Definitions & Acronyms
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Fiduciary Relationship A relationship of trust and responsibility existing between two people or entities. The principal may legally trust and depend upon his or her agent to be honest and faithful.
FIFO The first-in-first out method of inventory valuation, which assumes that the goods that enter inventory first are the first to be sold.
Fixed Assets Sometimes referred to as PROPERTY, PLANT AND EQUIPMENT. It represents those assets that are used over and over again in order to manufacture the product, service it, display it, warehouse it, and transport it. This category will include land, buildings,
Fixed cost or expense A cost or expense that remains constant regardless of the level of sales.
Fixed inventory A system where the inventory level remains constant.
Franchise An agreement under which the franchisor (owner of the rights) licenses the franchisee (the business owner) the right to sell a given product/service or to use certain trademarks or trade names, usually within a designated area.
Franchise fees Cash paid to a franchisor for the use of a franchise.
Fraud, Deceit and Misrepresentation Intentional or negligent misrepresentation or concealment of a material fact, with justifiable reliance thereon by another party, who is thereby damaged.
Fringe Benefits Are deducted as business expenses that are not necessary in order to conduct the business.
General partner A partnership investor who manages the business and assumes responsibility for the partnerships debts and other obligations.
Goodwill The favorable reputation enjoyed by a person or company based upon past services, name or trademark. It has a marketable value in the sale of a business.
Gross Profit Sales minus cost of sales.
Gross Sales Total amount of income a business has for a certain period of time.
Hard Assets (Also referred to as "Tangible Assets") Those assets which are (Also referred to as “Tangible Assets” Those assets that are material or physical .i.e. inventory, equipment, leasehold improvements, transferable licenses, tools, vehicles.
Holographic Entirely written, dated and signed by an individual(s) in his/her own handwriting.
Income Statement See "Profit and Loss Statement".
Indemnify To secure against loss or damage; hold harmless; to make reimbursement to one for a loss already suffered.
Independent contractor Someone who provides services to your business on a non-employee basis.
Instrument A written legal document, created to affect the rights of the parties.
Intangible Asset That which has no physical existence but represents value, such as goodwill, business trade name, or reputation.
Interest expense The cost of borrowing money.
Interest Rate The percentage of a sum of money charged/paid for its use.
Inure To take effect; to result; to come to the benefit of a person or to fix his interest therein.
Inventory The items or articles a company sells to earn a profit or the raw materials that a company uses in manufacturing a product for sale. Items that a business owns and intends to sell to customers.
Irrevocable Incapable of being recalled or canceled; unchangeable.
Joint Tenancy Same as tenancy in common, but if one party dies, his or her title passes to the surviving party or parties by operation of law; each must have an equal share.
Joint Venture Two or more persons. Same as partnership except that it exists to undertake a single project.
Labor Costs paid to employees directly involved with bringing goods or services to the customer.
Lease A written legal document in which possession of a property is given by the owner to second party for a specified time and for a specified rent, and setting forth the conditions upon which the tenant may use and occupy the property.
Lease Percentage A lease of property in which the rental for its use is measured by, or is dependent upon, the amount of business transacted by the lessee. The usual method is payment to the lessor of an agreed upon percentage of the gross receipts of the lessee.
Lease With Option To Purchase A lease in which the lessee has the right to purchase the real property for a stipulated price at or within a stipulated time.
Leasehold A property held under tenure of lease; a property consisting of the right of use and occupancy by virtue of a lease agreement; the lessee's (tenant's) interest in a lease.
Leasehold Improvements Any article or fixture that is attached to land or buildings.
Legal Description The legal identification of real property.
Lessee A tenant: one who has a right to occupy the premises by virtue of a lease.
Lessor A landlord; one who grants a right to the Lessee to occupy the premises by virtue of a lease.
Lien A claim on the property of another resulting from some charge or debt.
LIFO The last-in-first-out method of inventory valuation which assumes that the goods that enter inventory last are the first to be sold.
Limited Partnership A partnership composed of some partners whose contributions and liabilities are limited. A limited partnership requires at least one general partner and one limited partner. The general partner(s) are responsible for the management and liability for its
Line-of-credit loan A current liability that extends the cash available in the businesses checking account by the upper limit for the loan agreement.
Long-Term Liabilities Debts or portions of debt due after one year from the date of the financial report. A formal loan where the term of the loan is greater than one year.
Market Value The highest price which a Buyer, willing but not compelled to buy, would pay and the lowest price which a Seller, willing but not compelled to sell, would accept.
Marketing plan A written explanation of how you plan on reaching customers, making sales, and reaching your financial goals.
Minimum cash balance The minimum amount of cash the business needs to keep on-hand at all times.
Misrepresentation A statement contrary to fact; when made with intent to deceive, it is fraud.
Mission statement A series of brief sentences or paragraphs that describe the purpose of your business, its products or services, customers, markets, and philosophy.
Mortgage A written instrument recognized by law by which real property is pledged to secure a debt or obligation; a lien on real property.
Names Ordinarily, unless done to escape punishment or to defraud others, a person has the right to adopt any name he or she chooses. The adopted name is said to become the real name by reputation. Names can also be changed by court proceedings. When the busi
Negligence Failure to act like a reasonably prudent person to protect the interest or safety of others.
Negotiable Capable of being negotiated; assignable or transferable in the ordinary course of business.
Net income The amount the business makes when sales exceeds all expenses.
Net Lease A lease in which the landlord (lessor) pays all normal charges to the property such as taxes, insurance, etc.
Net Listing A price which must be expressly agreed upon, below which the owner will not sell the property and at which price the agent will not receive a commission; the agent receives the excess over and above the net listing as his commission. This type of commissi
Net loss The amount the business loses when all expenses exceed sales.
Net sales Sales after discounts and returns.
Net worth The owners equity in the business
Net-Net-Net-Lease Also known as a “Triple Net Lease”; a lease in which the tenant (lessee) pays his prorate share of normal property expenses such as taxes, insurance, etc. Thereby assuring the landlord (lessor) of a fixed income.
Note A signed, written instrument which acknowledges a debt and promises to pay on specified terms.
Notes payable Formal loans due in less than one year.
On Demand Immediately due; a note payable on demand matures as soon as it is made and delivered. The debtor acknowledges that the creditor may demand full payment at any time.
Open Listing A listing which is non-exclusive; may be given to any number of agencies without obligation to compensate any of them except the one who first secures a Buyer ready, willing and able to meet the terms of the listing or who secures acceptance by the Seller
Operating expenses Selling, general, and administrative expenses that are necessary to run the business. Examples include salaries, insurance, advertising, and rent. Any expenses other than cost of sales.
Operating income The amount of profit earned during the normal course of operation.
Operating plan A written explanation of how you plan on running your business. An operating plan should include a description of your business facility, required operating equipment, supplier and vendor relationships, and needed personnel.
Option A written agreement granting to a party the exclusive right, during a stated period of time to buy or obtain control of property or assets on specified terms, but without any obligation of such party actually to exercise such option.
Organizational chart A diagram of the relationships and responsibilities of individuals or functional departments within your business.
Par In the case of a common share, par means a dollar amount Value assigned to the share by the company's charter. Par value may also be used to compute the dollar amount of the common share on the balance sheet. Par value has little significance so far as
Partnership A business relationship between two or more persons who join together to contribute to the capital and/or operations of an enterprise, and share the profits and losses. (Also, see Limited Partnership).
Patent A right to a process or a product granted to its inventor or his assignee for his exclusive use.
Payroll taxes The cost of employing someone. Payroll taxes include FICA, federal and state unemployment taxes, workers compensation, and state short-term disability programs.
Personal Property Any property which is not real property -- that which is not permanently affixed to the land.
Personnel plan A written description of your business’s staffing requirements. It should include a breakdown of your needs by position and the number required.
Points In the language of the loan business, a point is one percent of the amount of the loan.
Power Of Attorney An instrument authorizing a person to act as the agent of the person granting it. A general power of attorney authorized the agent to act generally on behalf of his principal; a special power of attorney limits the agent to a specific or particular act.
Preferred Stock Shares that have some preference over other shares with respect to dividends, and in distribution of assets in case of liquidation. Specific provisions can be obtained from a corporations charter
Preferred stock Ownership in a corporation resulting from investment. Preferred stock carries certain preferences over common stock, such as a prior claim of dividends. Often, preferred stock as no or limited voting rights.
Prepaid Expenses Those expenses such as insurance premiums and advertising charges for a future financial period. For example, those insurance premiums and advertising services are as yet unused at the balance sheet date, so there exists an unexpended item, which will be
Prepayment Clause A clause in a mortgage or loan agreement permitting partial or full payment prior to the due date. Many of these clauses contain a provision that a penalty must be paid by the debtor if partial or full payments are made prior to the said due date.
Principal The employer of an agent. Also a sum of money owed excluding any accrued interest.
Product lifecycle A phenomenon where a product experiences rapid growth until it matures and growth slows. Eventually, sales will decline and the product will disappear from the marketplace entirely.
Profit And Loss Statement Or Income Statement A statement summarizing the income and expenses of a company to show net profit or loss for the period involved.
Profit, Gross Total sales minus the cost of goods sold.
Promissory Note Written promise to pay a sum of money at a definite future time.
Promotional plan A written description of the activities you plan on using to promote your products or services. Promotional activities can include advertising, personal selling, public relations, and sale promotion.
Property, plant, and equipment Assets that are used in the business, which exist physically, and are not for sale to customers.
Proprietor The owner of an unincorporated business.
Proration of Taxes To divide or prorate the taxes on the property between Seller and Buyer equally or proportionately to the date of closing.
Real Property Land and everything growing or erected on it, including things permanently attached to it.
Release The relinquishment of some right or benefit by a person or entity who already has some interest or right therein.
Replacement Cost The cost of replacing assets or a property in a like condition.
Retained Earnings Also known as “Accumulated Retained Earnings”. This is sometimes called earned surplus. Net income which has accumulated over the life of the company. When a company first starts in business, it has no retained earnings.
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