New Venture Lab: Glossary

A

Accounts Payable: Any money a company owes (short term debts or liabilities) to a supplier for goods and services already received from the supplier, but not yet paid for
Accounts Receivable: Any money owed to a company by a customer for goods and services already delivered to a customer, but not yet paid for
Accrual Basis of Accounting: Revenue and expenses are recorded in the period in which they are earned or incurred regardless of whether cash is received or disbursed in that same period

This is the accounting basis that generally is required to be used in order to conform to generally accepted accounting principles (GAAP) in preparing financial statements for external users
Accrued Assets: Assets from revenues earned but not yet received
Accrued Expenses: Expenses incurred during an accounting period for which payment is postponed
Accrued Income: Income earned during a fiscal period but not paid by the end of the period
Accrued Interest: Interest earned but not paid since the last due date
Accrued Liability: Liabilities which are incurred, but for which payment is not yet made, during a given accounting period

Some examples in a manufacturing environment would be: wages, taxes, suppliers/vendors, etc
Acquisition: An agreement between two companies where one company is purchased or acquired by the other company and ceases to operate as an independent entity
Addressable Market: The size of that portion of the market that is likely to have an interest in what your business has to offer
Adjacent Market: A distinct market or set of customers that are similar to a business's core market that share similar needs or similar business processes, e.g. commercial real estate property management is an adjacent market to multi-family property management with similar requirements, but each market is seen as being a separate and distinct market
Adjacent Opportunities: The potential for adjacent market growth; the ability to enter new, adjacent markets where you can address similar needs with the existing product or process infrastructure
Agent: A person that has been given the authority, typically legally binding, to act on the behalf of the company or the company's principle owners
Amortization: The process of paying down a debt in regular installments over time or deducting a capitalized expenditure over time
Angel Investor: A wealthy individual that makes independent investments in a company (typically an early-stage start-up company) in exchange for equity ownership and with the expectation of an eventual exit and financial return
Appreciation: The increase in value of an asset over time (as opposed to Depreciation)
Asset: Anything owned by an individual or a business, which has commercial or exchange value

Assets may consist of specific property or claims against others, in contrast to obligations due others
Asset Leverage: The ability to use assets to produce an income with less effort
Assign: To legally give someone the right or interest in an asset, such as when the "assignor" assigns the rights to a contract to an "assignee"
At Will Employment: The situation when a company can end an employment relationship with an employee at any time for any reason; employment laws vary from state to state and may affect the various aspects of at will employment
Audit: The verification of a company's financial performance and proper record keeping by an audit or accounting firm and typically performed by an auditor that is a Certified Public Accountant (CPA); the end product is a written, certified statement of the company's financial condition and compliance to standard accounting practices known as GAAP

B

Balance Sheet: A financial statement that lists the total assets, total liabilities and net worth of a business; the total assets equals or "balances" with the total liabilities and net worth
Bankruptcy: When a business cannot meet its legal obligations (liabilities) and petitions a federal district court for either reorganization of its obligations (known as a "Chapter 11" bankruptcy) or liquidates its assets (known as a "Chapter 7" bankruptcy); in a bankruptcy, the assets of a company are surrendered to a receiver or trustee that oversees the distribution of remaining assets to the creditors that are owed the outstanding obligations (this surrendering of assets may be voluntary or involuntary); the creditors typically end up with only a fraction of what was owed them
Bargaining Power of Buyers: The amount of influence the buyers have on a company
Bargaining Power of Suppliers: The amount of influence a supplier has on a company
Barriers to Entry: Market conditions that make it difficult for a new competitor to enter the market; typically would include the conditions of a high investment amount, protected intellectual property by existing market participants, long development cycles or locked up customer or distribution channels
Bond: A debt security issued by an issuer that receives cash from the holder and owes the holder an agreed upon principal and interest (coupon) at a later date (fixed maturity); typically issued by the U.S., state or local government or a corporation and typically backed by some sort of security interest (unlike a debenture that is typically not backed by any security interest)
Bottom Line: Net income after taxes. In general, it is an expression as to the end results of something, e.g. the net worth of a corporation on a balance sheet, sales generated from a marketing campaign, or final decision on most any subject
Brand: Any name, symbol or other identifier used individually or in combination to identify the goods and/or services of a seller and differentiate them, on any tangible or intangible basis, from similar goods and/or services of competitors.
Branding: The process of establishing the elements of a brand, including its name, identifying symbols and related marketing messages
Breach of Contract: The failure of a party to perform its obligations under the terms of the agreement
Breakeven: The number of units of sales required to cover your fixed and variable costs; the point at which revenues and costs are equal; a combination of sales and costs that will yield a no profit/no loss operation

Example:

Fixed costs = $5,000

Variable margin = $10 per unit

Breakeven = $5,000/$10 = 500 units
Breakeven Timing: The amount of time it takes for your opportunity to breakeven from the time you launch until your net income is zero or positive
Budget: A detailed financial plan - typically including an Income Statement, Balance Sheet and a Cash Flow Statement - during a given period of time; typically for one business cycle, such as a year, or for several cycles (such as a five year capital budget); also known as a Plan or a Pro forma
Burn Rate: The rate at which a new company uses up its venture capital to finance overhead before generating positive cash flow from operations; the rate of negative cash flow, usually quoted as a monthly rate
Business Plan: A detailed planning document that includes a description of the market, the competition, the company and its products or services, the management team, the financial plan (budget), the risks, the capitalization plan and the exit plan

C

Capability

The combination between knowledge, skills and technology that gives a company the ability to perform a service or produce a good; also stated as a competency

Capital

The money invested in a company, either by the entrepreneur or by investors, private or public

Cash And Cash Equivalents

The value of assets that can be converted into cash immediately, as reported by a company; usually includes bank accounts and marketable securities, such as government bonds and bankers' acceptances

Cash equivalents on balance sheets include securities that mature within ninety days

Cash Basis of Accounting

The accounting basis in which revenue and expenses are recorded in the period they are actually received or expended in cash

Use of the cash basis generally is not considered to be in conformity with generally accepted accounting principles (GAAP) and is therefore used only in selected situations, such as for very small businesses and (when permitted) for income tax reporting. See also Accrual Basis

Cash Cycle

The average amount of elapsed time between when you experience the costs of the product or service you are delivering and when you collect from your customer for the product or service

Cash Flow

The amount of money which flows in and out of a business with the difference between the two being the important number

If more money flows into a business than out of it, it is cash positive; if more money flows out than in, it is cash negative

Cash Flow Statement

A financial statement of a company's cash flow results with a breakout of the cash from operations, investing activities and financing activities

Closing

The actual finalizing of a business deal or transaction such as the sale of a product, purchase of a company or purchase of real estate

Cold Call

The act of calling or visiting a prospect without their permission and without a scheduled contact

Collateral

Assets that are pledged to secure a loan in an asset lending situation

Common Law

Any law determined by judicial decree from the bench (in individual cases) rather than legislation passed into law by elected officials

Common Stock

A class of stock which is the most common and prevalent form of stock ownership; Common Stock has voting rights, but does not enjoy the same rights afforded to Preferred Stock shareholders

When a Venture Capital firm invests in an early-stage company, the entrepreneur and management team typically get Common Stock, while the investors get Preferred Stock (see Preferred Stock)

Competency

The combination between knowledge, skills and technology that gives a company the ability to perform a service or produce a good; also stated as a capability

Competition Level

Companies compete on several levels such as:

The basis of the needs of consumers
General competition
Product competition
Brand competition

A company needs to focus on all four levels to be able to fully understand customer demand

Competitive Forces

Forces that determine the organizations level of competition within a particular market. According to Harvard's Michael Porter, there are six forces that have to be taken into consideration:

Power of the competition
Threat of new entrants
Bargaining power of buyers
Bargaining power of suppliers
Threat of substitute products
The importance of complementary products

See the VentureAnalysis for a much deeper view of the industry dynamics

Competitive Rivalry

The intensity with which competitors compete with each other over customers

Competitor Analysis

Analysis of who the competition is, how they operate and how powerful they are

Competitor Behavior

The defensive and offensive actions of the competition

Competitor Concentration

The amount of market share concentrated among the largest competitors within an industry; an indication of the market power of the largest competitors

Competitor Strategy

How a company competes with other companies; typically there are two primary strategies:

Low price (or "value") strategy
Product differentiation strategy

Complementary Products

Complementary products are products or services that can diminish the demand of a company's products and services

Concept Risk

The risk that the value proposition will not be easily understood, accepted and adopted by the potential customers

Confidentiality Agreement

An agreement where one or both parties agrees to hold any information received by the other party confidential, typically for a certain period of time; typically used in mergers and acquisitions discussions, partnership or joint venture discussions, capital raising pursuits and between employer and employee; also called an NDA

Consideration

The remuneration, compensation or inducement that a party gets in exchange for entering into a contract; consideration is typically required for a contract to be enforceable

Copyright

The exclusive ownership of a literary or artistic form of work such as computer software, music, written work, etc.

Corporation

A legal entity for conducting business that is legally separate from its owners (shareholders); corporations can be either for-profit (known as "C" corporations or "S" corporations) or non-profit (known as 501(c)3 corporations, one of thirteen different types of 501(c) organizations)

Cost of Goods Sold (COGS)

The cost of buying raw material and producing finished goods or the cost of delivery a service; includes all Direct Costs or Variable Costs, but Indirect Costs or Fixed Costs; also known as Cost of Sales (COS)

Cross-Sell

The ability to expand the customer relationship from selling the initial product or service to selling additional products or services; sometimes called expanding the wallet share of the customer

Current Assets

The assets of a company that are reasonably expected to be realized in cash, or sold, or consumed during the normal operating cycle of the business (usually one year); typically includes cash, accounts receivable and money due within one year, short-term investments, US government bonds, inventories, and prepaid expenses

Current Cash Debt Ratio

A measure of the ability to pay current liabilities in a given year with cash derived from operating activities; calculated using net cash from operating activities divided by average current liabilities

Current Liabilities

The liabilities (debts owed) by a company which are due for settlement during the normal operating cycle of the business (usually one year); typically includes accounts payable, notes payable, and taxes due etc.

Current Ratio

A measure of the ratio of a company's current assets to its current liabilities; a current ratio greater than 2:1 is typically deemed creditworthy, while a ratio between 1:1 and 2:2 is uncertain and a ratio of less than 1:1 is deemed not creditworthy

Customer Acquisition Cost

The total marketing and sales costs to convert a prospect into a new customer

Customer Concentration

The amount of market share concentrated among the largest customers within an industry; an indication of the market power of the largest customers

Customer Life

The length of the average customer relationship, typically associated with recurring revenue or repeat sales business models; indicative of the ability to experience repeat sales

Customer Relationship Leverage

The ability to cross-sell more goods and services to a customer once a customer is acquired

Customer Switching Costs

The costs that a customer experiences when they switch to another provider or supplier

D

Damages: The compensation ordered by a judge, arbitrator or mediator to compensate an injured party for injury, loss or damage suffered by the fault, negligence or misconduct of another party
Debenture: A debt security issued by an issuer that receives cash from the holder and owes the holder an agreed upon principal and interest (coupon) at a later date (fixed maturity); typically issued by the U.S., state or local government or a corporation and typically not backed by any form of security interest (unlike a bond that is typically backed by a security interest)
Debt Service: The regular, recurring debt payment made to keep a loan current that typically consist of principal and interest, but may be interest only
Default: The failure to pay the agreed upon debt payment on the due date according to the loan or debt agreement
Deferred Bonus Plan: See Long Term Incentive Plan
Demand Letter: A letter from an attorney that threatens litigation if the party receiving the letter does not comply with the demands of the letter, typically a payment or action of some sort
Demographical Trend: Trends that reflect changes in the population such as its size, age groups, religion, salaries etc. that can affect customer demand
Depreciation: The non-cash charge on an Income Statement which reflects the gradual reduction in value of an asset over time as its usable life is exhausted
Direct Expenses: Expenses that are directly attributable to producing a product or delivering a service. For a bakery, the Direct Expenses would typically be the ingredients in the baked goods and the Direct Labor that went into the baking itself. For a lawn mowing service, the Direct Expenses would typically be the gasoline and oil used that month as well as the Direct Labor for the crew that does the mowing. Expenses that are not directly attributed to producing a product or delivering a service are called Indirect Expenses or Overhead.
Direct Labor: Labor expenses that are directly attributable to producing a product or delivering a service and that are typically included in overall Direct Expenses. For a bakery, the Direct Labor would typically be the bakery staff that is directly involved in the baking process. For a lawn mowing service, the Direct Labor would typically be the crew that does the mowing. Labor that is not directly attributed to producing a product or delivering a service is called Indirect Labor.
Direct Mail/Marketing: Any marketing material or message that is sent directly to a customer prospect, typically in the form of printed material, telemarketing or by email
Direct Sales: The business model of selling direct to the end user through a direct field-based sales force or a telesales or inside sales force
Discounted Cash Flow: Usually known by the abbreviation DCF, this principle is based upon the Time Value of Money and is usually performed in a spreadsheet with the potential future cash flows that are thought to be generated from a business opportunity calculated for future periods and then discounted back to the present by an assumed interest rate or cost of capital to arrive at a Net Present Value.
Distribution Channel: The path a company's product follows as it is delivered to the end user through various distributors, resellers, jobbers, partners, retailer, self service outlets, vending routes, telesales, e-commerce, direct mail, etc.
Distributor: A company that purchases another company's products for resale to their customers (also called reseller, jobber or channel partner)

Distributors expect to receive a significant price discount (typically around 25 - 50%) for providing the distribution service
DMU: Decision making unit; all the people involved in the decision-making process from the customer's view point

E

Earnings Multiple: The value of peer companies expressed as a multiple of earnings as in (Earnings Multiple = $ Value/$ Earnings); usually expressed in terms of a number and the letter "x", e.g. a 5x earnings multiple, means 5 times earnings. For purposes of measuring an earnings multiple, EBITDA usually used as the earnings measure rather than Net Income.

Example: If a company is sold for $1 million and its EBITDA was $200k, then the company's earnings multiple was $1 million/$200k = 5x.
Earnout: An earnout (sometimes written earn-out) is a contractual agreement by a buyer of a business to pay the seller of a business additional value or compensation in the future depending upon how the business performs. There are innumerable ways of calculating and paying the compensation, but think of it as a bonus that is paid based upon future performance. The measure used to calculate an earnout is typically based upon a percentage of either revenue or earnings. An earnout is usually used to close the value gap between the asking price of the seller and the purchase price the buyer is willing to pay. See our Buying a Company topic for more information.
EBITDA: Earnings Before Interest, Taxes, Depreciation and Amortization
Economies of Scale: The situation where an increase in the number of units produced (either products or service engagements), results in a decrease in the average cost of each unit.

The more scalable the company, the better the opportunity and the more it will be able to grow its earnings.
EDLP: A promotional term used by retailers and retail sales analysts that means "Every Day Low Price"
EIN: Employer Identification Number; assigned to a business by the IRS for tax paying purposes; also called a Tax ID Number or Federal ID Number
Elastic Demand: Elasticity is a measure of responsiveness and demonstrates how much the quantity demanded changes when the price changes.

Elastic demand is when customers demand less quantity as price increases - they are said to be "price sensitive" or "price elastic".
Equity: The ownership an individual investor holds in a company in the form of stock

Alternatively, the amount of capitalization a company has in capital stock as opposed to debt (a company is capitalized with equity or debt or both)
Exempt Employee: A salaried employee (typically a supervisor or manager) that is exempt from labor laws that require the payment of overtime

F

FDM: An acronym used by retailers and retail analysts that describes the total "Food, Drug and Mass" market which includes the traditional grocery segment, drug store segment and mass merchandiser segments of the market
Financial Leverage: The ability to use money to produce an income with minimal effort
Financial Model: A detailed model (usually in a spreadsheet such as Excel or Lotus) that calculates excepted revenues, expenses, balance sheet and cash flows using different business assumptions; the model is typically fully integrated, so any change in revenue will flow through to impact net income, cash flow, etc. (See Startup Financial Model as an example financial model for startup business planning).
Financial Statements: The accounting statements that report on a business' financial performance; typically includes four statements:

- Balance Sheet
- Income Statement
- Cash Flow Statement
- Statement of Retained Earnings
Fixed Asset Investment: The total size of the investment required to assemble the fixed assets needed to operate the business
Fixed Assets: Long-term tangible assets that are used to produce revenue and are not intended for sale, such as office furniture, vehicles, real property, building improvements, and factory equipment; also called long-term assets
Fixed Costs: The costs that stay constant and do not vary based on the quantity of products produced, services delivered or the level of sales; fixed costs typically include rent, debt payments, lease payments, insurance, salaries of supervisory personnel, etc.; often called G&A or SG&A
Flow Chart: A graphical representation of a business process using commonly accepted symbols with accepted meanings; often associated with business process re-engineer or redesign projects
Franchise: The form of business when on company (the franchiser) licenses its business plans, know-how, products, brand, etc. to an entrepreneur (the franchisee) in exchange for consideration in the form of cash down and a revenue royalty
Fume Date: The date at which a company will run out of cash given their Burn Rate
Fungible: When a product, service or input is of a "commodity" nature in that it is freely exchangeable or replaceable, in whole or in part, for another product, service or input of like nature or kind

A gallon of gasoline is pretty much the same from one gas station to another and is therefore "fungible"

G

G&A: General and Administrative Expenses, also known as Overhead (and if Sales expenses are included, SG&A); includes all fixed costs or indirect costs such as rent, debt payments, lease payments, insurance, salaries of supervisory personnel, etc.
GAAP: Generally Accepted Accounting Principles; the guiding principles for financial accounting and accounting reports that includes the standards, conventions, and rules accountants follow in recording and summarizing business transactions and the preparation of financial statements.
Go-To-Market Strategy: The overarching strategy for you go to market with your products or services including public relations, advertising, marketing, channels of distribution, sales model, etc.
Goodwill: See Intangible Assets
Gross Margin: The difference between net sales revenue and the cost of goods sold (COGS) or Cost of Sales (COS)

Commonly referred to as gross profit and is usually expressed as a percentage as follows:

(100 * (Net Sales Revenue - Cost of Goods Sold) / Net Sales Revenue)

Therefore, $100 of net sales revenue with COGS of $50, results in a gross margin of 50%

Gross Margin is often measured on a unit of sales (unit gross margin) as well as a total gross margin for a given period

Gross Margin measures the ability of both to control costs and to pass along price increases through sales to customers and should be stable over time

A persistent gradual decrease is likely to indicate that productivity needs to be increased to return profitability back to previous levels
Gross Profit: See Gross Margin

G (continued)

Gross Receipts: The total amount received from a customer for the sale of a good or service prior to the deduction of any allowances, discounts, credits, etc; also called Gross Sales or Gross Sales Receipts
Gross Sales: See Gross Receipts
Gross Sales Receipts: See Gross Receipts

I

In-Market Timing: The timeframe in which a customer is most likely to make a buying decision regarding a product or service
Income Statement: A financial statement of a company's operational performance with revenues, expenses and net income
Indirect Expenses: Expenses that are not directly attributable to producing a product or delivering a service. These expenses are also called Overhead and are expenses that are necessary no matter what products or services are delivered and no matter what level of Revenue is recognized for a given period. Indirect Expenses include such items as professional fees from accountants and attorneys, building leases, insurance, and management salaries for management staff that oversee all operations. Contrast with Direct Expenses, which are directly attributed to producing a product or delivering a service.
Indirect Labor: Labor expenses that are not directly attributable to producing a product or delivering a service and that are typically included in overall Indirect Expenses or Overhead. Indirect Labor expenses are typically management salaries for management staff that oversee all operations, rather than the production or delivery of a particular product or service. Labor expenses that are directly attributable to producing a product or service are by contrast called Direct Labor.
Indirect Sales: The business model of selling indirectly to the end user through sales channels such as resellers, distributors or jobbers
Inelastic Demand: Elasticity is a measure of responsiveness and demonstrates how much the quantity demanded changes when the price changes

Inelastic demand is when the customer demand either does not change with price or actually increases as price increases - they are said to be "price insensitive" or "price inelastic"
Infringement: The violation of intellectual property rights, such as patents, copyrights or trademarks, usually in the form of unauthorized use
Insolvency: The inability of a debtor to pay his debt obligations
Intangible Assets: Any non-physical assets such as intellectual property, customer base, market reputation, brand recognition, etc.; also called Goodwill
Intellectual Property: Any intangible property that has value such as a registered copyright, trademark or patent; typically based upon whatever may be proprietary about your product, process or business
Intellectual Property Leverage: The ability to create something once and sell it over and over again with no effort to reproduce it (books, movies, software, patents, etc.)
Inventory Turns: The measure of the number of times a particular product or group of products are sold each year, which is an indication of the holding cost, typically defined as follows:

COGS (for the year) / Average Inventory (for the year)

Also known as Inventory Turnover, Stock Turns, or simply Turns

The more Inventory Turns throughout the year, the lower a company's holding cost, the higher the profitability and the more responsive to customer needs

J

Joint Venture: A business arrangement where two or more parties form a partnership with a shared interest in the ownership and profits; typically the parties to a Joint Venture contribute cash, products or services, employees and other valuable property to the joint venture for pre-determined period of time for a pre-determined goal

L

Labor Pool

The size or characteristics of that portion of the workforce that are potential employees

Learning Curve

The learning curve is the relationship between experience and efficiency

As individuals and/or businesses get more experienced at a task, they usually become more efficient at them; originates in the adage, "practice makes perfect"

Lease

A legally-binding contract between two parties, typically regarding real estate; the Lessor (real estate owner) leases the real estate for a specified use to the Lessee (the tenant)

Letter of Credit

A letter issued by the bank of a company or individual that guarantees payment of up to a certain amount of money for a certain period of time; typically used in international trade such as import and export businesses

Liability

A loan, expense, or any other form of claim on the assets of a company that must be paid or otherwise honored by that company

Licensing Agreement

An agreement between two companies where one company agrees to license from the other company the rights to either tangible (such as a software license agreement) or intangible (such as a patent) assets; sometimes companies "cross license" each other certain assets

Lien

A security interest that one party holds in an asset that is put in place to ensure the payment of an obligation or liability by the party that owns the asset and is indebted to the holder of the lien

Limited Liability Company

A legal form of incorporation; a hybrid with some characteristics of a corporation and some characteristics of a pass-through entity such as an S corporation or partnership; also known as an LLC

Limited Liability Partnership

A type of partnership (not available in all states) that protects individual partners from liability for the misconduct of other partners or employees; also known as an LLP

Limited Partnership

A type of partnership in which some partners have limits on their control (the Limited Partners) while other partners exercise management control (the Managing Partners)

Liquid Capital

The amount of capital or net worth of an individual or company that is "liquid" or easily turned into cash such as cash and cash equivalent. Also called Liquid Assets.

Liquidity

The ability of a company to convert its assets, products or services into cash; in terms of stock holdings, the ability of a shareholder or optionee to sell their stock and turn their stock into cash

LLC

See Limited Liability Company

Long Term Assets

See Fixed Assets

Long Term Incentive Plan

Usually called an LTIP for short, but also called a Deferred Bonus Plan, an LTIP is an employee (usually an executive employee) incentive system designed to retain key employees by providing an incentive over a longer period of time than the typical bonus plan. The typical LTIP usually provides a payout in two parts: the first part at the end of the period earned (usually one year) and the second part over a period of future years, thereby creating "golden handcuffs" that encourage the employee to stay with the company longer term.

See the Resources - Employees section for more information and the download Legal Template: Deferred Bonus Plan.

Long Term Liabilities

All debts and obligations of a company that are not due during the current period or year, but due in the future

LTIP

See Long Term Incentive Plan

M

Macro Trends: Major trends in customer behavior or demographics that play a critical role in shaping the market conditions and customer demand
Market Opportunity: An attractive set of potential customers or arena of competition in which a company chooses to sell its products or services
Market Positioning: From the customer point-of-view, expresses the customer's perception of the place a product or brand occupies in a market segment, usually in terms of price, service and quality relative to other products or brands

A company's marketing message must be tightly linked to its market positioning
Market Share: The percentage of the market that a product or company has relative to the total market size

A company with $10 million in revenue in a $100 million market has 10% market share ($10 million/$100 million)
Maturity: The date at which a debt payment becomes due and payable to the holder of the debt
Merger: An agreement between two or more companies to combine their operations into one operating entity

N

NDA: Non-Disclosure Agreement; see Confidentiality Agreement
Negligence: An act or omission that falls below the standard of care of a reasonable person in the same situation
Net Income: The total earnings (found at the bottom of the Profit and Loss statement or Income Statement)

Net Income reflects revenues, less direct costs, less indirect costs, less non-cash costs such as depreciation and amortization, less interest, taxes and other expenses

Net Income is the same as Net Profit
Net Present Value: Usually known by the abbreviation NPV, this principle is based upon the Time Value of Money and calculated using the Discounted Cash Flow method.
Net Profit: See Net Income
Net Worth: The difference between Assets and Liabilities; a key Balance Sheet entry that shows the net value of the business
Network Effect: The market effect when one customer draws in other customers via word of mouth because the value to that initial customer is higher if others also join the network
New Entrants: Competitors that are new to competing in a given market; if there are a lot of new entrants and the costs to enter an industry and start-up a company are low, that will generally lead to more competition and less profits
Nonexempt Employee: An hourly employee that is protected by labor laws that mandate the payment of overtime; as opposed to Exempt Employees
Nonprofit Corporation: A legal entity that is established for the strict purposes as set forth by the IRS and in their corporate charter with strict controls over any type of disbursements due to its nonprofit status; typically used for charities and religious organizations, although churches are better suited not be put themselves under the jurisdiction of the State

O

Operational Risk: The risk that the business venture will not be able to operationally deliver on its product or service due to uncontrollable risks such as weather, pests, natural causes, supplier stability, labor relations and political instability
Organic Growth: The rate of annual growth of the addressable market
Organizational Analysis: An analysis that typically refers to the strengths and weaknesses of the employees skills and the capabilities within a company
Overhead: See Indirect Expenses.

P

Parent Company: A company that owns part or all of a separate entity known as a Subsidiary
Partnership: A legal relationship/entity between two or more individuals for business purposes; can be a regular partnership or a limited partnership as defined by the legal documents

Limited Partnerships typically have one or more General Partners that manage the partnership while the Limited Partners participate as investors with limited decision-making authority
Patent: An exclusive right granted by the U.S. Patent and Trademark Office (or the peer office of a foreign government) to a person for a fixed period of time (typically 14 years for a design patent and 20 years for other patents in the U.S.) in exchange for the detailed disclosure of the design or invention.
PEO: A PEO (professional employer organization) provides outsourced HR (human resources) services such as payroll, workers' compensation, HR administration and employee benefits administration. A PEO typically hires a client company’s employees, thus becoming their employer of record. The PEO then leases the employees back under contract to the original employer. This practice is also known as co-employment, employee leasing, or staff leasing.
People Leverage: The ability to delegate tasks to others in order to produce an income from their efforts
Perishability: The extent to which you have to sell a product or service in a short period of time or before a certain specified time, without the flexibility to store it or preserve it for a later use
Positioning: See Market Positioning
Power of Attorney: The written authorization that allows a person to act as an Agent for another person; may be general or limited to specific decisions or for a specific timeframe
Preferred Stock: A class of stock with certain preferences over common stock; the preferences are all negotiable, but typically include a liquidation preference, registration rights, drag-along rights and voting control (see the Resources Raising Capital section for the sample documents and more information)

Venture Capital investors usually invest in exchange for Preferred Stock
Price Elasticity: See Elastic Demand
Price Inelasticity: See Inelastic Demand
Price Sensitivity: The awareness of the customer to what they perceive to be the range of prices within which they will buy a particular product or service
Private Equity: Any type of equity investment in a company that is not freely tradeable on the public stock market; typically refers to investment funds that have been raised on private markets, as opposed to public markets

Categories of private equity capital include:
- Leveraged buyout capital
- Venture capital
- Growth capital
- Angel capital
- Mezzanine capital
Pro forma: See Budget
Product Line Proliferation: The typical situation that occurs over time as a manufacturer experiences an increase in the number of products in its product portfolio based upon customer demand; e.g. Ford used to make just one car -- the model T -- in just one color - black -- but now one hundred years later, its product has "proliferated" into many, many models in many variations of colors, interiors and other extras
Product Positioning: See Market Positioning
Profitability: A company's ability to generate revenues in excess of the costs incurred in producing those revenues.
Proprietary: Any product, service, technology or intangible asset that is unique to, and legally owned by, a company
Public Equities: Stocks in publicly-held companies that are sold to the general public, typically through network of stock brokers via the stock market; highly regulated by the federal Securities and Exchange Commission (SEC) to protect individual investors
Public Relations: The part of an overall marketing strategy that includes generating awareness and influence through mass media such as press releases, newspaper, magazine and web articles, etc. to promote a company, product or service; typically performed by public relations firms that are hired with specific expertise to gain exposure for a client company

R

Recurring Revenue: Revenue that is highly likely to continue in the future; revenue that is typically monthly contractual revenue that is predictable and stable such as a security alarm monitoring company that charges $25 every month for a monitoring service
Regulatory Environment: The extent to which the target industry is subject to government regulation and the impact of that regulation on the market opportunity
Relationship Type: The type of customer relationship you are able to develop with your average customer ranging from a casual one-off non-contractual relationship to a deeper contractual relationship to a committed partner relationship
Repeatability: The ability to sell the same product or service over and over again with the same product or process content
Retailer: The business model of selling directly to the end user through retail store-fronts at retail prices with in-store sales personnel who can explain the purpose and value of the product or service
Retained Earnings: The amount of profit that is retained by a company for growth investment purposes and not disbursed to shareholders
Return on Investment: The ratio of an investment gain to the amount of the investment; also known as rate of return and commonly referred to as ROI

Example:

A $100 gain on a $1,000 investment has an ROI of 10%
Revenue: Money received from customers or clients for the sale of products or services. Revenue is the "top line" of the Income Statement and is sometimes called Sales or Sales Revenue. Revenue is always listed first on an Income Statement prior to Expenses. To avoid confusion, Revenue should not be called Income, because Income is the term normally used for the "bottom line" results after all Expenses.
ROI: See Return on Investment

S

Sales Channels: See Distribution Channels
Sales Cycle: The average length of time of the overall sales process from initially contacting a customer prospect to finally making the sale
Sales Frequency: The measure of the time intervals between purchases for repeat or recurring sales
Scalability: The ability to increase the number of units produced (either products or service engagements) and experience a decrease in the average cost of each unit (economic scalability or "economies of scale") and the ability to rapidly grow your new venture with few - or at least manageable - operational constraints on growth (operational scalability)
Seasonality: The extent to which the ability to produce a product or service or the ability to sell a product or service depends on the time of year or season
Self Service: The situation when a company allows customers or potential customer to serve themselves, typically through an automated interface such as a website or an interactive voice response system, rather than be served by a live service agent
SG&A: Sales, General and Administrative Expenses, also known as Overhead (and if Sales expenses are not included, G&A); includes all fixed costs or indirect costs such as rent, debt payments, lease payments, insurance, salaries of supervisory personnel, etc.
Sole Proprietorship: A company that is owned by a single individual without formal incorporation
Statement of Retained Earnings: A financial statement of a company's retained earnings changes including any profits or losses, paid dividends or other changes to retained earnings
Stock: The equity in a company or a share of that equity in the form of a stock certificate; a company can have several types of stock; see Common Stock and Preferred Stock
Stock Options: The option granted to an employee to buy the company's stock at a pre-determined price (the strike price) and at a pre-determined time (the vesting schedule); often tied to an employee's performance or the company's performance as influenced by the employee
Subsidiary: A company that is a separate legal entity, but is owned by a Parent Company
Substitutes: The substitute products or services for the products or services that you offer
Supplier Concentration: The amount of supplier market share concentrated among the largest suppliers within an industry; an indication of the market power of the largest suppliers
Supplier Switching Costs: The costs involved in switching from one supplier to another

T

Technological Change (or Trend): The extent to which technology plays a major role in shaping the market conditions and the competitive landscape; where a new and exciting technology can cause large changes in market share shifting from one competitor to another
Technology Leverage: The ability to use technology in order to automate a business process and reduce costs, increase productivity and/or increase quality
Telemarketing: Any direct marketing by telephone to a customer prospect (also known as telesales)
Time Value of Money: Since money today is worth more than money in the future, the value of money in the future is that amount of money discounted by an interest rate, which either represents the cost of capital or a rate that represents the interest that might have been earned if that money was received today rather than in the future. This concept is usually expressed in terms of Discounted Cash Flow (DCF) or Net Present Value (NPV).
Total Investment: The total size of the investment or capital required to buy or build the company, fully develop the opportunity or fully fund the business plan
TPR: A promotional term used by retailers and retail sales analysts that means "Temporary Price Reduction"
Trademark: Legal protection given to a brand name and/or logo

U

Unmet Needs: The needs of a consumer or business that are not properly met or addressed by current products or services
Unsecured Debt: Any debt that is not guaranteed or secured by an asset, where the creditor does not have the right to any assets to satisfy the debt in the event that the debtor defaults
Up-Sell: The ability to move the customer relationship from a lower-priced/valued product or service to a higher-priced/valued product or service

V

Value Chain: The systematic approach of examining the activities that create and build value in a company; typically divided into primary activities and support activities

Primary Activities are as follows:
- Inbound Logistics: goods or services received from suppliers
- Operations: goods manufactured or assembled or services are delivered
- Outbound Logistics: distribution of finished goods
- Marketing and Sales: preparation of the offering to meet the needs of target customers
- Service: all areas of customer service

Support Activities are as follows:
- Procurement: purchase of goods, services and materials
- Technology Development: development of innovative technology
- Human Resource Management: recruiting, training, managing and compensating of employees
- Firm Infrastructure: corporate or strategic planning, finance, accounting and control
Value Proposition: The value your product or service provides to your customer; answers the question "why should I buy this product or service?"
Value Proposition Distinctiveness: The ability to deliver a product or service to your customers that provides value that is decidedly different than other products or services, not just in price, quality or service, but in performance or value created
Venture Capital: An investment made by angel investors or venture capitalists in a company (typically an early-stage start-up company) in exchange for equity ownership and with the expectation of an eventual exit and financial return
Venture Capital Fund: A professional, institutionally-backed fund funded by outside investors in a pooled investment partnership that invests that venture capital in early stage companies or start-ups that are too risky for the public equity markets or institutional loans
Venture Capitalist: An individual that makes venture capital investments. Often called a "VC" for short and sometimes jokingly referred to as a "Vulture" Capitalist because they typically demand so much ownership and control in exchange for their investment.

W

Working Capital: The amount of money that a company has tied up in funding its day to day operations through cash, accounts receivable, inventory and other current assets

Working capital usually finances the cash cycle of a business - the time required to convert raw materials into finished goods, finished goods into sales and accounts receivables into cash

Usually expressed as the difference between Current Assets and Current Liabilities

New Venture Lab: Equipping Christian Entrepreneurs

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