Business Terms – S
Corporations are either the standard C corporation or the small business S corporation. The C corporation is the classic legal entity of the vast majority of successful companies in the United States. Most lawyers would agree that the C corporation is the structure that provides the best shielding from personal liability for owners, and provides the best non-tax benefits to owers. This is a separate legal entity, different from its owners, which pays its own taxes. Most lawyers would also probably agree that for a company that has ambitions of raising major investment capital and eventually going public, the C corporation is the standard form of legal entity. The S corporation is used for family companies and smaller ownership groups. The clearest distinction from C is that the S corporation’s profits or losses go straight through to the S corporation’s owners, without being taxed separately first. In practical terms, this means that the owners of the corporation can take their profits home without first paying the corporation’s separate tax on profits, so those profits are taxed once for the S owner, and twice for the C owner. In practical terms the C corporation doesn’t send its profits home to its owners as much as the S corporation does, because it usually has different goals and objectives. It often wants to grow and go public, or it already is public. In most states an S corporation is owned by a limited number (25 is a common maximum) of private owners, and corporations can’t hold stock in S corporations, just invidivuals. Corporations can switch from C to S and back again, but not often. The IRS has strict rules for when and how those switches are made. You’ll almost always want to have your CPA and in some cases your attorney guide you through the legal requirements for switching.
The sales volume at which costs are exactly equal to sales. The exact formula is: =Fixed_costs/(1-(Unit_Variable_Cost/Unit_Price))
The level of sales a single organization expects to achieve based on a chosen marketing strategy and assumed competitive environment.
Sales made on account; shipments against invoices to be paid later.
The practice by wholesalers and retailers that carry an increasingly wider assortment of merchandise.
Seed capital is investment contributed at a very early stage of a new venture, usually in relatively small amounts. It comes even before what they call “first round” venture capital.
How much is that “relatively small amount?” I’ve heard some high-end high-tech ventures in the heart of Silicon Valley call an investment of $500K seed capital, and I’ve known of other ventures that called $35K investment seed capital, and the following $300K investment the first round. It depends on the point of view.
A strategy where a producer sells its products or services in a few exclusively chosen retail outlets in a specific geographical area.
Five potential selling resources based on the sales value and the distribution of the product.
A no-cost consulting and resources service offered through the Small Business Administration.
Individuals or companies that legally own one or more shares of stock in a company.
Normally used to distinguish between short-term and long-term, when referring to assets or liabilities. Definitions vary because different companies and accountants handle this in different ways. Accounts payable is always a short-term liability, and cash, accounts receivable and inventory are always short-term assets. Most companies call any debt of less than five-year terms short-term debt. Assets that depreciate over more than five years (e.g., plant and equipment) are usually long-term assets.
Cash, securities, bank accounts, accounts receivable, inventory, business equipment, assets that last less than five years or are depreciated over terms of less than five years. Also called Current Assets.
These are the same as short-term loans. These are debts with terms of five years or less.
These are debts with terms of five years or less. These are also called current liabilities, short-term loans, or short-term (current) debts. These may also include short-term debts that don’t cause interest expenses. For example, they might be loans from founders or accrued taxes (taxes owed, already incurred, but not yet paid).
A linear correlation that offers a straight-line projection based on the variables considered.
The assessment of operations to determine the reasons for the gap between what was or is expected, and what has happened or will happen.
Setting a relatively high initial price for a new product or service when there is a strong price-perceived quality relationship that targets early adopters that are price insensitive. The price may be lowered over time.
Payments to store chains for acquiring and maintaining shelf space.
A division of the Small Business Administration that offers “venture capital-like” resources to higher risk businesses seeking capital.
The simplest form is the sole proprietorship. Simply put, your business is a sole proprietorship if you don’t create a separate legal entity for it. This is true whether you operate it in your own name, or under a trade name. If it isn’t your own name, then you register a company name as a “Fictitious business name,” also called a DBA (“Doing Business As”). Depending on your state, you can usually obtain this through the county government, and the cost is no more than a small registration fee plus a required newspaper ad, for a total of less than $100 in most states.
(U.K.): This is the easiest and quickest form of corporation for a small, privately-owned business. Your Memoranda and Articles of Association are usually fairly straightforward to obtain, and your taxes will be lower than those of a public company. However, the owner of a Sole Trader is personally liable for all of its actions and debts, and may not be entitled to benefits, like unemployment payments, that would accrue to those running public companies.
The starting date for the entire business plan.
1) Goods on hand, either finished goods or materials to be used to manufacture goods. Also called Inventory. 2) Stock can also refer to privately held or publicly traded shares or securities representing investment in, or partial ownership of, a business. Public trading of such stock occurs on the stock market.
The organized trading of stocks, bonds, or other securities, or the place where such trading occurs.
Total cost of sales divided by inventory (materials or goods on hand). Usually calculated using the average inventory over an accounting period, not an ending-inventory value. Also called Inventory Turnover.
The practice of assessing the direction of the organization as evidenced by its implicit or explicit goals, objectives, strategies, and capacity to perform in the context of changing environmental and competitive actions.
The planned process of defining the organization’s business, mission, and goals; identifying and framing organizational opportunities; formulating product-market strategies, budgeting marketing, financial, and production resources; developing reformulation.
Primary success factors include considerations regarding: 1) The choice of business based on the status of the market 2) Education and experience 3) People and collaboration 4) Creativity and innovation versus business skills and networks 5) Incubation potential 6) Leveraging available resources 7) Management practices
The basic tasks that must be performed by an organization in a market or industry to compete successfully. These are sometimes “key success factors.”
Past expenditures for a given activity that are typically irrelevant in whole or in part to future decisions. The “sunk cost fallacy” is an attempt to recoup spent dollars by spending still more dollars in the future.
(Nonprofit): Also called Profit and Loss statement, in for-profit plans. An income statement is a financial statement that shows funding, cost of funding, gross surplus, operating expenses, and surplus or deficit. Gross surplus is funding less cost of funding, and surplus (or deficit) is gross surplus less operating expenses and taxes. The result is surplus if it is positive, deficit if it is negative.
The costs incurred in changing from one provider of a product or service to another. Switching costs may be tangible or intangible costs incurred due to the change of this source.
A formal framework of identifying and framing organizational growth opportunities. SWOT is an acronym for an organization’s internal Strengths and Weaknesses and external Opportunities and Threats.
Innovation resulting from an intentional and organized process to evaluate opportunities to introduce change, based on a definition provided by Peter Drucker. The sources of innovation may be internal or external to the enterprise.