factor (Business) – Refers to the institution providing finance to purchase the debtor book and responsible for collecting debts (usually) in a factoring agreement.
Factoring – Process used for releasing money from business (usually a company) invoices. Typically the factor (see immediately above) agrees to buy the invoice from the company. The factor will then provide an agreed advance of between 65% to 90% of the value of the invoice value, dependent on the risk, the factor is prepared to take. Factoring also provides and controls the collection service for the invoice and may provide the advance within 24-48 hours. You can learn more here*link to factoring page*.
Factoring Agreement – The contractual basis for the factoring arrangement agreed including the terms and conditions. The agreement is likely to include personal guarantees and a company debenture.
Federal Reserve – Refers to the American equivalent of the UK’s Bank of England – Central Bank of America.
Final Accounts – Outdated terminology for the final trial balance of the accounting period usually including a balance sheet, income statement and cash flow statement.
Finance (Business) – Money raised to fund a high value, usually a capital, purchase or purchase of a business.
Financial Statement (Business) – Typically provides an overview of the financial position of a business in a given period. Typically the financial statement will include a balance sheet, cash-flow and profit and loss.
Financial Year (Business) – This is the period between 1st April and 31st March the following year when corporation tax is calculated and government’s financial statements (Budget).
Fiscal Policy – A governments agreed policy directing the way it (the government) spends, borrows and implements tax policy on behalf of the electorate.
Fixed Assets – Assets held by a business/company typically tangible assets such as property, equipment etc.
Fixed Charge – This is a charge a creditor holds over a specific asset, which means the debtor cannot sell the asset unless they have the consent of the creditor or repay the amount the charge is secured against.
Fixed Cost – Costs which do not vary so are not linked to sales or production levels such as wage bills, rent or commercial loan payments etc. These costs will have a significant impact on profit margins when sales or production revenues are falling, by reducing profit margins.
Fixed and Variable Cost – Usually involves budgeting and gaining understanding of what costs are fixed and vary. For example a variable cost may be consumption of electricity, which varies month to month whereas a fixed cost may be a car rental payment.
Fixed Interest Rate – A rate of interest agreed at the outset which does not vary for a specific period of time.
Fixed Term Contract – This is a contract of employment which ends on a predetermined date or on the completion of a task or project. Fixed term employees have the same rights to pay, conditions and benefits as full time employees.
Flat Rate Scheme – Scheme used by HMRC to calculate VAT variations dependent on your trade or profession. You can learn more here on the HMRC website.
Float (Business) – Refers to when a company offers its shares to the public for the first time, so ‘floats’ the shares on the stock market for example. The term arises as there is no way of knowing where the value will end so will rise and fall until a final share prices is decided at the end of the days’ trading.
Floating Charge – A charge held over the general assets of a company. The company can use the assets without the consent of the creditor until the charge becomes fixed. This occurs on the appointment of an administrative receiver or on the presentation of a winding-up petition.
FOB – ‘free on board’ – Generally refers to the import and export business and the passing of goods from the exporter (seller) to the buyer (importer). Historically refers to the loading of the goods on to a vessel free of all the associated costs and risks such as insurance. Once safely loaded on board the vessel the goods became the property of the buyer once all documentation is signed. This can be an extremely complex area and be aware free on board can also be deferred to the destination offloading port not the loading port.
Forecast (Business) – Future planned financial dealings over a given period.
Franchise – Refers to the pre-agreed, usually legally binding, agreement allowing the use of a particular company’s brand, marketing and business processes by another company or individual with the aim of making a profit.
Fringe Benefits – Benefits not paid as cash but make up an overall salary package. Typical benefits are mobile phones, health care, pension, car etc.
FTSE 100 – The London Stock Exchange (LSE) lists the top 100 companies and revises the index every quarter.
Fundamentals (Business) – In business terms the fundamentals of a company are its assets, liabilities (including contingent), overall earnings, growth and revenue streams.
G7 – The G7 are the financial ministers of the most advanced economies on the planet which provide 64% of the world’s net wealth (c£166tn). Member states include Germany, Canada, UK, France, Italy, Japan and USA, with the EEC also represented now (so actually G8).
G8 – Just to confuse matters further, the G8 includes Russia, but as it includes EEC representation it should really be the G9.
GDP – Refers to the gross domestic product measurement of a country measured usually by revenues, output or expenditure.
Gearing (Business) – Refers to the amount of debt a company has in comparison to the share-holders funds.
Glass Ceiling – Refers usually to the invisible but real restrictions placed on minority groups and or women halting progress and or promotion in the workplace.
Going Concern – The term used to describe an active business when being sold. For example selling as a ‘going concern’ allows the business to continue to trade, saves jobs and usually results in a higher price.
Goodwill (Business) – Money paid for the acquisition of a company but in excess of the value of the net tangible assets. Most typically the value placed on the trading name within the selected market place could be recognised as ‘goodwill’.
Gross Domestic Product – This is the sum of all the goods and services produced in the UK economy. If GDP is up, the economy is growing; if it’s down, it’s contracting.
Gross Income – Refers to the amount of the total revenue taken by a business before any overheads are removed.
Gross Profit – Gross profit is determined as sales revenue less the cost of those sales. Often referred to as a ‘profit margin’ or shortened to ‘margin’ as in “what’s your profit margin?”
Guarantee – This is a legally binding agreement between a lender and borrower and or supplier providing credit to a customer. A guarantee is most likely required by a credit/finance provider from a director when the company seeks finance or credit. Unless there is a specific term and or limit added to the ‘guarantee’ there is not usually a limit imposed so directors be aware.
Guarantor (Company) – An individual, or entity that is legally responsible for repaying a debt should the borrower (the debtor) default (not pay).
Commonly called a personal guarantee and used by banks, leasing companies and even suppliers which is often hidden away in the small print in the terms & conditions.
Haircut (Business) – An American term for the agreed loss a creditor will allow as part of any debt restructuring. For example – “the creditor took a haircut of £50,000” – the loss (haircut) being the £50,000.
Hedging Bets (Business) –Refers to the practice of offsetting the risk of a particular transaction, or minimising the downside risk in negotiations. For example – “She’s hedging her bets”.
Hire-Purchase (Business) – Commonly called HP this is a legally binding agreement committing the buyer to purchase goods over an agreed term, with the actual transfer of ownership taking place once final payment and or outstanding balance has been paid. The purchase is made by repayments of capital and an agreed interest rate typically based upon the buyers credit rating, and or, the sellers’ keenness to sell the goods. For example – VW may charge no interest on the purchase agreement as they have sufficient profit in the sale of the van so benefit from increased sales volume.
Holding company – A company which is created to buy and own the shares of other companies, which it then controls.
Home Working – Refers to working from home as a business with the aim of generating an income and making a profit, or as an employee for a company.
Human Resources (HR) – The department within an organisation that deals with the hiring, administration and training of staff.
Hyperinflation – Rapid, out-of-control inflation which can cause prices to rise by double digit rates in a month. This usually only occurs during wars and periods of severe instability.
I.O.D. Refers to the Institute of Directors the national director’s representative and lobbying body.
IMF – Refers to the International Monetary Fund set up to provide financial support for debt ridden governments usually providing a rescue package of some kind or another.
Impairment Charge – Refers to the difference between an estimated overvalued asset and the actual value of the asset. This difference is then written off.
Income Tax – The tax you pay on any earnings. If you earn money in any capacity you will probably have to pay income tax on it. The amount of tax you pay varies depending on the amount you earn and the allowances and rates set by the chancellor.
Incubator – An organisation which provides support to new businesses (startups) and helps them grow.
Individual Voluntary Arrangement (Trading IVA) – Refers to a statutory arrangement between a sole trader/partner and creditors requiring Court approval and managed by a trustee who is usually an insolvency practitioner.
Industrial Relations – The relationships between the management of a company and its workers, particularly those in unions and industry.
Industrial Tribunal – An independent judicial body which deals with disputes between employers and employees.
Inflation – Refers to the growth of a list of specific goods and services. The most commonly used is the consumer price index which relates to a basket of goods selected as essential household spend.
Insolvency (Being Insolvent) – The term describes the state of a legal entity, individual or limited company ‘entering into’ an insolvent position. There are two tests of insolvency: • When a company, individual or legal entity cannot pay its bills when due commonly called the cash-flow test; • When a company, individual or legal entity’s liabilities (including contingent liabilities such as redundancy) outweigh the assets of the individual, legal entity or company.
Institute of Chartered Accountants of England & Wales (ICAEW) – The ICAEW is the largest chartered accountancy body in the UK with over 12,800 members.
Institute of Chartered Accountants in Scotland (ICAS) – ICAS refers to the largest chartered accountancy and networking body in Scotland.
Initial Public Offering (IPO) – Refers to the public sale of company shares which were previously private shares in a limited company of one sort or another.
Intangible Assets – Refers to non-physical assets with no fixed hard* value such as the company name, goodwill or Intellectual Property. *A hard value refers to the value of a physical asset where the value placed is on a physical (hard) unit more easily defined per item. For example a chair may cost £50 per chair so its value/cost is referred to as a hard value/cost.
Intellectual Property – Any intangible property, such is an idea, creation, artwork, writing, patent, copyright etc. which belongs to an organisation and is the result of creativity. Intellectual property cannot be copied or sold without the owner’s permission.
Interest Rate – Refers to the amount as a percentage added for either borrowing or investing money – can be fixed or variable.
Interim Order – A formal request to a Court by a sole trader or individual to stop legal action/bankruptcy in order the Individual Voluntary Arrangement can be assessed for validity.
Investment Controller – This role is applicable to invoice discounting and the individual is responsible for reconciliation of sales ledger movements and notifications.
Invoice – refers to the document used when applying for payment for work completed. An invoice is a legally recognised asset of accompany and can be traded and or used to raise finance so can be a very useful commodity.
Invoice Discounting – Is a form of financing used to release cash from invoiced work. It is sometimes referred to as discreet invoicing because the customer is not aware of the finance as collections are managed by the company, not the finance provider. Generally you will receive a higher advance between 70-90% of the invoice value as opposed to factoring, where 60-80% is usual. The quality of the debtor book and your business collection processes will have a considerable impact on the ultimate advance allowed. The advance is usually paid within 24 hours. The key difference between a factoring arrangement and invoice discounting is that a factoring company provides the collection services unless otherwise agreed.
Invoice Finance – Refers to the asset based lending allowing companies to raise cash tied up in completed and invoiced work.
Invoice Trading – Refers to the ability of a small business (usually) to auction its invoices individually or collectively on a trading platform. The benefits will depend on the quality of the invoices being traded and the investors willing to bid on them. Invoice trading can be ‘one off’ trades so no contractual restrictions, debenture or personal guarantee is called for usually. Learn more here *Link to finance page*.
JV – Refers to a Joint Venture where two entities work together with the common aim of making a profit. Similar to a partnership but a JV usually refers to a joint business venture between businesses/companies as opposed to two individuals.
Job Sharing – A role shared by two or more individuals. Usually the hours and pay are divided proportionately.
Joint Consultation – A decision making process in which company management and employee representatives, usually from the unions, meet to discuss matters relating to the employees’ working conditions.
Junior Partner – An individual who has reduced authority and rewards when compared to a senior member of the same organisation though may still have senior responsibility.
Just-In-Time – A manufacturing system in which the materials required for a production process are delivered immediately before they are required to reduce storage costs and increase efficiency.
Kaizan – A Japanese term meaning continuous improvement in the workplace.
Key Account – Refers to a sales account within a company which produces significant revenue and deserving of individual attention.
Keyword – Refers to the term used in online search engine optimisation whereby a potential customer types in a specific key word into a search engine that then steers that customer to your website. If you have an online business then you must understand what keywords drive revenue and which ones do not.
Kickback – Usually refers to an illicit payment made to secure a contract.
Kitemark – Refers to the British Standards Institute accreditation for products where safety is a priority.
Knock Off – Usually used in the tailoring trade but can mean any unauthorised imitation of a product.
Knowledge Base – Refers to a centre of knowledge.
Kudos – A business management term for praising someone; meaning to take the glory and or praise for a well completed task for example.
Labour –Refers to the work completed usually for a payment and is just as usually is physical/manual work.
Labour intensive – This term is used when the cost of the labour needed to complete a piece of work is expensive when compared to the cost of everything else needed for the job. For example, laying down a motorway or railway line may be regarded as very labour intensive.
Lading –Refers to the act of loading goods/materials on a transport vehicle or ship.
Laid off – When an employee is no longer needed for a job in industry terms (usually) temporarily or permanently due to no fault of their own.
Landing page –This is the first page a visitor sees when they visit your website so very important.
Leader (Business) – An individual who inspires, motivates, enthuses employees to follow them.
Leadership – Qualities shown by a leader or team of leaders who provide direction by ‘leading the way’ in order to complete a specific task or role.
Lean – Refers to the state of a business when it is running at its optimum level – there is no excess. Its origins are widely acknowledged to be derived from early manufacturing or assembly line terms such as ‘just in time’.
Learning curve – This term refers to the amount of time taken to absorb a skill set. The steeper the curve the faster the learning process, whilst the shallower the curve indicates a longer time is needed.
Lease – A formal written agreement whereby goods/property/services are provided for a specified time for a payment. Could be described as renting the goods or services where ownership of the goods/property/services is not transferred.
Leaseback –Refers to the sale of an asset then the immediate leasing of it (back) so the seller can continue to use the asset but does no longer own it.
Lease purchase – Refers to the option to buy the asset, usually a vehicle at the end of the term of the lease contract.
Legal entity – Refers to a created third party which is can be created and recognisable by law and can own assets and liabilities. For example: A limited company is a legal entity.
Legalese – This term is used when contracts are obtuse and difficult to understand when lawyers use language specific to the law but does not make sense to a layman (none lawyer).
Letters of Credit (LOC) – Refers to the import/export payment banking process used to confirm there are sufficient funds available (to pay for) allowing goods to be transported. In effect the bank guarantees the amount will be made available once the goods are received.
Leverage (Business) – Refers to the advantage one party may have over another in negotiations. The advantage is used to sway the deal in favour of the party with the leverage.
Liabilities – This a general term used to describe what a company or business may owe and may be real or contingent. For example a bank loan would be considered a real liability and debt, whereas a redundancy payment would be considered a contingent liability. A contingent liability is a ‘potential’ liability so would only be paid upon certain circumstances happening. For example an employee may or may not be made redundant but the company should have reserves to meet the potential liability should it occur.
Libor – Refers to the London Inter-Bank Offered Rate. This is the rate at which banks lend to each other and is now independently scrutinised by the Financial Conduct Authority.
Licensed Insolvency Practitioner – This is the only person who can act as an office holder in a corporate insolvency situation. These insolvency professionals are licensed by the Chartered Accountancy bodies, the Law Society, the Insolvency Practitioners’ Association or the Government’s Insolvency Service. Most licensed insolvency practitioners are specialists working for or have close ties with accountancy firms.
Lien – Refers to the legal right to take ownership of assets until a debt is repaid. You can learn more about assets seizure here.
Lieu (in lieu of) – Simply means instead of so a payment in lieu is a payment instead of something else. There term is commonly used in redundancy terms.
Limited Company – In the UK, any company that has ‘Ltd’ after its name is a limited company. Limited companies are legal entities in their own right, separate from their owners. This affords the owners the protection that they will not be held personally liable for the company’s debts.
Limited Liability (Business) – Refers to the amount of liability a company/individual has should a default occur on any lending. For example, where an overdraft facility may be £100,000 the limited liability of the director who signed as a personal guarantor may be limited to £50,000.
Line of Credit – A pre-arranged lending facility up to an agreed amount.
Liquidate (Company) – Refers to the process of realising assets of a company for the benefit of creditors and or closing the company.
Liquidation – Refers to the legal act of liquidating a limited company or limited liability partnership. See liquidate. Liquidation can only be carried out by a licensed insolvency practitioner. Liquidation can be voluntary or compulsory, and solvent or insolvent. A solvent liquidation usually means a company has used up its usefulness and assets and or cash need to be taken from the company. In this case, a Members’ Voluntary Liquidation is used as a tax efficient means of taking funds from the company. If the company is insolvent the company would use a Creditors’ Voluntary Liquidation to close the company as it is deemed to have no future.
Liquidator – The official receiver or a licensed insolvency practitioner appointed to administer the liquidation of a company or partnership.
Liquidity – This term refers to the ease at which cash can be raised within a company.
Liquidity Crisis – When a company has very little cash and cannot realise its assets quickly and may have debts to pay a liquidity crisis can occur causing poor cash-flow.
Loan – An agreement formal or otherwise to lend a sum of money to a company or individual usually for a specific term at agreed terms.
Loan to Value (LTV) – Refers to the actual amount of the loan provided in comparison to the value of a property usually expressed as a percentage. For example the maximum LTV of a lender for a commercial loan typically may be 70% of the property value. So, if the property is valued at £100,000 the lender will not provide more than £70,000 loan.
Long Term Liability – This is a financial obligation of a company that will become due more than one year into the future. Long term liabilities include debentures, loans and pension obligations. The portion of the long term liability that falls due within the next 12 months is listed in the balance sheet under current liabilities.
Loss Leader – In retail, a loss leader is a product which is sold at a very low price, but which attracts customers to other products the retailer can make a profit on.
Magic Bullet – Refers to a potential simple one off solution to a very complex situation. Often used in the phrase ‘there is no magic bullet’, that is to say, “there is no simple solution’.
Mail Merge – This is a marketing term for mailing/emailing multiple/large numbers of recipients but with the ability to personalise each one.
Mail Order – Refers to the marketing process of selling a product at a distance and having it delivered by post and or delivery van.
Mainframe – Refers to the mother (Main) computer which is to by all subservient connected computers in a large organisation.
Mainstream – Used to describe something that is used by the majority or commonly used. For example, if something is mainstream it is not original and or niche; it is already thought of or being used.
Majority (Shareholding) – Generally, if someone has a majority shareholding, they have the biggest say in the way a company is run. A majority is more than 50%, but for decision to be ‘forced through’ in a company is generally accepted to be 75%.
Management Buy-In – This occurs when a management team from outside a company acquires more than a 50 percent stake in a business. They then become the majority shareholders and manage the company themselves.
Management Buy-Out – When the company’s existing management team purchase all or a majority stake in the company.
Manager – An individual with responsibility and possibly accountability for running a department, project or team.
Margin (UK Profit) – Refers to the difference between the retail price, a product/service is sold at less its costs leaving a profit and is used to define the financial health of a company.
Mark Down – The amount of discount provided to incentivise a potential customer to buy.
Mark Up – Refers to the amount added to the price a product is bought at to determine its sales price.
Market (Business) – A place where goods and or services are bought and sold.
Marketing – The act of promoting and selling a product or service, including market research and advertising.
Market Forces – Refers to an external force that influences/causes a change in direction in the pricing of products or services. For example bad weather may reduce the supply of wheat from Russia and by doing so increases the value of a loaf of bread to consumers.
Market Penetration – In simple terms refers to the amount of popularity of a product and or service in a specific area and usually expressed as a percentage. For example there may be a target market audience of 1 million but the actual market usage (penetration) is only 2% = so the market penetration is 2%.
Market Research – This is the process of gathering and analysing information about customers and the competition to help a company make decisions about the sale of its products and services.
Market Sector – A term used to describe a set of businesses that are buying and selling similar goods and services but in direct competition with one another.
Market Segment – A subgroup within a larger market in which people share certain characteristics and look to buy similar products and services.
Market Segmentation – Refers to the marketing process of identifying and tagging consumers according the way they buy, or propensity to buy and or act.
Market Segment – A subgroup within a larger market in which people share certain characteristics and look to buy similar products and services.
Market Share – The total sales of an organisation divided by the sales in the market they serve.
Master Franchise –Generally refers to the ultimate responsible and accountable franchise holder for a Country/region whereby all other franchisors have agreements with.
Maternity Leave –refers to the amount of time off from work a mother can take after having a birth or adoption and you can get up to date information here on the HMRC website.
Maternity Pay – Refers to the amount that can be paid from the 26th week of pregnancy and you can learn more about this here on the HMRC website.
Mates Rates – Refers to the greatly (usually) reduced price for a service or product provided to a family member or friend.
Maturity Date (loan) – Refers to the end of a loan contract when all outstanding capital and interest is due. The agreement will ceases on this maturity date.
Member – An individual who is registered as a member of a company, such as a shareholder of a limited company.
Member Gets Member – Used in marketing to describe the referral method of prospect recruitment, so one customer recruits another and is provided with an incentive or reward to do so.
Members’ Voluntary Liquidation – This can be a tax effective way of closing a solvent company via liquidation, which must be completed via an insolvency practitioner.
Memo – Refers to the dated document used to record a specific meeting/communication/ decision of some relevance to the participants or for future reference. Comes from the latin memorare or memorandum, meaning to recount or call to mind.
Memorandum and Articles of Association (M&As) – In simple terms though the name may sound like language from a bygone age the document is very important as it forms the basis of how the company is set up and run. Technically there are two documents: • The Articles of Association which sets out the management of the company, who owns the company and how it is run; • The Memorandum of Association lays out how the company is set up. Any company formed in the UK must have M&As as per the rules of the Companies Act 2006.
Memorandum of Understanding (MOU) – An MOU refers to the document produced between two or more parties usually at the start of a business relationship that describes the basis, key task responsibility, common objectives and timelines of the relationship.
Mentor – Refers to an experienced and trusted individual you would turn to for advice or development help.
Merchandising – Refers to the act of selling and or placing of goods usually within the retail business sector.
Merchant Bank – Refers to any bank that specialises in commercial lending or investments solely to businesses.
Metadata – Refers to information provided about data. So, in effect data about data intended to make life easier and or more easily understandable.
Merger – The joining of two or more businesses that are similar in stature. In the UK, the merger may have to be approved by the Competition Commission.
Microsite – Refers to the smaller website used to support the main website.
Middleman – Refers to the individual who sits between buyer and seller, or key negotiator between two parties helping strike a deal.
Middle Management – The layer of management that exists between the senior management of a company and the junior management of the company.
Minimum Wage – Refers to the lowest amount that may be paid by UK law.
Mission Creep – Refers to the gradual expansion away from the original objectives of a project.
Mission Statement – Refers to the declared objectives and behavioural intent of the company forming the core on which the company can be built.
Mondeo Man – Refers to the marketing terms to describe the average individual. Essex man is another term used similarly.
Money Spinner – Refers to something that will bring in revenues as in; “That’s a real money spinner”.
Monopoly – The possession of goods or services to the exclusion of competitors as in; “BT has a monopoly in the telecommunications sector”.
National Insurance – Contributions made to the state by employers and employees to provide payments to the sick, unemployed and retired.
Nationalisation – The act of bringing an industry or assets such as land and property under state control.
Negative Growth – A term used to describe a recession. The traditional definition of a recession is negative growth in gross domestic product (GDP) for two or more consecutive quarters.
Net Assets – The sum of a business’s total assets minus its total liabilities.
Net Current Assets – The sum of a business’s current assets minus its current liabilities
Net Income – The total money earned by a business once tax and other deductions have been accounted for.
Net Profit – The actual profit a company has made after all expenses have been deducted. Net profit is a company’s bottom line and the ultimate measure of the profitability of a venture as all costs have been accounted for.
Net Profit Margin – The net profit of a company expressed as a percentage of the total costs of production.
Niche Market – A specialised market in which a specific product is sold to a particular type of customer. Demand in niche markets is lower but there is often little or no competition.
Nominee – A licensed insolvency practitioner who carries out the preparatory work for a voluntary arrangement before its implementation.
Non-Executive Director – Those who assume the role of non-executive director in a company do so as an independent member of a company’s board of directors. They are not involved in the day-to-day running of the business, but are instead responsible for monitoring the activities of the full time executives who are.
Non-Recourse (Factoring) – Usually refers to the factor (invoice finance funder) not having any recourse to holding the director/company liable for bad debts. The factor will usually have bad debt insurance in place so any bad debt is underwritten.
OECD – The organisation for economic cooperation and development is an association of industrialised economies which work together to promote economic growth, prosperity and sustainable development.
Occupational Pension Scheme – This is a pension scheme offered by employers. Usually the firm will set up the pension on an employee’s behalf, pay the administration costs and top up the employee’s contribution. This makes it a better deal for many employees than personal pensions.
Officer – An officer is the director, manager or secretary of a company.
Official Receiver – An officer of the court employed by the Insolvency Service who acts on behalf of creditors, in bankruptcies and compulsory company liquidations.
Oligopoly – A market structure where a few firms control a high percentage of total sales, such as car manufacturing or the supermarkets.
Ombudsman – An official appointed to investigate complaints from the general public about companies, government officials, the media etc.
Operating Profit/Loss – The profit or loss made by a company from its principle trading activity without taking the cost of loans or other factors into account. Operating profit is sometimes considered to be a better measure of the underlying performance of a business, as it does not take into account factors such as how the business has been financed.
Overdraft – A facility that allows you to borrow an agreed sum of money on top of your bank balance. Depending on the account provider, you may pay interest, fees, or both in return.
Overdrawn Account – A credit account that has exceeded its credit limit or a bank account that has had more than the remaining balance withdrawn.
Overdrawn Loan Account – A director often takes benefits and or drawings that will be entered as a loan to that director. There are tax implications if the loan is not repaid too so be aware. The problem becomes greater when a company becomes insolvent and face liquidation. The appointed liquidator can and is likely to pursue the debt to the company having serious consequences for directors. A director should not take dividends if the company is not making a profit as this can also lead to similar issues if the company faces insolvency.
Overheads – These are all the costs included on the balance sheet except for the direct labour, materials and expenses incurred in the provision of goods or a service. Overhead expenses include accounting fees, advertising costs, insurance, repairs, telephone bills, travel etc.
Overtrading – This is a situation that commonly occurs during a period of economic recovery or when a company expands too quickly and takes on more work than it can handle. The result is it doesn’t have sufficient cash flow to pay costs such as wages and bills.
PAYE – Pay As You Earn is the system of paying income tax in the UK, whereby money is deducted from an employee’s salary at source and paid to the government. Employers pay in real time and must register with HMRC website. See here for more information.
Parent Company – A company that owns more than 50 percent of the voting shares in another organisation. It therefore controls and manages the other company.
Partnership – A business which is owned by two or more people. The partners are responsible for managing the business and share the profits between themselves.
Peer-to-Peer Business Lending – A business loan usually made up of lots of investors investing to obtain a financial return. Usually faster decision making and improved terms than traditional banks. Learn more.
Pension Led Funding – Usually business people utilising existing pension funds for a variety of business uses.
Performance-Related Pay – A method of payment in which a worker’s pay will change in accordance to their level of performance. The better they perform, the more they will earn.
Personal Guarantee – A promise made by an individual that if a company is unable repay a loan, the individual will assume the responsibility for the payment of that liability. A company director may agree to sign a personal guarantee to secure a loan or overdraft for his or her company.
Plant and equipment – a group of fixed assets used in the operation of a business such as furniture, machinery, fit-out, vehicles, computers and tools.
Preference Share – A type of share that pays the owner a fixed dividend before other ordinary shareholders receive their payment. Preference shareholders are usually not entitled to vote at a shareholders’ meeting.
Preferential Creditor – A creditor who has the right to receive the payment of debts from an insolvent company before other unsecured creditors. For example an employee who is owed salary will have preference over HMRC in a company liquidation.
Product Liability Insurance – Protection against the financial loss that arises from an injury or damage caused to a customer or their property through the use of your product.
Product Lifecycle – This describes the different stages a product goes through in its development, from when the product was first conceived, all the way through to its removal from the marketplace.
Product Portfolio – The range of different products sold by a business.
Professional Liability – The liability of a skilled professional such as a doctor, accountant, lawyer or architect, whose work has the potential to cause loss, harm or injury to their clients. The professional liability is often insured with professional indemnity insurance. The professional indemnity insurance is very often made compulsory by the relevant regulatory body.
Profit and Loss Account – A financial statement showing a company’s net profit or loss for a given period. It is one of the three principal reporting tools for businesses along with the balance sheet and cashflow statement.
Profit Warning – A statement issued by a company that advises the stock market that its profits will not as high as expected.
Public Issue – When the shares of a company are made available to the public for the first time.
Public Limited Company (PLC) – A company whose shares are traded freely on the stock exchange. Public Liability Insurance – This policy covers the cost of claims made by members of the public for incidents that occur on your business premises or that are connected to your business activities. Public liability insurance covers the cost of compensation for the loss or damage of property and any personal injuries sustained.
Public Relations – The promotion of a company or a product with the aim of creating a favourable relationship with the public.
Qualifying Period – The length of time an employee must serve in a job before they are entitled to the various benefits of employment i.e. annual leave entitlement, sick pay, or being able to make a claim for unfair dismissal.
Quantitative Easing – A term which describes the process of increasing the supply of money in the economy by ‘printing’ more. Rather than physically printing more notes, the Bank of England creates new money electronically to buy financial assets like government bonds. The aim of this process is to increase private sector spending in the economy and return inflation to the target rate.
Recapitalisation – The injection of fresh equity into a bank or a business which is typically used to absorb future losses and reduce the risk of insolvency. This will usually the issuing of new shares.
Receivables – The debts owed to your company, usually from sales on credit.
Recession – A period of economic decline during which the level of trade and economic activity are reduced. This can be identified by a fall in gross domestic product (GDP) in two successive quarters.
Recourse (Factoring) – Usually refers to the factor’s ability to hold the company/director responsible for bad debts accrued. So no bad debt insured. See non-recourse which has the opposite meaning.
Redundancy – An employee is made redundant if their job no longer exists in the company. Alternatively, the company itself may cease to exist. Employees in these situations often qualify for redundancy pay.
Retail Prices Index (RPI) – A measure of inflation that tracks the changes in the price of a typical basket of goods and services. This includes the cost of petrol, household costs, tobacco, transport fares, clothing and more of the items most commonly bought in the UK. The increase in the cost of these goods as a percentage is the rate of the inflation.
Retained Profits – Money that is kept after tax and dividend payments have been made to reinvest in the company.
Return On Investment (ROI) – A performance measure used to evaluate the efficiency of an investment or to compare the efficiency of a number of investments. ROI measures the return generated by an investment relative to its cost.
Revenue – The amount of money a company receives during a specific period.
Rights Issue – A rights issue is a way for companies to raise cash from their shareholders. Shareholders are offered a certain number of shares for every one they currently own. By taking up their right to the new shares, investors will maintain their existing percentage stake in the company.
Sales Ledger Management – The process of managing the issue of invoices in relation to work performed or goods delivered. Other functions such as credit control may be classed as part of sales ledger management. While large businesses with typically have all departments to manage this process, smaller businesses may choose to outsource the role or the company owner might choose to administer the process themselves.
Secured Creditor – An organisation or individual a company owes money to that holds security over a company asset for the money owed.
Security – Property or assets a lender can take possession of in the event that a loan is not repaid.
Seed Capital – An investment which is made at a very early stage of a business venture, usually in relatively small amounts.
Shadow Director – A shadow director is someone who is not a named director, but whose directions or instructions the directors of a UK limited company follow. In an insolvency situation, the liquidator can take the same action against a shadow director as they can against a company’s named directors.
Shareholder – The owner of a share in a limited company. A shareholder can profit if the company does well, or lose money if the company performs poorly.
Share Capital – The funds that have been invested in a company by its shareholders. In return for their investment, shareholders gain a share of the ownership of the company.
Share Option – In addition to their regular pay, executives can also receive a share option, which gives them the right to buy company shares at a favourable price at some point in the future.
Share Index – The share index in the UK is the FTSE, which tracks the value of a number of prominent shares to give investors an idea of the performance of that exchange as a whole.
Short Term Assets – Property of a company such as cash, bank accounts, stock and business equipment that will last less than five years. Also known as current assets.
Short Term Liabilities – Debts with terms of less than five years, such as wages payable, accrued interest etc. Also known as current liabilities.
Sole Trader – The easiest and quickest form of corporation for a small, privately owned business. A sole trader is personally liable for all of the actions and debts of the business.
Stale debt (Factoring) – Usually refers to the debt out of the agreed terms – typically over 90 days.
Stock – The goods or materials a business owns at a given time.
Stocktaking – The act of physically counting and recording the value of goods and materials held by a business to check against stock records and accounts.
Stock Exchange – The market where securities are bought and sold at prices that are dictated by supply and demand.
SWOT Analysis – A framework for identifying the strengths, weakness, opportunities and threats of an organisation.
Takeover – The purchase of one business by another.
Target Market – A specific group of people/consumers/companies with certain characteristics, needs, lifestyle etc. that a company markets its products or services to.
Tax Invoice – An invoice required for the supply of goods and services over a certain price.
Tax Status – The basis on which your business revenues will be taxed by HMRC
Total Quality Management – A company management system which seeks to improve the quality of the products and services it offers by making everyone in the organisation responsible for achieving and maintaining high standards.
Trademark – A symbol, logo, word or phrase which is used exclusively by a company or individual to identify their products. A trademark cannot be legally used by anyone else.
Trade Finance – Many businesses require a form of finance which allows them to pay for the raw goods required for processing before they sell on the finished products. This type of finance is multi-staged and highly structured, and can be in place for many months on a revolving basis.
Trading Name – Trading names and business names are not the same thing. It is common for limited companies to adopt a trading name to run their business under, despite having registered the company with a different name.
Trading Status – The basis on which is viewed legally i.e. sole trader will be regarded as an individual while a limited company assumes its own legal identity.
Turnaround – The process by which a company’s fortunes are reversed with the help of restructuring or refinancing etc. This may also require the use of a formal insolvency process to protect the company from creditor action.
Turnover – The annual sales of a company minus any discounts or sales taxes.
Unfair Dismissal – The term used when an individual’s employment is terminated without good reason.
Unquoted Shares – Shares, often in smaller companies, which are not traded on the stock exchange. This could be because the business is run in relative privacy, or because it does not meet the minimum listing requirements.
Unsecured Creditor – A creditor who does not hold security against the money they are owed. Some unsecured creditors may also be preferential creditors.
Value Added Tax (VAT) – VAT is a tax paid on most goods and services in the UK. VAT of 20 percent is normally included in the price of goods and services, although some goods are exempt.
Variable Cost – A variable cost is one that fluctuates in direct proportion to the number of units produced. The cost of raw materials is an example of a variable cost.
Venture Capital – Money invested in a project where there is a substantial element of risk, typically a startup or expanding business.
Voluntary Liquidation – A method of closing (winding-up) a company which does not involve the official receiver. The process is managed/overseen by a licensed Insolvency Practitioner. There are two types of voluntary liquidation – a members’ voluntary liquidation for solvent companies, and a creditors’ voluntary liquidation for insolvent companies.
Warrants – A document that entitles the holder to receives shares, usually at a stated price.
Whistle Blower – An individual who exposes any kind of information or activity that is deemed illegal, dishonest or immoral within an organisation.
Wholesale – The sale of goods in large quantities, usually to retailers who sell them on for a profit.
Working Capital – The funds available to pay the everyday running costs of a company, such as wages and rent. Also known as net current assets.
Write-down – The process of reducing the book value of an asset either to reflect a fall in its market value (depreciation) or due to an impairment charge.
Yield – The annual income earned from an investment, usually expressed as a percentage of the amount invested.
Although not exhaustive, this glossary represents a pretty comprehensive list of the business terms you’re likely to encounter in the course of your work. However, if there’s anything you think we’ve missed, please get in touch at email@example.com and we’ll happily include your suggestions.