Business terms

Question 1

ACCOUNTING PERIOD

Answer 1

The time over which financial statements and accounts are prepared, usually measured over months, quarters or years.

Question 2

ACCOUNTS

Answer 2

Every business is obligated by law to produce an annual set of accounts. In the case of those listed on the stock exchange (PLCs), they must also publish half-year results.

Question 3

ACCOUNTS PAYABLE

Answer 3

Sums of money owed by your company.

Question 4

ACCOUNTS RECEIVABLE

Answer 4

Money owed to your company.

Question 5

ACQUISITION

Answer 5

The purchase of one company or resources by another.

Question 6

ACTUARY

Answer 6

A person employed by pension providers and insurance companies to calculate accident rates, life expectancy and relevant payouts.

Question 7

ADMINISTRATION

Answer 7

Businesses that can no longer service their debts are put into company administration, with the appointment of a licensed insolvency practitioner to either restructure or liquidate the business.

Question 8

AFFILIATE MARKETING

Answer 8

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

Question 9

ANNUAL EQUIVALENT RATE (AER)

Answer 9

The percentage of interest you’ll receive each year on savings and investments.

Question 10

ANNUAL PERCENTAGE RATE (APR)

Answer 10

The total annual cost to borrow a sum of money, including any additional fees and charges.

Question 11

ANNUITY

Answer 11

A contract between an individual and an insurance company in which the purchaser agrees to pay a lump sum or payments over a period of time in return for a regular future income from the insurance company.

Question 12

ARBITRAGE

Answer 12

The process by which a person or business takes advantage of price differences in securities, currencies or commodities to make money.

Question 13

ASSETS

Answer 13

Property owned by a business that has value or a future benefit.

Question 14

AUDIT

Answer 14

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

Question 15

B2B

Answer 15

Business to business.

Question 16

B2C

Answer 16

Business to consumer.

Question 17

BALANCE SHEET

Answer 17

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

Question 18

BASE RATE

Answer 18

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

Question 19

BENCHMARKING

Answer 19

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

Question 20

BID-OFFER SPREAD

Answer 20

The buying (offer) and selling (bid) price of shares, bonds or currency. The ‘spread’ is the difference between those two prices.

Question 21

BLACK SWAN

Answer 21

Financial events that are difficult to predict. So called because before people ventured to Australia, all swans were assumed to be white. No one had seen a black swan until then.

Question 22

BLUE CHIP

Answer 22

A large company considered safe or prestigious. A term originating from poker, where the highest-value chips are blue.

Question 23

BOND

Answer 23

An agreement made when money is borrowed from an investor at a set rate of interest. It is repaid over a set period of time. Bonds are rated from the safest (AAA) to the riskiest (D), also known as ‘junk bonds’.

Question 24

BOOTSTRAPPING

Answer 24

(1) Building a start-up company with very little money, often relying on personal savings and pushing for the lowest possible operating costs, while implementing cost-saving systems such as fast inventory turnaround.

(2) Making a forecast beyond a certain period by using the forecasted data for that period.

Question 25

BREAK-EVEN POINT

Answer 25

The point in time when you will have paid back all your debts, or when revenues exactly match expenses.

Question 26

BRIDGING LOAN

Answer 26

A short term loan that allows the borrower to ‘bridge the gap’ to purchase an item, often a property, while they are waiting to free up funds from a sale.

Question 27

BUSINESS ANGEL

Answer 27

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

Question 28

BUSINESS CYCLE

Answer 28

The tendency for economies to experience peaks and troughs that follows a cyclical pattern – known colloquially as ‘boom and bust’. Governments are tasked with smoothing the peaks and troughs and limiting the effect of these cycles on consumers and businesses.

Question 29

CAPITAL

Answer 29

Money invested into a company or project by its owners.

Question 30

CAPITAL EXPENDITURE (CAPEX)

Answer 30

Money spent by a company either to buy fixed assets or to add to the value of existing fixed assets with a useful life that extends beyond the taxable year. With regard to tax, capital expenditure cannot be deducted in the year the money is paid. Compare with operating expenditure (OPEX), which refers to ongoing costs to run a product, service or system.

Question 31

CASH FLOW

Answer 31

The movement of cash into and out of a business

Question 32

COLLATERAL

Answer 32

Something lenders can use to give security against a loan. Often this is a major asset such as a house.

Question 33

COMMODITY

Answer 33

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

Question 34

COPYRIGHT

Answer 34

The exclusive legal right, owned by the individual or group who created a work, or by an individual or group assigned by the originator, to use certain material and to allow others the right to use the material.

Question 35

CORPORATE SOCIAL RESPONSIBILITY

Answer 35

Corporate social responsibility (CSR) is a form of self-regulation, where companies integrate social, environmental and ethical policies into their overall business strategy. Companies embracing CSR should take responsibility for their actions and take a proactive approach to having a minimal negative impact on the world.

Question 36

CREDITOR

Answer 36

A person or firm that has lent your business money or to whom you owe money.

Question 37

CRITICAL SUCCESS FACTOR

Answer 37

An element that must occur in order for a business to achieve its ultimate goal.

Question 38

DEBTOR

Answer 38

A person or firm that owes money to you or your business.

Question 39

DIVERSIFICATION

Answer 39

When new products, services, customers or markets are added to a company’s portfolio. Diversification usually occurs as a risk reduction strategy.

Question 39

DEPRECIATION

Answer 39

The reduction in the value of assets over time, usually due to wear and tear.

Question 40

DIVIDEND

Answer 40

Money paid regularly by a company to its shareholders.

Question 41

ECONOMIC GROWTH

Answer 41

This is the term used to describe an increase in the amount of goods and services produced in an economy over a period of time .

Question 42

ECONOMIES OF SCALE

Answer 42

The cost advantages obtained by a business when buying an item in bulk. The price of an item usually decreases as the amount of units bought increases.

Question 43

ENTERPRISE VALUE

Answer 43

The market value of a business, calculated by market capitalisation times current share price, minus cash, plus debt.

Question 44

EQUITY

Answer 44

The difference between the company’s assets and liabilities.

Question 45

ETHICAL INVESTMENT

Answer 45

Investments made in companies that are specifically chosen for their environmental or moral credentials. Defence contractors, or companies known to use contentious labour practices, will generally be avoided by ethical investors.

Question 46

ETHICAL TRADE

Answer 46

Often used as an umbrella term for any business practices that promote socially and/or environmentally responsible trading.

Question 47

EXIT STRATEGY

Answer 47

A plan to enable you to leave your business whilst recouping capital invested and minimising losses.

Question 48

EXPORT

Answer 48

Selling your goods or services overseas.

Question 49

FAIRTRADE

Answer 49

An organized movement enabling producers in developing countries to receive a fair price for the items they produce. Fairtrade certification is now commonplace in many sectors, particularly food, with several large brands now stating that their products are ‘certified Fairtrade’ on their packaging.