Showing 195 items
ACCOUNTING The recording, classifying, summarizing and interpreting in a significant manner and in terms of money, transactions and events of a financial character. 
ACCOUNTING EQUATION Owner's Equity = Assets - Liabilities 
ACCOUNTING PERIOD A period of time, (month, quarter, year), for which a financial statement is produced. 
ACCOUNTS PAYABLE (A/P) Trade accounts of businesses representing obligations to pay for goods and services received. This represents what a business owes to its suppliers and other creditors at a given point in time. 
ACCOUNTS RECEIVABLE (A/R) Trade accounts of businesses representing monies due for goods sold or services rendered evidenced by notes, statements, invoices or other written evidence of a present obligation. This represents the amount due to a business by its customers at a given point in time. 
ACCRUAL BASIS ACCOUNTING The most commonly used accounting method, which reports income when earned and expenses when incurred, as opposed to cash basis accounting, which reports income when received and expenses when paid. 
ACID-TEST RATIO Same as quick ratio. 
AMORTIZATION The gradual elimination of a liability, such as a mortgage, in regular payments over a specified period of time. Such payments must be sufficient to cover both principal and interest. Also, writing off an intangible asset investment over the projected life of the assets. See also negative amortization, graduated payment. 
ASSIGNMENT FOR BENEFIT OF CREDITORS The voluntary transfer of all or most of a debtor's property to another person in trust so that he or she will collect any money that is owed to the debtor, sell the debtor's property, and apply the money received to the payment of the debts, returning any surplus to the debtor. 
ASSUMPTIONS The act of assuming/undertaking another's debts or obligations. 
AUCTION A public sale of goods or services to the highest bidder. 
AUDIT Verification of financial records and accounting procedures generally conducted by a CPA or accounting firm or if you're really unlucky, the IRS. 
BALANCE SHEET Financial statement showing assets and liabilities at a specific time. 
BANKRUPTCY A condition in which a business cannot meet its debt obligations and petitions a federal district court for either reorganization of its debts or liquidation of its assets. In the action the property of a debtor is taken over by a receiver or trustee in bankruptcy for the benefit of the creditors. This action is conducted as prescribed by the National Bankruptcy Act, and may be voluntary or involuntary. 
BOND A third party obligation promising to pay if a vendor does not fulfill its valid obligations under a contract. Types of bonds include BID, INDEMNITY, LICENSE, PAYMENT, PERFORMANCE & SURETY. 
BREAK-EVEN POINT The break-even point in any business is that point at which the volume of sales or revenues exactly equals total expenses - the point at which there is neither a profit nor loss - under varying levels of activity. The break-even point tells the manager what level of output or activity is required before the firm can make a profit; reflects the relationship between costs, volume and profits. 
BUSINESS INFORMATION CENTER (BIC) One of more than 50 specialized U.S. Small Business Administration units which offer the latest in high-technology hardware, software and telecommunications to assist small business PLUS one-on-one counseling with seasoned business veterans through the Service Corps of Retired Executives (SCORE). Each BIC offers electronic bulletin boards, computer data bases, on-line information exchange, periodicals and brochures, counseling, video tapes, reference materials, texts, start-up guides, application software, computer tutorials and interactive media. 
BUSINESS PLAN A comprehensive planning document which clearly describes the business developmental objective of an existing or proposed business seeking assistance in the form of debt or equity. The plan outlines what and how and from where the resources needed to accomplish the objective will be obtained and utilized. 
BUY To obtain ownership of an asset in exchange for money or value. 
CANCELED LOAN The annulment or recission of an approved loan prior to disbursement. 
CAPITAL Assets less liabilities, representing the ownership interest in a business; a stock of accumulated goods, especially at a specified time and in contrast to income received during a specified time period; accumulated goods devoted to the production of goods; accumulated possessions calculated to bring income. 
CAPITAL ASSET An asset that is purchased for long-term use such as machinery and equipment. 
CAPITAL EXPENDITURES Business spending on additional equipment. 
CAPITALIZED PROPERTY Personal property of the business which has an average dollar value of $300.00 or more and a life expectancy of one year or more. Capitalized property should be depreciated annually over the expected useful life to the business. 
CAPITAL LEASE A lease that should be treated essentially as a loan, for accounting purposes. The four criteria are: 1: title passes automatically by the end of the lease term. 2: lease contains a bargain purchase option (i.e., less than the fair market value). 3: lease term is greater than 75% of estimated economic life of the equipment. 4: present value of lease payments is greater than 90% of the equipment's fair market value. A capital lease is treated by the lessee as both the borrowing of funds and the acquisition of an asset to be depreciated; thus the lease is recorded on the lessee's balance sheet as an asset and corresponding liability (lease payable). Periodic lessee expenses consist of interest on the debt and depreciation of the asset. 
CASH BASIS ACCOUNTING The simplest form of accounting in which income is considered earned when received and expenses are not taken into account until paid. 
CASH DISCOUNT An incentive offered by the seller to encourage the buyer to pay within a stipulated time. For example, if the terms are 2/10/N 30, the buyer may deduct 2 percent from the amount of the invoice (if paid within 10 days) otherwise, the full amount is due in 30 days. 
CASH FLOW An accounting presentation showing how much of the cash generated by the business remains after both expenses (including interest) and principal repayment on financing are paid. A projected cash flow statement indicates whether the business will have cash to pay its expenses, loans, and make a profit. Cash flows can be calculated for any given period of time, normally on a monthly basis. 
CAVEAT EMPTOR "Let the buyer beware." 
CERTIFIED LENDERS Banks and non-bank lenders that participate in the SBA's guaranteed loan program. 
CHARGED OFF LOAN An uncollectible loan for which the principal and accrued interest were removed from the receivable accounts. 
CHARGE-OFF An accounting transaction removing an uncollectible balance from the active receivable accounts. 
CLOSING Actions and procedures required to effect the documentation and disbursement of loan funds after the application has been approved, and the execution of all required documentation and its filing and recordation where required. 
COLLATERAL An asset that can be sold for cash and which has been pledged to a creditor to secure a future obligation. (For example, if you finance a car it is the collateral for the loan.) 
COLLATERAL DOCUMENT A legal document covering the item(s) pledged as collateral on a loan, i.e., note, mortgages, assignment, etc. 
COMPARABLE SALE A business that is similar to the subject business and which has sold. The selection of comparable sales is one of the single most important determining factors in establishing an accurate range of value. Qualities which make a comparable sale more relevant for purposes of valuation include: similar business model, similar size, similar margins, recent sale date, similar location, an arms length relationship between buyer and seller, etc. It is the valuator's responsibility to adequately research the market to determine which comparable sales best represent the value characteristics of the subject business. 
COMPOUND INTEREST Interest earned on previously accumulated interest plus the original principal. Most spreadsheets can calculate this easily for you but for the curious, the formula is C = P(1 + r/n)n, where C=compound amount, P=original principal, r=annual interest rate, n=total number of periods over which interest is compounded. 
COMPROMISE The settlement of a claim resulting from a defaulted loan for less than the full amount due. Compromise settlement is a procedure available for use only in instances where the creditor cannot collect the full amount due within a reasonable time, by enforced collection proceedings or where the cost of such proceedings would not justify such effort. 
CONFIDENTIAL Private information not intended to become public. Unauthorized disclosure of confidential information is often financially damaging to a business. Even the fact that a business may be available for sale or merger can be extremely damaging. Confidentiality is often unknowingly violated when a prospective buyer seeks opinions or assistance understanding trade, financial or technical issues. Do not consult anyone other than those parties specifically involved in the proposed transaction itself. Do not speak to shareholders, employees, independent contractors, customers, vendors, neighbors, landlords, competitors or friends without written permission from the Seller. 
CONTINGENCY A condition that must be met in order for a contract to be legally binding. 
CONTINGENT LIABILITY A potential obligation that may be incurred dependent upon the occurrence of a future event. Two examples are: (1) the liability of an endorser or guarantor of a note if the primary borrower fails to pay as agreed and (2) the liability that would be incurred if a pending lawsuit is resolved in the other party's favor. 
CONTRACT An agreement between two (or more) parties in which each promises to perform in some way. Contracts can be complex and should be reviewed by an attorney. A contract may not be binding if not correctly drafted and executed. 
CORPORATION An artificial entity granted a state charter legally recognizing it as having its own rights, privileges, and liabilities distinct from those of its shareholders. The process of incorporating should be completed with the state's secretary of state or state corporate counsel and usually involves the services of an attorney. 
COSTS Money obligated for goods and services received during a given period of time, regardless of when ordered or whether paid for. 
CREDIT RATING A grade assigned to a business concern to denote the net worth and credit standing to which the concern is entitled in the opinion of the rating agency as a result of its investigation. 
CREDIT REPORT A listing of an individual or company's history of repaying past loans and other liabilities. 
CREDIT, THE 5 C'S OF The five key elements a borrower should have to obtain credit: character (integrity), capacity (sufficient cash flow to service the obligation), capital (net worth), collateral (assets to secure the debt), and conditions (of the borrower and the overall economy.) 
DEBENTURE Debt instrument evidencing the holder's right to receive interest and principal installments from the named obligor. Applies to all forms of unsecured, long-term debt evidenced by a certificate of debt. 
DEBT CAPITAL Business financing that normally requires periodic interest payments and repayment of the principal within a specified time. 
DEBT/EQUITY RATIO A measure of a company's leverage, calculated by dividing long-term debt by shareholders' equity. 
DEBT FINANCING This is financing in which you get a loan and go into debt. You are obligated to repay the money at some predetermined interest rate. 
DEBT SERVICE A series of payments of interest and principal retiring a debt over a given period of time. 
DEED OF TRUST A document under seal which, when delivered, transfers a present interest in property. May be held as collateral. 
DEFAULT The nonpayment of principal and/or interest on the due date as provided by the terms and conditions of the note. 
DEFERRED LOAN Loans whose principal and or interest installments are postponed for a specified period of time. 
DEPRECIATION Decrease in the value of equipment and a method by which the cost of the equipment is allocated over time. Depreciation of equipment used for business is a tax-deductible expense. 
DISBURSEMENT The actual payout to borrower of loan funds, in whole or part. It may be concurrent with the closing, or follow it. 
DISCOUNT RATE A certain interest rate that is used to bring a series of future cash flows to their present value in order to state them in current, or today's, dollars. Use of a discount rate removes the time value of money from future cash flows. 
DISCRETIONARY CASH FLOW The cash flow available after deducting the cost of sales and necessary operating expenses from gross sales and before deducting for interest, taxes, depreciation and amortization. It may be used to pay for dividends to stockholders, paying off any outstanding debt, or buying back common stock. The way these funds are allocated can have huge effects on the performance of the business, and as a result the evaluation of the effectiveness of management. 
DIVESTITURE Change of ownership and/or control of a business. Divestiture may result from a management decision to no longer operate a business unit because it is not part of a core competency. It may also occur if a business unit is deemed redundant after a merger or acquisition. 
DIVESTITURE AVERSION Divestiture aversion (also known as endowment effect) is a hypothesis that people value a good or service more once their property right to it has been established. In other words, people place a higher value on objects they own than objects that they do not. Divestiture aversion has been described as inconsistent with standard economic theory which asserts that a person's willingness to pay (WTP) for a good should be equal to their willingness to accept (WTA) compensation to be deprived of the good. This hypothesis underlies consumer theory and indifference curves. 
DOWN PAYMENT The portion of a purchase price paid in cash at the time the sale agreement is executed and/or at closing. 
DUE DILIGENCE The process of investigation, performed by investors, into the details of a potential investment, such as an examination of operations and management and the verification of material facts. 
DUNS (Data Universal Numbering System) A database maintained by Dun and Bradstreet that is used by the Government to identify each contractor and their location(s). This number is required to register with the Central Contractor Register (CCR) that is used by the government's electronic commerce (electronic data) interchange (EC/EDI) system called FACNET. You may obtain a DUNS number at no cost by calling Dun and Bradstreet at 800-333-0505. 
EARNING POWER The demonstrated ability of a business to earn a profit, over time, while following good accounting practices. When a business shows a reasonable profit on invested capital after fully maintaining the business property, appropriately compensating its owner and employees, servicing its obligations, and fully recognizing its costs, the business may be said to have demonstrated earning power. Demonstrated earning power is the foremost test of the business risk in an application for a loan. 
EARNINGS Also known as income. Revenues minus cost of sales, operating expenses, and taxes, over a given period of time. The reason most corporations exist, and often the single most important determinant of a company's price. See also earnout, normalized earnings, operating income, price/earnings ratio, retained earnings, return on assets, return on equity. 
EARNOUT A contractual provision stating that the seller of a business is to obtain additional future compensation based on the business achieving certain future financial goals. These goals may be based upon sales, earnings, gross profit, or other metrics. 
EASEMENT A right or privilege that a person may have on another's land, as the right of a way or ingress or egress. 
EBIT Earnings before interest and taxes. Same as operating income. 
EBITDA Earnings before interest, taxes, depreciation and amortization. 
EMPLOYER IDENTIFICATION NUMBER (EIN) A number obtained by a business from the IRS by filing form SS-4. If you are a sole proprietorship, your EIN is your social security number. 
ENDOWMENT EFFECT The endowment effect (also known as divestiture aversion) is a hypothesis that people value a good or service more once their property right to it has been established. In other words, people place a higher value on objects they own than objects that they do not. The endowment effect has been described as inconsistent with standard economic theory which asserts that a person's willingness to pay (WTP) for a good should be equal to their willingness to accept (WTA) compensation to be deprived of the good. This hypothesis underlies consumer theory and indifference curves. 
ENTREPRENEUR Someone who is willing to assume the responsibility, risk and rewards of starting and operating a business. 
EQUITY An ownership interest in a business. 
EQUITY FINANCING The provision of funds for capital or operating expenses in exchange for capital stock, stock purchase warrants or options in the business financed, without any guaranteed return, but with the opportunity to share in the company's profits. Equity financing includes long-term subordinated securities containing stock options and/or warrants. This involves selling a portion of your company to an outside investor. You have no obligation to repay the funds. In general, venture capital firms provide this type of funding. 
EQUITY PARTNERSHIP A limited partnership arrangement for providing start-up and seed capital to businesses. 
ESCROW Temporary monetary deposit placed in trust with an independent third party by agreement between two or more parties. The escrow money is released when certain agreed contingencies have been met or waived. 
ESOP Employee Stock Ownership Plan. A plan where employees have a vested interest (stock ownership) in the company. 
FACTORING The buying and selling of invoices or accounts receivables. 
FAIR MARKET VALUE The price for which property can be sold in an "arms length" transaction; that is, between informed, unrelated, and willing parties, each of which is acting rationally and in its own best interest. 
FIDUCIARY A person or entity entrusted with assets owned by another party (beneficiary), and responsible for investing the assets until they are turned over to the beneficiary. 
FINANCE LEASE A lease used to finance the purchase of equipment; not a true lease. Finance leases are generally considered to be capital leases from an accounting perspective and non-tax leases from a tax perspective. 
FINANCIAL STATEMENT Also known as financial report. • Balance Sheet -A report of the status of assets, liabilities and equity at a given time. • Income Statement -A report of revenue and expense which shows the results of business operations or net income for a specified period of time. • Cash Flow -A report which analyzes the actual or projected source and disposition of cash during a past or future accounting period. 
FINANCING New funds provided to a business, by either loans or purchase of debt securities or capital stock. 
FISCAL YEAR Any 12-month period used by a company or government as an accounting period. 
FIXED COST A production cost which does not vary significantly with the volume of output. An example would be administrative costs. (Also see VARIABLE COST.) 
FLOW CHART A graphical representation for the definition, analysis, or solution of a problem, in which symbols are used to represent operations, data, flow, equipment, etc. 
FORECLOSURE The act by the mortgagee or trustee upon default, in the payment of interest or principal of a mortgage of enforcing payment of the debt by selling the underlying security. 
FRANCHISE A franchise is a form of licensing. The franchiser provides their services through a series of franchisees. Before investing in any franchise, check with the International Franchise Association by calling 800 543 1038 to see if the franchise is a member in good standing. 
FRANCHISING A continuing relationship in which the franchisor provides a licensed privilege to the franchisee to do business, and offers assistance in organizing, training, merchandising, marketing and managing in return for a consideration. Franchising is a form of business by which the owner (franchisor) of a product, service or method obtains distribution through affiliated dealers (franchisees). The product, method or service being marketed is usually identified by the franchisor's brand name, and the holder of the privilege (franchisee) is usually given exclusive access to a defined geographical area. 
FREE ON BOARD (FOB) Commercial term in which the seller's obligations are fulfilled when the goods reach a point specified in the contract. 
FUTURE VALUE The compounded value of a payment or stream of payments [see PRESENT VALUE]. Since money has time value [see TIME VALUE OF MONEY] investors expect future value to be greater than present value. The difference between the two depends on the nature of the investment including factors such as the number of compounding periods, risk and inflation. 
GOODWILL An intangible asset, which provides a competitive advantage, such as a strong brand, reputation, or high employee morale. In an acquisition, goodwill appears on the balance sheet of the acquirer in the amount by which the purchase price exceeds the net tangible assets of the acquired company. 
GRACE PERIOD Time allowed a debtor in which legal action will not be undertaken by the creditor when payment is late. 
GROSS PROFIT Net sales minus cost of sales. Also called gross income. 
GROSS SALES Total sales before deductions for returns and allowances. 
GUARANTEE Pledge by a third party to repay a loan in the event that the borrower cannot. A special case is a personal guarantee in which you personally guarantee an obligation. 
GUARANTEED/INSURED LOANS Programs in which the federal government makes an arrangement to indemnify a lender against part or all of any defaults by those responsible for repayment of loans. An example is a small business loan guaranteed by the SBA. 
GUARANTEED LOAN A loan made and serviced by a lending institution under agreement that a governmental agency will purchase the guaranteed portion if the borrower defaults. 
HAZARD INSURANCE Insurance required showing lender as loss payee covering certain risks on real and personal property used for securing loans. 
INCUBATOR A facility designed to encourage entrepreneurship and minimize obstacles to new business formation and growth, particularly for high technology firms, by housing a number of fledgling enterprises that share an array of services. These shared services may include meeting areas, secretarial services, accounting services, research libraries, on-site financial and management counseling and word processing facilities. 
INDEMNIFY/INDEMNITY The act/obligation of one party to reimburse another party for losses, which have occurred, or which may occur. 
INDEPENDENT AND QUALIFIED PUBLIC ACCOUNTANTS Public accountants are independent when neither they nor any of their family has a material, direct or indirect financial interest in the borrower other than as an accountant. They are qualified, unless there is contrary evidence, when they are either (1) certified, licensed, or otherwise registered if so required by the state in which they work, or (2) have worked as a public accountant for at least five years and are accepted by SBA. 
INDUSTRIAL REVENUE BOND (IRB) A tax-exempt bond issued by a state or local government agency to finance industrial or commercial projects that serve a public good. The bond usually is not backed by the full faith and credit of the government that issues it, but is repaid solely from the revenues of the project and requires a private sector commitment for repayment. 
INNOVATION Introduction of a new idea into the marketplace in the form of a new product or service, or an improvement in organization or process. 
INSOLVENCY The inability of a borrower to meet financial obligations as they mature, or having insufficient assets to pay legal debts. 
INTEREST Capital paid a lender for the use of funds. 
INVERSE ORDER OF MATURITY When payments are received from borrowers that are larger than the authorized repayment schedules the overpayment is credited to the final installments of the principal, which reduces the maturity of the loan and does not affect the original repayment schedule. 
INVESTMENT BANK A financial intermediary that performs a variety of services. Investment banks specialize in large and complex financial transactions such as underwriting, acting as an intermediary between a securities issuer and the investing public, facilitating mergers and other corporate reorganizations, and acting as a broker and/or financial adviser for institutional clients. Major investment banks include Barclays, BofA Merrill Lynch, Warburgs, Goldman Sachs, Deutsche Bank, JP Morgan, Morgan Stanley, Salomon Brothers, UBS, Credit Suisse, Citibank and Lazard. Some investment banks specialize in particular industry sectors. Many investment banks also have retail operations that serve small, individual customers. 
INVESTMENT BANKING Businesses specializing in the formation of capital. This is done by outright purchase and sale of securities offered by the issuer, standby underwriting or "best efforts selling." 
JOB DESCRIPTION A written statement listing the elements of a particular job or occupation, e.g., purpose, duties, equipment used, qualifications, training, physical and mental demands, working conditions, etc. 
JOB SHARING Arrangement in which the responsibilities and hours of one job position are carried out by two people. 
JUDGMENT Judicial determination of the existence of indebtedness, or other legal liability. 
JUDGMENT BY CONFESSION The act of debtors permitting judgment to be entered against them for a given sum with a statement to that effect, without the institution of legal proceedings. 
JUNK BOND A high-yield corporate bond issue with a below-investment rating that became a growing source of corporate funding in the 1980s. 
LEASE A contract through which an owner (the lessor) of property (real or personal) conveys the right to use its property to another party (the lessee) for a specified period of time (the lease term) for specified periodic payments. 
LEGAL RATE OF INTEREST The maximum rate of interest fixed by the laws of the various states, which a lender may charge a borrower for the use of money. 
LENDING INSTITUTION Any institution, including a commercial bank, savings and loan association, commercial finance company, or other lender qualified to participate in the making of loans. 
LESSEE The party to a lease agreement who is obligated to pay the rentals to the lessor and is entitled to use and possess the leased property during the lease term. 
LESSOR The party to a lease agreement who has legal or tax title to the property (in the case of a true tax lease), grants the lessee the right to use and possess the leased property for the lease term and is entitled to receive the rental payments. 
LETTER OF INTENT A letter, which states an intention, willingness and ability to do business. Some letters of intent may be binding upon the parties. 
LEVERAGE The degree to which an investor or business uses borrowed money. Measured by the debt/equity ratio. 
LEVERAGED BUY-OUT The purchase of a business, with financing provided largely by borrowed money, often in the form of junk bonds. 
LIEN A charge upon or security interest in real or personal property maintained to ensure the satisfaction of a debt or duty ordinarily arising by operation of law. 
LIQUIDATION The disposal of the collateral securing a loan, and the voluntary and enforced collection of the remaining loan balance from the obligators and/or guarantors. 
LIQUIDATION VALUE The net value realizable in the sale (ordinarily a forced sale) of a business or a particular asset. 
LITIGATION Refers to the practice of taking legal action through the judicial process. 
LOAN AGREEMENT Agreement to be executed by borrower, containing pertinent terms, conditions, covenants and restrictions. 
LOAN PAYOFF AMOUNT The total amount of money needed to meet a borrower's obligation on a loan. It is arrived at by accruing gross interest for one day and multiplying this figure by the number of days that exist between the date of the last repayment and the date on which the loan is to be completely paid off. This amount, known as accrued interest, is combined with the latest principal and escrow balances that are applicable to what is now referred to as the loan payoff amount. In the case where prepaid interest exceeds the accrued interest the latter is subtracted from the former and the difference is used to reduce the total amount owed. 
MARGINAL COST Additional cost associated with producing one more unit of output. 
MARKUP Markup is the difference between invoice cost and selling price. It may be expressed either as a percentage of the selling price or the cost price and is supposed to cover all the costs of doing business plus a profit. Whether markup is based on the selling price or the cost price, the base is always equal to 100 percent. 
MERGER A combination of two or more corporations wherein the dominant unit absorbs the passive ones, the former continuing operation usually under the same name. In a consolidation two units combine and are succeeded by a new corporation, usually with a new title. 
MINORITY BUSINESSES The Small Business Administration defines minorities as those who are "socially and economically disadvantaged." The U.S. Code of Federal Regulations (CFR) contains the specific requirements. 
MORTGAGE An instrument giving legal title to secure the repayment of a loan made by the mortgagee (lender). In legal contemplation there are two types: (1) title theory -operates as a transfer of the legal title of the property to the mortgagee, and (2) lien theory -creates a lien upon the property in favor of the mortgagee. 
NAICS North American Industry Classification System. Replaced the U.S. Standard Industrial Classification (SIC) system on January 1, 1997. NAICS is the first-ever North American industry classification system. The system was developed by the U.S., Canada, and Mexico to provide comparable statistics across the three countries. 
NEGOTIATION The process used to confer with another so as to arrive at the settlement of some matter. 
NEGOTIATION DISPUTE That point in negotiations where the parties cannot come to an agreement on some or all of the issues on the bargaining table. 
NET PROFIT (before taxes) A company's earnings, reflecting revenues adjusted for costs of doing business, depreciation, interest and other expenses. Also called pre-tax net earnings or or pre-tax bottom line. 
NET WORTH Property owned (assets), minus debts and obligations owed (liabilities), is the owner's equity (net worth.) 
NON-COMPETE AGREEMENT A contract that restricts participation in a certain market by a company or individual(s) under specific circumstances. Buyers almost always require Sellers to sign a non-compete agreement to deter them from starting a competing business or joining a competitor. 
NOTES AND ACCOUNTS RECEIVABLE A secured or unsecured receivable evidenced by a note or open account arising from activities involving liquidation and disposal of loan collateral. 
OBLIGATIONS Technically defined as "amount of orders placed, contracts awarded, services received, and similar transactions during a given period which will require payments during the same or a future period." 
OPERATING INCOME A measure of a company's earning power from ongoing operations, equal to earnings before deduction of interest payments and income taxes. Also called operating profit or EBIT (earnings before interest and taxes.) 
OPERATING LEASE A lease which is treated as a true lease (as opposed to a loan) for book accounting purposes. As defined in FASB 13, an operating lease must have all of the following characteristics: • lease term is less than 75% of estimated economic life of the equipment • present value of lease payments is less than 90% of the equipment's fair market value • lease cannot contain a bargain purchase option (i.e., less than the fair market value) • ownership is retained by the lessor during and after the lease term An operating lease is accounted for by the lessee without showing an asset (for the equipment) or a liability (for the lease payment obligations) on it's balance sheet. Periodic payments are accounted for by the lessee as operating expenses of the period. 
ORDINARY INTEREST Simple interest based on a year of 360 days, contrasting with exact interest having a base year of 365 days. 
OSDBU (Office of Small and Disadvantaged Business Utilization) These offices offer small business information on procurement opportunities, guidance on procurement procedures, and identification of both prime and subcontracting opportunities with the United States Government. 
OUTLAYS Net disbursements (cash payments in excess of cash receipts) for administrative expenses and for loans and related costs and expenses (e.g., gross disbursements for loans and expenses minus loan repayments, interest and fee income collected, and reimbursements received for services performed for other agencies). 
OVERHEAD Business expenses not directly related to a particular good or service produced. An example would be rent. 
PARTNERSHIP A type of unincorporated business organization in which individuals, (general partners) manage the business and are equally liable for its debts; other individuals (limited partners) may invest but not be directly involved in management and are liable only to the extent of their investments. Or more generally, a legal relationship existing between two or more persons contractually associated as joint principals in a business. 
PASS This is the Procurement Automated Source System managed by the Small Business Administration. Registering with this central referral system of small businesses interested in selling to the government can bring you business with almost no effort. Registration is free. 
PATENT A patent secures to an inventor the exclusive right to make, use and sell an invention for 20 years. Inventors should contact the U.S. Department of Commerce Patent Office. 
POWER OF ATTORNEY An agreement authorizing someone (generally an attorney) to act as your agent. This agreement may be general (complete authority) or special (limited authority.) 
PREFERRED LENDERS Bank and non-bank lenders, which have a special written agreement with the SBA, which allows them to make a guaranteed SBA loan without prior SBA approval. 
PRESENT VALUE The discounted value of a payment or stream of payments to be received in the future [see FUTURE VALUE] taking into consideration a specific interest or discount rate. Present Value represents a series of future cash flows expressed in today's dollars. 
PRICE Cost, usually expressed in monetary terms. 
PRICE/EARNINGS RATIO - P/E RATIO A valuation ratio of a company's current share price compared to its per-share earnings. 
PRIME RATE Interest rate, which is charged business borrowers having the highest credit ratings, for short-term borrowing. 
PROFESSIONAL AND TRADE ASSOCIATIONS Non-profit, cooperative and voluntary organizations that are designed to help their members in dealing with problems of mutual interest. In many instances professional and trade associations enter into an agreement with SBA to provide volunteer counseling to the small business community. 
PROFIT & LOSS (P & L) STATEMENT A listing of income, expenses, and the resulting net profit or loss. This is also called an income statement. 
PRO FORMA A hypothetical balance sheet and income statement based on a set of assumptions. Pro forma statements are used in business plans, loan requests and earnings reports. 
PROMISSORY NOTE A document signed by a borrower promising to repay a loan under agreed-upon terms. 
PROPRIETORSHIP/SOLE PROPRIETORSHIP The simplest form of business ownership. The sole proprietorship is not a legal entity. It simply refers to a person who owns a business and is personally responsible for all debts of the business to the full extent of his or her property. On the other hand, the owner has complete control of the business. About 85 percent of all small businesses in the US are proprietorships. 
QUALIFICATION The process of determining an individual's ability to meet the relevant requirements, such as the ability to complete a transaction. 
QUALIFIED Meeting the relevant requirements, such as the ability to complete a transaction. 
QUICK RATIO A measure of a company's liquidity, used to evaluate creditworthiness. Equals quick assets divided by current liabilities. Also called acid-test ratio. 
RATIO Denotes relationships of items within and between financial statements, e.g., current ratio, quick ratio, inventory turnover ratio and debt/net worth ratios. 
RECAST Understandably, most closely held companies seek to suppress profits, thereby suppressing taxes. When this occurs, the financial statements of such companies do not reflect their true earning power. To provide an economic view of the company, as opposed to a pure accounting view, their financial statements may be recast. Recasting removes all direct and indirect owner-related benefits as well as capital and non-cash expenses such as interest and depreciation. The result of the recasting process is a pre-tax value, which is often referred to as Seller Discretionary Cashflow. 
RETAINED EARNINGS The percentage of net earnings not paid out as dividends, but retained by the company to be reinvested in its core business, or to pay debt. It is recorded under shareholders' equity on the balance sheet. 
RETURN ON ASSETS - ROA An indicator of how profitable a company is relative to its total assets. ROA gives an idea as to how efficient management is at using its assets to generate earnings. Calculated by dividing a company's annual earnings by its total assets, ROA is displayed as a percentage. Sometimes this is referred to as "return on investment". 
RETURN ON EQUITY - ROE The amount of net income returned as a percentage of shareholders equity. Return on equity measures a corporation's profitability by revealing how much profit a company generates with the money shareholders have invested. 
RETURN ON INVESTMENT The amount of profit (return) based on the amount of resources (funds) used to produce it. Also, the ability of a given investment to earn a return for its use. 
SALES PRICE The total amount of consideration for which property is sold. 
SBC (Small Business Centers) These 12 GSA centers located throughout the United States can help you tap the multi-billion-dollar GSA "market" for goods and services. 
SBDC (Small Business Development Center) These centers are located throughout the United States and are administered by the SBA. They facilitate the delivery of joint government, academic and private sector services for the benefit of small business and the national welfare. They are committed to the development and productivity of business and the economy in specific geographical regions. 
SBIC (Small Business Investment Corporation) SBICs are licensed by the SBA as federally funded private venture capital firms. Money is available to small businesses under a variety of agreements. 
SCORE Formerly an acronym for "The Service Corps of Retired Executives", SCORE is a volunteer management assistance program of the SBA. SCORE volunteers provide one-on-one counseling, workshops and seminars for small businesses. There are hundreds of SCORE offices throughout the United States. 
S CORPORATION Formerly called a subchapter S Corporation, Corporations with fewer than 36 shareholders may elect to receive special [S] status, which enables the company to enjoy the benefits of incorporation while being taxed as if it were a partnership. 
SECONDARY MARKET Those who purchase an interest in a loan from an original lender, such as banks, institutional investors, insurance companies, credit unions and pension funds. 
SELL To transfer ownership of property [real or personal] or deliver a service in exchange for consideration. 
SIC (Standard Industrial Classification Code) A four-digit number assigned to identify a business based on the type of business or trade involved. The first two digits correspond to major groups such as construction and manufacturing, while the last two digits correspond to subgroups such as constructing homes versus constructing highways. A business can determine its SIC number by looking it up in a directory published by the Department of Commerce, or by checking in the SIC book in the reference section of a local library. SBA size standards are based on SIC codes. 
SIMPLE INTEREST Interest paid only on the principal of a loan. 
SURETY BONDS Surety bonds provide reimbursement to an individual, company or the government if a firm fails to complete a contract. SBA guarantees surety bonds in a program much like SBA's guaranteed loan program. 
SWEAT EQUITY A common form of "investment." This refers to equity earned [in excess of salary] by investing time and services [as opposed to capital] in a business. 
TAX NUMBER A number assigned to a business that enables the business to buy wholesale without paying sales tax on goods and products. 
TIME VALUE OF MONEY The concept that today's dollar is worth more than a future dollar [even after inflation] because today's dollar can earn interest or other appreciation until the future dollar is received. This concept will become clearer if you also understand the relationship between PRESENT VALUE and FUTURE VALUE. 
TURNOVER Turnover is the number of times that an average inventory of goods is sold during a fiscal year or some designated period. Care must be taken to ensure that the average inventory and net sales are both reduced to the same denominator; that is, divide inventory at cost into sales at cost or divide inventory at selling price into sales at selling price. The turnover when accurately computed is one measure of the efficiency of a business. 
UNDELIVERED ORDERS The amount of orders for goods and services outstanding for which, the liability has not yet accrued. For practical purposes represents obligations incurred for which goods have not been delivered or services not performed. 
UNIFORM COMMERCIAL CODE Codification of uniform laws concerning commercial transactions. In SBA parlance generally refers to a uniform method of recording and enforcing a security interest or charge upon existing or to be acquired personal property. 
USPAP Acronym for Uniform Standards of Professional Appraisal Practice. 
USURY Interest, which exceeds the legal rate, charged to a borrower for the use of money. 
VALUATION The process of determining the value of an asset or company. 
VALUE Worth, desirability, or utility. 
VARIABLE COST Any costs which change significantly with the level of output. An example is cost of materials. 
VENTURE CAPITAL Money used to support new or unusual undertakings; equity, risk or speculative investment capital. This funding is provided to new or existing firms, which exhibit potential for above-average growth. 
WORKERS' COMPENSATION A state-mandated form of insurance covering workers injured in job-related accidents. In some states the state is the insurer; in other states insurance must be acquired from commercial insurance firms. Insurance rates are based on a number of factors including salaries, firm history and risk of occupation. 
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