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A Dictionary of Business Planning Terms for Entrepreneurs
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Small Business Dictionary
- of Business Planning Terms -

THE following dictionary provides definitions for 153 business terms useful for entrepreneurs who are planning to start a small business. Also included are links to four of the top business dictionary resources on the Web.

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Over 2500 TemrsNY Times Glossary
Over 2,500 financial and business terms compiled by Campbell R. Harvey, Duke University. Explanations are short and sweet. Also try the Washington Post Business Dictionary.

Small Business Dictionary Dictionary
A searchable database of over 2,500 definitions of the most commonly used terms encountered by the start-up entrepreneur, the small business person and the student of business theory.

Directory of Business GlossariesGlossarist
A comprehensive directory of business dictionaries and glossaries that contain business terms and terminology. Small Business Encyclopedia
Offers a wealth of information on business terminology. Database of terms is searchable and categorized.

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Accounting Cycle
The basic steps in processing accounting data during an accounting period: 1) transaction occurs, 2) transaction classified (entered into journal), 3) recording the classified data in ledger accounts (posting), 4) preparation of financial statements and 5) closing of nominal accounts.

Accounts Payable (A/Ps)
Money owned to suppliers.

Accounts Receivable (A/Rs)
Money owed by clients and customers.

Accrual Basis Accounting
A method of reporting income when it is earned and expenses when incurred, even though they may not have been received or actually paid.

Adventure Capital
A speculative investment, more risky than venture capital.

Business organizations or individuals that control each other or are controlled by a third party (i.e., a parent company). Affiliates may share such things as management staff, employees, facilities, and/or equipment.

Aging of Accounts Receivable
The classification of unpaid customer accounts receivable according to the date of sale. The aging of A/Rs can reveal a pattern of delinquent accounts that shows where collection efforts should be concentrated. The longer accounts are left unpaid, the more likely they will become uncollectible. The aging of A/Rs can help prevent losses on future sales from delinquent accounts.

All real or intellectual property owned by the enterprise that has a positive financial value. On a Balance Sheet, a summary list of the property and things owned.


Bad Debt
An accounts receivable or loan that has become uncollectible and is written off.

Balance Sheet
A summary statement of assets, liabilities, and owner's equity used to assess the financial condition of a business. Also referred to as the statement of financial condition.

Bank Reconciliation
The process of making sure your bank statement, checkbook, and books (ledger, journal, etc.) all agree. Usually performed at the end of each month.

Barriers to Competition (Barriers to Entry)
Any condition or circumstance that makes it difficult for a new business to enter an industry, such as exclusive ownership of a unique resource, economies of scale, patents, licenses, trademarks, copyrights, dedicated distribution channels, and high initial investment requirements.

Merchandise or services exchanged for other merchandise or services without the use of money.

Board Of Directors
Individuals elected by stockholders to establish corporate management policies and make decisions, such as if and when dividends will be paid to stockholders.

Break-Even Point
The point at which revenues are equal to expenses.

A detailed schedule of planned financial activity.

Business Cycle
Repetitive cycles of economic expansion and recession within an industry over a measurable period of time. Companies regularly experience recurring periods of profitability and poor cash flow often the result of annual fluctuations in economic activity due to seasonal variations or holiday periods.

Business Policy
General practices established within a company that can be either written or unwritten.

Business Strategy
A term used in business planning that implies a careful selection and application of resources to obtain a competitive advantage in anticipation of future events or trends.


Money or property owned or used in business by a sole proprietor or corporation, to produce wealth. In a start-up business, capital is the amount of money required to initiate and/or operate a business before borrowing from others.

Cash Basis Accounting
An accounting method that enters income and expenses into the books when payments are received or expenses incurred.

Cash Conversion Cycle
The time required to convert raw materials into finished goods, finished goods into sales, and sales into received payments from customers. In a retail business, it is directly related to inventory turnover. Startups should strive to keep the cash conversion cycle as short as possible.

Cash Flow
The transfer of money into and out of an enterprise. In accounting terms, it is the amount of cash generated by a business after expenses (including interest) and principal repayment on financing are paid.

Assets that can be pledged to guarantee a loan. If the borrower fails to repay the loan according to the terms, the lender has the legal right to seize the collateral and sell it to repay the loan.

Consumer Price Index (CPI)
A measure of change in consumer prices, revised monthly by the U.S. Bureau of Labor Statistics.

Convenience Goods
Goods frequently purchased by the consumer that need to be made easily available to facilitate purchasing. Consumers are usually not willing to shop around much for convenience goods, such as candy, cigarettes, prescription drugs, magazines, and most grocery products.

Corporate Image Advertising
Advertising designed to promote the company first and the products or services second.

Cost-Benefit Analysis
An analysis tool that measures the results or benefits of a decision compared with the required costs.

Cost of Goods Sold (COGS)
The sum of expenditures involved in producing a product or service which usually includes labor and materials. Also referred to as direct costs.

Cost of Sales
The cost of goods sold plus any expenses incurred in the selling and delivery of the product or service.

Current Assets
Assets that can be converted quickly to cash, usually within a year, through sale or exchange, such as cash, inventory, and accounts receivable. Also called liquid assets.

Current Liabilities
Debts, loans, trade credit or other obligations due for payment within one calendar year.

An amount of money added to a budget for delays, poor weather, changing economic conditions, and other unforeseen occurrences.

Customer Base
The total list of customers for a business, as well as the total number of potential customers with specific classification or buying characteristics.

Customer Profile
A precise description of the characteristics of buyers for a specific product or service.


Debt Financing
The payment, in whole or in part, for a capital investment with borrowed funds.

Debt Service
The amount of money required for the payment of current interest and principal on a long-term debt.

The expense deduction on an income statement allowing for gradual wearout of a fixed asset.

Direct Marketing
The sale of products by a producer direct to consumers with promotional efforts using direct mail, advertising, or telephone sales. Avoids the use of middlemen such as wholesalers and retailers. Commonly used for business-to-business sales.

A business that purchases your products for resale to wholesale and retail outlets. Distributors expect to receive a significant discount for providing the distribution service of getting your factory produced products to the end users.

Distribution Channel
The path your product follows to reach the end user, through distributors, wholesalers, retailers, self service outlets, telephone sales, the Internet, direct mail, vending machines, etc.


Economy of Scale
The decrease in the long-term total cost of manufacturing a product due to the lower cost per unit for larger quantities produced.

One who assumes the financial risk of starting and operating a business venture. Usually carries the connotation of being creative, self-motivated, and visionary.

Entrepreneurial Shock
The psychological realization by an entrepreneur that starting and operating a small business is full of difficult decisions and disappointments. Corporate workers who have not been previously exposed to the complications of running a business are most vulnerable.

An accounting term used to describe the investment made by the owners or stockholders of a business. On a balance sheet, equity represents assets less liabilities. Same as Net Worth in a business.

Equity Financing
The raising of money in a corporation by issuing and selling shares of common or preferred stock or taking on a partner in a partnership.

Executive Summary
A brief synopsis at the beginning of a business plan or business document that highlights key facts, issues, and conclusions.


Fashion Goods
Goods such as jewelry, clothing, furniture, and kitchenware where style is important and price is secondary.

Feasibility Study
An analysis of a possible business opportunity that emphasizes income potential and likely expenses, with recommendations for an advantageous marketing approach.

Fixed Assets (long term assets)
These are usually non-liquid business assets used in the operation of a business. Tangible fixed assets include real estate, buildings, furniture, fixtures, and equipment, whereas, intangible fixed assets include trademarks, patents, and brand recognition. Fixed assets do not include items normally consumed during business operation or production, such as office stationary or product raw materials.

Fixed Costs
Business expenses that do not change regardless of production increases or decreases, for example, lease expenses, insurance, interest on loans, salaries, utilities, etc. As opposed to variable costs.

The right under which a franchisee person or company may market a product or service, as granted by the franchisor (the proprietary owner). A franchise agreement is the contract defining the terms and conditions between the franchisor and franchisee. Franchises often give exclusive rights for a specified area.

Full Service Retail Outlet
A retail outlet where products are sold directly to the end user at retail prices by sales personnel who are able to explain the value and purpose of the products.


General Journal
An accounting record of business transactions in chronological order.

General Ledger
The formal listing of journal accounts in a business used for financial statement preparation and tax filing.

Generally Accepted Accounting Principles (GAAP)
Conventions, rules and procedures defined by the Financial Accounting Standards Board (FASB) as proper accounting practices.

An intangible but salable asset, such as reputation or location of a business, that engenders the expectation of continued customer or client patronage if the business is sold to a potential buyer.

Gross Income
The gross revenue or sales of a business over a period.

Gross Margin
Gross profit expressed as a percent of net sales.

Gross Profit
The profit before overhead (fixed operating expenses) has been deducted.

Gross Sales
Total sales not reduced by customer discounts, returns, allowances or other adjustments.

Guaranteed Loan
A loan made by a bank upon which a government agency (e.g., the Small Business Administration) has insured partial reimbursement to the bank in the event the borrower defaults.


Hidden Risk
A risk associated with a business startup that is unknown or not easily apparent. In any business venture, there are always unforeseen factors that can affect the profitability of a business. Astute business planners try to minimize these risks by anticipating possible unknown factors all phases of their operations and establishing preventative measures or backup plans where possible.

Historical Cost
Actual costs or expenditures recorded as opposed to projected or forecasted costs.

House Agency (In-house Agency)
Any service performed by a branch of a large company that otherwise would be purchased from another company, such as advertising or marketing services.


Income Statement (Profit & Loss statement)
A statement of revenues and expenses. It shows the shows the financial progress of a company over a period of time.

A facility designed to encourage entrepreneurship and minimize obstacles to new business formation and development, particularly for high technology firms, by housing a number of budding enterprises that share an array of services, such as rent, secretarial services, and business counseling. Incubators may be funded by state or local government as well as private interest groups.

Installation Goods
Products requiring large and expensive capital investments such as manufacturing facilities, that need cranes, robotic assembly line processors, and packaging equipment.

Intangible Assets
Non-physical assets such as trademarks, patents, a customer base, and brand recognition. Sometimes referred to as goodwill.

Inventory Turnover
A ratio for evaluating sales effectiveness that is often calculated by dividing annual sales by ending inventory i.e., how fast new inventory is purchased and then resold to customers. Startups need to research industry averages to better budget their finances. A low turnover rate is acceptable for high-price goods, but low-price goods and consumables must generally turnover much more quickly.


In accounting, the record of original entry where financial transactions are initially recorded. In a double-entry accounting system, all transactions are listed in chronological order with added notation of the accounts to which they belong.

Joint Venture
A business association of two or more businesses or persons whereby the teams works together on a single project. A joint venture is usually limited in either scope or duration or both. In international trade, joint ventures are often mandated by national laws to prohibit majority ownership by a foreign company.

Just-in-Time (JIT)
A production and inventory method whereby materials and products are delivered to the production site or retail outlet at the precise time they are needed or sold rather than being stockpiled in a warehouse. Popularized by the Japanese


Keogh Plan
A federal tax law giving substantial tax advantages to small-self employed business owners and others who do not have a company pension plan. Designed to encourage self-employed business people to set aside money for retirement.

An amount added to a deal to induce a potential buyer to consummate the deal.


Licensing Agreement
An agreement between two business enterprises allowing one to sell the other's products or services and to use their name, trademarks, sales literature, etc. in a limited manner to market the product or service.

The percentage of an enterprise's assets that can be quickly converted into cash.

Long Term Liabilities
All debts that are not current liabilities, that is, debts that are not due until at least one calendar year in the future.


Market Access
An opportunity for a company to enter a specific market to sell its products or services. A market access analysis considers issues like competitiveness, regulations, and trade restrictions.

Market Life Cycle
The period of time that a specific segment of the consumer market is interested and willing to purchase a i given product or service.

Market Penetration Pricing Strategy
A pricing policy whereby inventory prices are set very low to gain market control or penetration. Once obtained, prices are raised back to market standards.

Market Position
The relationship of a product or company to the competition in a specific market. Can be expressed as a percent of your total sales compared with total sales of the market. Understanding your market position can help you develop strategies to improve it.

Market Segment
A portion of the entire market that your company is targeting.

Market Share
A percentage value calculated by dividing your sales with the total sales of a product or service within a specified market.

Market Size
The total dollar amount of potential sales to all customers within a given market.

Market Value
The price at which buyers in the open marketplace are willing to pay for a product or service.

Marketing Mix
A selection of products by a company from which a customer can choose. The advantage is that more customers will likely consider one of the options as opposed to purchasing from a competitor.

Marketing Strategy
The selection of the product mix and customer profile for maximum profit potential. The 4 "Ps" of product, price, promotion, and place (distribution) are often incorporated into a marketing strategy.

The speed and ease with which a new product or service could be promoted and sold.

Material Goods
Normally raw or processed materials such as coal or steel that will become part of the purchaser's end product.

Modified Cash Basis
An accounting method whereby income is recognized when cash is received and expenses when cash is paid, except for long-term assets that are accounted for using the accrual basis method. Many small and start-up businesses adopt this accounting method.

Murphy's Law
As applied to business formation and operation, the idea that "Whatever may go wrong, will go wrong."


Net Income (or Net Loss)
On an income statement, the sum remaining after all expenses have been deducted from income. Net income is usually specified whether taxes have been deducted or not (Net Income After Taxes) or haven't been deducted (Net Income Before Taxes). Net income after taxes is the amount of most interest to business owners. It is their Net Profit (or Net Loss).

Net Profit
A positive net income after total expenses have been subtracted from total revenues. The opposite of net loss.

Net Sales
An accounting term used to define gross sales less returns, allowances, freight, and cash discounts.

Net Worth
The amount owned by the owners. In accounting terms, the amount by which assets exceed liabilities on the company balance sheet. Also referred to as equity or owner's equity.

Niche Market
The area of a target market where a company or product is particularly strong. This specialization often results in super high quality by the specialist company and elimination of competition because of the uniqueness.

A written promise to back funds borrowed, stating the amount, the interest rate, the time, the method of payment, and the obligation to repay. A note is usually a short term business loan that may be secured or unsecured by collateral. Also called a promissory note.

Note Payable
A NOTE by a person or business that is due and owing; an obligation or lien that must be repaid and is due.

Note Receivable
An amount loaned to another that is owed and payable to the holder of the note.


One-Write System
A bookkeeping method where only one entry is made to record each business transaction, as opposed to a double-entry system where the transaction is entered twice or more in related credit and debit accounts.

On-Site Sales Method
Selling directly to the end user using a sales force that calls on the prospect at their home or place of business.

Organization Chart
An illustrative display of the relationships between owners and mangers to supervisors and subordinates.


As defined by The Uniform Partnership Act, a partnership is "an association of two or more persons who carry on a business for profit as co-owners."

A legal document issued by a federal government that grants exclusive rights for the production, sale and profit from the invention of a product or process for a specific period of time. Patents also grant the right to prevent others from copying the invention.

Perfect Competition
Also called "pure competition," a market condition where no buyer or seller has the economic power to alter or fix the price of a product or service. Perfect competition is characterized by a large number of buyers and sellers, all selling similar products or services, with free access to resources and easy market accessibility. It is the opposite of a monopoly or oligopoly.

Pricing Strategy
The idea and practice of establishing an optimum price for a product or service that will result in the highest profit.

Pro Forma
Financial forms based on future expectations. Frequently used to refer to a Pro Forma Balance Sheet which is based on assumptions of future hypothetical events. A Projected Income Statement is used more often than a pro forma income statement.

Product Benefits Advertising
A form of advertising designed to acquaint potential customers with the strengths of a product or service and the benefits resulting from those strengths.

Product Comparison Advertising
A form of advertising designed to compare the features of your product or service with those of your competitors with the purpose of showing your features to be superior or more feature rich.

Product Family Advertising
A form of advertising designed to convince potential customers that your product line has a wide range of functionality and choices.

Production Capacity
The volume of products or services your company can produce utilizing current resources.

Profit Margin
A relation of profit to net sales, most often expressed as a percent of sales or total revenues less total expenses.

Proprietary Technology
Technological innovations or processes that are unique and legally owned by a company.

Pull Promotional Strategy
A promotional strategy whereby channels of distribution are minimized during the first stages of promotion and a major commitment to advertising made. The idea is to "pull" potential customers towards your offerings and create a demand.

Purchase Order
A written authorization prepared by a buyer for the purchase of goods or services at a specified price. Once accepted by the seller, the purchase order becomes a legally binding purchase contract.

Purchasing Agent
An employee of a large company who primary duty is to purchase goods or services for the company.

Push Promotional Strategy
A promotional strategy whereby channels of distribution are maximized to "push" the product or service out into the marketplace. This strategy usually requires generous discounts or incentives to your distribution channels to promoter your product or service offering, thus minimizing the need for extensive advertising.


Quality Assurance
A review of a product or service after completion to determine the degree of excellence achieved and deficiencies that need correction.

Quality Control
The process of making sure that products or services are made to consistently high standards.

Quick Ratio
The ratio of current assets minus inventories, accruals, and prepaid items to current liabilities. The acid-test ration is a measure of the liquidity of a business. It helps to answer the question, "If revenues stopped, could the business meet current obligations with assets that are readily convertible into cash?" A quick ratio of 1:1 or better is usually satisfactory. Also called acid-test ratio or current ratio.


Anything expected to arrive at the business. In accounting, it is a short form of accounts receivable.

Retained Earnings
Net profits or earnings retained by the company rather than disbursing to the shareholders in the form of dividends. Retained earnings are used to improve the business through development programs, promotion, R&D, etc.

Revolving Line of Credit
A credit limit at a specified interest rate that is readily available to a company for immediate borrowing.

Return on Investment (ROI)
A financial ratio indicating the degree of profitability of a business. ROI is of particular importance to owners because it can be used to compare with other investments. ROI is calculated by dividing net profit for the period by net worth (total equity). An analysis of ROI for the current period with other periods can reveal positive or negative trends. It also allows you to compare your company with industry values.


Selling Expenses
The cost of finding customers, enticing them to buy, delivering the product or service, and collecting the amount due.

Service/Product Mix
The mix of complimentary products and services a business offers to entice sales. A business offering a product/service mix is usually more concerned about the quality of the service than the products being sold (e.g., a hair salon that cuts hair and sells professional shampoo brands).

Self-Service Retail Outlet
A retail outlet where products are sold directly to the end user at discount prices with few or no sales personnel to help and explain the value and purpose of the products.

Sinking Fund
A type of savings fund in which deposits are made regularly to be used later for a specific purpose, such as purchasing equipment or buildings.

Skimming Pricing Strategy
A pricing strategy where you set the prices very high in the desire for quick cash with minimal desires for significant market penetration and repeat business.

Sole Proprietorship
An enterprise that is owned by a single individual who earns all the profits and assumes all the losses. As contrasted with corporate or partnership businesses.

Start-up Capital
The amount of money invested in a business by owners at the beginning of operations, as opposed to any amounts borrowed.

Strategic Relationships
An agreement between two or more companies to conduct a specified business process in a joint manner such as technology development, promotion, or opening new distribution channels.

Supply and Demand
The economic theory of market value where price is determined by the interaction of sellers and buyers to reach an equilibrium price which both are willing to accept.


Target Market
A segment of a specific market that your company has identified as your customers or clients. A target market is distinguished by socioeconomic, demographic, and/or interest characteristics, that make them the most likely customers for your products or services.

Test Marketing
Small test runs of new products or marketing techniques to determine effectiveness before making a full commitment.

Threshold Company
A business that has progressed beyond the startup stage and is striving to achieve long-term growth, prosperity, and stability.

A distinctive name, symbol, motto or emblem that identifies a product, service or firm that has been legally registered as the property of the firm. Trademarks grant the owner the right to prevent competitors from using similar marks in selling or advertising.


Starting a new business without enough money to carry through the start-up phase, especially if the business is likely to initially operate at a loss. Undercapitalization is a frequent cause of new business failure.

Unfair and Deceptive Practices
Selling practices that tend to mislead potential buyers of a product or service or result in unfair, unethical or immoral business behavior. Regulated in the U.S. by the Federal Trade Commission (FTC).

Unsought Goods
Products that are usually purchased due to adversity rather than desire, such as coffins, crutches, and medicine. Products, such as life insurance, that the consumer rarely seeks to buy, can also be classified as unsought goods. Here, aggressive selling processes are usually required.


Variable Cost
A cost that varies in proportion to the quantity produced. Theoretically, variable costs are zero if there is no production. As opposed to fixed cost.

Venture Capital
A source of business investment associated with a higher-risk opportunity than conventional financial institutions are willing to bear. In return for the higher investment risk, a venture capitalist usually expects some combination of equity ownership in the business.

Vertical Integration
The strategy of incorporating all aspects of management, production, sales, and distribution within a business in order to become less vulnerable to outside forces.


Wholesale Outlet
A business that sells in large quantities and at lower prices to full service or self service retail outlets, jobbers, merchants, manufacturers, industrial firms, commercial, businesses and institutions, and various other types of distributors. Wholesalers, as a rule, do not normally sell direct to the end user.

Window Dressing
A strategy often used in advertising, selling and marketing to make a product or service appear more appealing than it actually is (e.g., photos of menu items in a restaurant that don't live up to the actual food item when served). Such distortion can be considered unethical or illegal.

Working Capital
The cash available to an enterprise for day-to-day operations. It allows bills to be paid while awaiting payment of cash for sales. In accounting, it is current assets less current liabilities.


An unknown or indefinable element. Often used in the entertainment industry to separate successful entertainers from less successful entertainers. Ross Reck, writer of The X-Factor: Getting Extraordinary Results from Ordinary People describes it "the secret of getting ordinary people X-cited about going the X-tra mile to help their managers achieve X-traordinary results."


An employee who always agrees with the boss or supervisor regardless of personal convictions. Such personnel seem to have no personal opinions or convictions. Undesirable in a start-up operation where creativity and innovation is desperately needed to survive and prosper.

In business or investing, the amount of profit expressed as an annual percentage rate of the amount of capital invested (e.g., the ROI).

full service or self service retail outlets


Local municipalities regulating businesses to operate at particular sites.


Rule of 72
A calculation of the approximate number of years required to double an investment at an interest rate. For example, an interest rate compounded at nine percent would double in eight years (72/9 = 8).

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