Glossary of Terms

WORDS & DEFINITIONS

[A]

Accountant
A person who is skilled at keeping business financial records. The term “accountant” usually refers to a highly trained professional rather than to a person who keeps books of account.

Account
A record of a business transaction. When you buy something on credit, the company you are dealing with sets up an “account”. This means it sets up a record of what you buy and what you pay. You will do the same thing with any customers to whom you extend credit.

Account Payee Only
Words which are often written on crossed cheques and which direct the bank to pay the cheque only to the bank account of the payee.
Compare Not Negotiable

Accounts Payable
This is the money you owe to suppliers and other business creditors as a result of purchases of stock and other expenses such as overheads and taxes.

Accounts Receivable
A record of what is owed to you. All of the Credit “accounts” – the record of what each customer owes you – taken together are your “Accounts Receivable”.

Active Investment
An investment where the owner of the investment participates in the actual investment activity. For example if you work in your business you would classify that as an active investment.
Compare Passive Investment.

Add Back
An add-back is an amount that is added back to the profit figure in the accounts, to truly reflect the adjusted net profit of the business. There are standard add-backs, like interest and tax but also you can add back personal items, one-off items, adjustments to owners wage or abnormal expense items.

Adjusted Net Profit
This is the figure arrived at after all adjustments have been made for add-backs.

Analysis
Breaking an idea or a problem down into its parts or a thorough examination of the parts of anything. In business you must “analyse” (that is, make an “analysis” of) a problem before you can decide on the best solution.

Acquisitions
In relation to the GST, acquisitions include the things you buy (goods, services and anything else) for your business. They also include many other transactions, such as obtaining advice or information, taking out a lease of business premises or hiring business equipment.

Actuary
A mathematician whose work is mainly concerned with insurance and finance.

Ad Valorem
According to value. Applied to Customs Duty, it means a percentage charge on the value, rather than the weight or quantity, of goods.

Affidavit
A declaration in writing on oath, made before a person legally qualified for the purpose.

Amortise
The gradual process of writing off the cost of an asset, or paying off a liability by means of a sinking fund, over a period of time.

Appraisal
A business appraisal is an assessment of the business that is less detailed than a formal valuation. An appraisal will usually contain an assessment of price, however it will lack supporting evidence and material that you would normally find in a more formal business valuation

Articles of Association
The basic document of a Registered Company defining its internal organisation. It is one of two fundamental documents on which the registration of a company is based.
See Memorandum of Association.

Asset
Anything of worth that is owned. The assets of a business are money in the bank, accounts receivable, securities held in the name of the business, property or buildings, equipment, fixtures, merchandise for sale or being made, supplies and all things of value that the business owns.

Assignor
Someone who assigns something. Used in conjunction with leases, or other rights. If a tenant sells a business that tenant will usually be the assignor of that lease to the assignee.

Assignee
Someone to whom something is assigned. Used in conjunction with leases, or other rights

Audit
The detailed checking of the financial records of a business by an independent qualified person (auditor) in order to verify their correctness or to detect errors or fraud.

Australian Business Number (ABN)
An identifier for dealings with the Australian Taxation Office and for future dealings with other government departments & agencies.

Authorised Capital
The total amount of capital which a company, by its Memorandum of Association, is authorised to offer for subscription. See Paid up Capital.

Award
An agreement having the force of law, which sets out working conditions and wages for certain types of employment.

[B]

Bad Debts
Money owed to you that you can’t collect.

Balance
The amount of money remaining in an account. The total of your money in the bank after accounting for all transactions (deposits and withdrawals) is the “balance”.

Balance Sheet
An important business document that shows what a business owns and owes as at the date shown. Essentially a “balance sheet” is a list of business assets and their cost on one side and a list of liabilities and owners’ equity (investment in the business) on the other side with the amount for each.

Bank Draft
A written instruction to a bank’s agent to pay a sum of money to the person/entity specified on the draft. A safe and convenient way of remitting money overseas.

Bank Reconciliation
A comparison between the bank’s record of transactions and the record of the firm’s Cash Book. After taking into account such items as unpresented cheques and bank charges, etc., the two records should show an identical balance.

Bankrupt
A debtor, who has volunteered or been forced to appear before a Bankruptcy Court and has been judged insolvent, because he/she has insufficient assets to meet the demands of all creditors.

Benchmarking
The process whereby one measures one’s own performance against statistical norms or averages. It is any process where individual performance can be related to a larger sample, to see if there is any room for improvement or potential not being exploited.

Bill of Sale
A document under seal, which formally transfers ownership of property specified in the document from the borrower to the lender, until such time as the debt has been paid in full.

Bona Fide
In good faith, honestly, without fraud, collusion or participation in wrongdoing.

Bond
Payment by a tenant to a landlord before the tenant takes over the premises and from which the landlord may be able to deduct arrears of rent or the cost of rectifying damage.

Bookkeeping
The process of recording business transactions in the accounting records.

Break-even Point
The point at which the volume of sales is enough to cover all costs.

Bridging Loan
A loan to provide short-term finance, usually to buy property or land, where the loan is to be cleared by longer-term borrowing or the sale of assets.

Budget
A plan for the future, expressed in money terms.

Business Broker
A qualified professional who carries on the business of selling businesses. In all states of Australia, a business broker needs to have a licence to be able to carry on this profession.

Business Activity Statement
A single form used to report business tax entitlements and obligations, including the amount of GST payable and your input tax credits.

Business Name
The name of a business officially listed in a State or Territory Register of Business Names.

Business Valuation
A business valuation is usually a written document setting out an opinion as to business value. A valuation can be required under many circumstances, from simply wanting to know what price should be put on a business being sold, to a formal valuation required for court or other formal purposes.

[C]

Capital
The total of owned and borrowed funds in a business.

Capital Gain
A financial gain made from selling fixed assets (such as land or buildings), or from selling a business, at a profit over the historic value.

Capital Requirements
A list of expenses that must be met to establish a business. Even before a business is started, the owner should start keeping records.

Cash
Includes all money in the bank, in the cash drawer and in petty cash. Cash is banknotes, coins, bills and negotiable securities (like cheques) and is also the money you can draw on demand – your bank accounts or savings accounts also represent “cash”.

Cash Book
A record of cash payments and receipts, shown under various categories.

Cash Discount
A deduction that is given for prompt payment of a bill.

Cash-flow
The flow of internal funds generated within the business as a result of receipts from debtors, payments to creditors, drawings and cash sales.

Cash Receipts
The money received by a business from customers

Caveat Emptor
“Let the buyer beware”. The condition of sale is that the purchase is at the buyer’s risk.

Collateral
Security provided by a borrower to cover the possibility that the loan will not be repaid.

Company
A business owned by a group of people called shareholders and which has its own legal identity separate from its owners.

Consumer Price Index (CPI)
A measure of the aggregate rise or fall in prices of commonly used goods and services, published by the Commonwealth Government as a basis, among other things, for deciding what overall increases should be made to wages and salaries.

Contingent Liability
A liability which will only arise upon the happening of a certain event, e.g. the guarantor of a loan being asked to honour the guarantee if the borrower defaults.

Contract
A legally binding agreement between two or more parties.

Controllable Expenses
Those expenses which can be controlled or restrained by the business person.

Copyright
A type of property right which protects the expression of ideas such as literary or dramatic works, television productions, drawings, etc., from being used for commercial gain without permission of the copyright owner. Registration is not a prerequisite for protection.

Co-Signatories
People who share responsibility on behalf of a business by jointly signing documents or cheques.

Cost of Goods Sold
The total cost to the business of the goods sold during an accounting period. In its simplest form this is the sum of the opening stock plus all purchases less the closing stock.

Cover Note
A temporary certificate of insurance issued by an insurance company to give immediate insurance cover until a formal document is prepared and issued.

Credit
An entry made on the right hand side of an account and indicating a gain to a liability, owner’s equity or revenue account.

Credit Application
A form to be completed by an applicant for a credit account, giving sufficient details to allow the seller to establish the applicant’s creditworthiness.

Credit Control
Any policy designed to either increase or decrease credit.

Credit Limit
The upper limit of credit that a business will allow a customer to have.

Creditor
A person or business to whom money is owed.

Crossed Cheque
A cheque across which two parallel lines have been drawn. The effect of crossing a cheque is to direct your bank to pay the cheque only through another bank account.

Current Assets
Includes cash, short-term deposits, customers’ accounts, and stock (including work in progress, raw materials and finished goods) which will be converted into cash, within a year, during the normal course of business.

Current Liabilities
Short-term debts such as bank overdraft, creditors and provisions set aside to pay taxation and other commitments (for example, holiday or long service leave) and expected to become due within one year of the Balance Sheet.

Current Ratio
The ratio formed by dividing current assets by the current liabilities. It is a pointer to a company’s liquidity.

[D]

Debenture
A fixed interest investment in a company, which has priority for interest payments, generally redeemable after the lapse of a specified time

Debit
To debit is to place an entry on the left-hand side of an account. A debit in a liability account makes it smaller. A debit in an asset account makes it larger.

Debt
That which is owed. If you borrow money, buy something on credit or receive more money on an account than is owed, you have a “debt”.

Debt Capital
Money from external sources used to finance a business.
See Equity Capital.

Debtor
A person or business who owes money

Default
Fail to meet an obligation (eg. paying a debt ) at the due time.

Demand
An order to comply with an obligation. In business, paying “on demand” means that the obligation must be satisfied immediately when requested.

Deposit
An amount of money that is usually paid in advance of a further payment. In respect of business sales, it is the amount of money that may accompany an offer to purchase. The deposit can be refundable or non-refundable however it is usually refundable prior to exchange of contract. It depends on the agreement between the parties. Almost invariably, once a contract is exchanged, the deposit is non-refundable.

Depreciation Expense
Gradual reduction of the value of a fixed asset and the gradual application of this cost to the expenses of a business over the useful life of the asset.

Depreciation Schedule
A table showing depreciable assets, the year each item was purchased, its cost, the percentage by which it is depreciated each year and the written down current value.

Direct Costs
The costs incurred, in addition to fixed costs, as a result of manufacturing a product or providing a service. Direct costs comprise direct material, direct labour and direct manufacturing or servicing costs.

Director’s Guarantee
The personal guarantee given by a director of a company that he/she will be personally responsible for a debt or other liability of the company. Usually requested in credit applications, leases, loans and hire purchase agreements.

Disbursements
Funds paid out of a business in settlement of obligations.

Discount
A deduction made from a debt, e.g. the amount deducted for prompt payment of an account.

Discounted Cash Flow (DCF)
A method of valuing a business where you project future cash flows (cash in- cash out) for a period in the future, usually five years but it can be longer. The value of those cash flows in today’s dollars, Net Present Value (NPV)  is then calculated by a set formula. This method takes into account future growth and also risk. In a stable environment, this method shoe produce the same result as the Future Maintainable Earnings (FME) method.

Dishonoured
The word used to describe a cheque which the bank will not pay because the customer’s (drawer’s) account lacks sufficient funds.

Dividend
A distribution of the profits of a company among its members or shareholders.

Drawer
The person who writes a cheque in payment for goods or services.

Drawings
Withdrawals of assets (usually cash) from a business by a sole proprietor or a partner.

[E]

EBIT.
Earnings Before Interest and Tax
In valuing smaller businesses, this is usually the figure chosen to represent income. This figure is multiplied by a number (multiplier) to arrive at a valuation or selling price by what we call the Future Maintainable Earnings Method Using EBIT as representing the income of the business. The before-tax earnings are used because of the variety of tax situations of businesses and hence we are comparing like with like. We ignore the owner’s interest payments since the buyer will make his/her own financing arrangements.

EBITDA
Earnings Before Interest Tax Depreciation and Amortisation
Similar to EBIT, however to arrive at this figure, you also add back depreciation and amortisation, since they are non-cash items.

Entity
An individual (sole trader), partnership, a body corporate, a corporation, an incorporated association or body of persons, a trust or a superannuation fund.

Entrepreneur
A person who organises and manages a business, but usually only applied to people who have shown exceptional ability and imagination in launching and succeeding with new business ventures.

Equities
Stocks and shares invested in a business and not bearing fixed interest.

Equity Capital
Money provided by the business owner/s to finance the business.
Compare Debt Capital

Excess
In an insurance policy, excess clauses specify that under certain conditions the policyholder will be responsible for a portion of the amount claimed.

Expenses
Costs incurred by a business in earning income, e.g. rent, advertising, wages etc.

[F]

Factoring
This is the cash purchase of a business’ sales invoices at a discount, after which the factoring company collects the invoiced amounts from the business’ customers. Factoring is often used where a business needs immediate cash.

Feasibility Study
An examination of a particular project or business to assess its chances of operating successfully, before committing large amounts of money to it.

Fidelity Guarantee Insurance
Insurance against losses resulting from the dishonesty of employee/s.

Finance
Money resources

Financing
Obtaining money resources. Businesses usually need to obtain finance at some time, either to go into business or to expand operations.

Financial Statements
Formal reports prepared from accounting records describing the financial position and performance of the business.

Financial Year
An accounting period of 12 months, often coinciding, for convenience, with the fiscal year (1 July to 30 June).

Fixed Costs
Costs which are incurred by a business whether it is operating to generate income or not and which do not necessarily increase or decrease as a total volume of production, increases or decreases. Rent, for example, must be paid whether or not any business is accomplished.

Fixed Assets
The land, buildings, vehicles, materials and equipment which are owned by a business and used to earn revenue rather than being for sale.

Franchise
A business arrangement in which knowledge, expertise and often a trade mark or trade name are licensed to an operator, generally for an initial fee and a yearly payment.

Franchisee
The purchaser of a franchise licence who operates one or more outlets of the franchise business.

Franchisor
The owner of a franchise system

Fusion Insurance
Covers loss caused by damage to an electric motor by an electric current, and is particularly important for refrigerated stocks.

[G]

Gearing
The ratio between the business’s debt and equity finance.

Goodwill
The excess price asked for the sale of a business over the value of its physical assets; an intangible asset, the price of which represents a payment for the existing client base and future profits.

GST-free
Some supplies are GST-free, which means you do not charge GST for them but you are entitled to claim input tax credits for anything acquired or imported to use in your business.

Gross
The total overall amount.

Gross margin
Gross profit expressed as a percentage of revenue

Gross Profit
The trading profit of a business without any deductions for business expenses. The excess of net sales over the cost of goods sold, often expressed as a percentage.

[H]

Heads of Agreement
This is a document that is produced, usually by an intermediary, where the terms of initial agreement between the parties are recorded. The document assists the parties to come to this preliminary agreement and is a good foundation for the later contract of sale which will be drawn up by the legal representative for the seller

Hire Purchase
A system for financing the purchase of plant and equipment, where the ownership is vested with the lender until the final payment is made. The borrower is required to place a deposit and make periodic (usually monthly) repayments at a flat rate of interest.

[I]

Income
Money coming in

Income Statement
A financial document showing how much money (Sales) came in and how much money (Costs) was paid out. Subtracting the costs from the sales gives the Profit, and all three are shown on the income statement.

Indemnity Insurance
Risk protection for actions for which a business is liable. Insurance that a business carries to cover the possibility of loss from lawsuits in the event the business or its agents are found at fault when an action occurred.

Induction Training
Training for new employees regarding conditions of service, physical layout of the workplace, safety rules, local conventions and customs and supervisory procedures.

Industry Ratio
The standard or “average” percentage of expenses spent by firms in a similar type of business (i.e. businesses in the same industry).

Input Taxed
Some supplies are input taxed, which means you do not charge GST for them but neither are you entitled to input tax credits for anything acquired or imported to make the supply.

Input Tax Credits
You are entitled to an input tax credit for the GST included in the price you pay for an acquisition or the GST paid for an importation if it is for use in your enterprise.

Intangible Assets
Those assets of a business which cannot be assigned a firm, fixed value, such as leases, franchises, goodwill and patent rights.

Interest
The cost of borrowing money.

Inter-firm Comparison
A comparison of the financial and productive performance of a business with the industry averages.

Inventory
The value of all the stock of physical items that a business uses in its production process or has for sale in the ordinary course of doing business.

Investment
Money used to purchase for the business any capital items which are expected to yield an income.

Invoice
The document which shows the customer the charges for goods delivered or work done.

Invoice Financing
See Factoring

[L]

Landlord’
See Lessor

Lay-by
An arrangement where the customer in a retail store makes a deposit on an article and pays the amount owing in instalments, while the retailer stores the article until the last payment has been made.

Lease
A legal contract covering the possession and use of property, plant or equipment between the owner (lessor) and another person (lessee) at a given rent, for a stated length of time.

Leasing Finance
A method of acquiring business equipment without capital outlay. The bank or finance company buys the equipment and leases it to the customer in return for regular rental payments for the duration of the lease period.

Lessee
A person who enters into a lease contract as the user of the land, buildings, plant or equipment.

Lessor
An owner who permits his/her land, buildings, plant or equipment to be used under a lease contract.

Limited Partnership
A legal partnership where some owners are allowed to assume responsibility only up to the amount invested.

Liquidate
To settle a debt or to convert to cash. The word “liquidate” literally means “to do away with”.

Liquidator
A qualified person appointed by a court to close down a business that is a proprietary company and to realise and distribute its assets in payment of its liabilities.

Liquidity Ratio
A comparison of two accounts in a Balance Sheet, being the current assets divided by current liabilities.

Loan
Money lent at interest. A lender makes a “loan” with the idea that it will be paid back as agreed and that interest will be paid by the borrower for the use of the money.

Loss of Profits Insurance
Insurance to cover loss of profits incurred by the policyholder in the event of some calamity overtaking the policyholder’s business, such that trading has to cease.

[M]

Management
The art of conducting and supervising a business.

Management Accounts
These are financial accounts of the business produced by the owner or from the owner’s records and are not the final accounts of the business. If we are looking at a business and we want to look at accounts that are for a period after the official taxation year, then we will ask for the management accounts. They can be full year accounts or part year accounts.

Margin
The difference between the selling price and the purchase price of an item, usually expressed as a percentage of the selling price. Compare Mark-up.

Market Value
The price that would be negotiated for a business by voluntary bargaining between a willing seller and a willing purchaser, both of whom are fully conversant with the asset and its potentialities, but neither of whom is so anxious to trade as to overlook any ordinary business consideration.

Marketing
Finding out what customers want, then setting out to meet their needs, provided this can be done at a profit. Marketing includes market research, deciding on products and prices, advertising, promoting, distributing and selling.

Marketing Plan
Details of specific tasks worked out by and for a business concerning how market research, product choice and pricing, advertising, promotion and distribution will be done.

Marketing Strategy
A business’ approach to marketing its products/ services, expressed in broad terms and forming the basis for developing a marketing plan.

Market Segmentation
The division of a market into segments. Each segment consists of a group of consumers with similar requirements, which can be distinguished from the requirements of other consumers in the market. There will be slight but distinct differences between the goods and services needed to meet the requirements of each segment.

Mark-up
The price increase between buying at wholesale and selling at retail, often expressed as a percentage of the wholesale or cost price. Compare Margin.

Memorandum of Association
A legal document laying down the objects of a registered company and details of the regulation of the company’s business dealings. It is one of the two fundamental documents upon which registration of any company is based. See Articles of Association.

Merchandise
Goods that may be sold or traded.

Merchandising
Trading in a range of goods. Promoting the whole range of goods sold in a business.

Mortgage
The transfer of the right of ownership of a property from a debtor to a creditor as security for a debt, with the proviso that once the debt is paid ownership is transferred back.

Mortgagee
The organisation or person to whom the property is mortgaged. In the case of a bank loan, the organisation is usually the bank.

Mortgagor
The person who mortgages a property. This is the person who usually borrows money against the security of the property.

Multiplier
The multiplier is the number used by a valuer to multiply a profit figure to arrive at a valuation or selling price e.g. If the profit is $100,000 and the multiplier is three, the selling price would be $300,000. The multiplier is the inverse of the return on investment. In this example, the return on investment is 33.3%. If the multiplier was four, then the ROI would be 25%.

[N]

Negative Gearing
When an investment is purchased with the assistance of borrowed funds and where the income from that investment (after the deduction of expenses) is less than the interest commitment in the course of a year.

Net (Nett)
What is left after deducting all charges
Compare Gross Profit

Net(Nett) Profit
The remainder after all expenses of an accounting period are deducted from all revenue of the same period.

Net Worth
The owner/s interest in a business, calculated by subtracting all liabilities from the assets of the business.

Niche
A small specialised segment of a total market, which is viable for a small business.

Normalisation
This is the process of adjusting the financial accounts of the business to reflect the adjusted net profit.
See add-backs

Not Negotiable
Words often written on crossed cheques but which do not prevent the cheque from being transferred. See Account Payee Only

[O]

Official Receiver
A person appointed to investigate and manage the affairs of a company in receivership

Operating Expense
All the expenses normally incurred in running a business, during an accounting period, but excluding the cost of goods sold.

Option
An agreement, often for a consideration, which permits the purchase or sale of something within a stipulated time in accordance with the terms of the agreement. For example, a right by a tenant to take up a further lease of premises, usually under conditions outlined in the original lease.

Overdraft
A form of loan by which a person with a trading bank current account is given permission to continue making drawings on the account up to an agreed limit, after the balance has been reduced to nil.

Overheads
Expenses which are incurred in producing a commodity or rendering a service, but which cannot conveniently be attributed to individual units of production or service. Examples are heating, lighting, Council rates, etc.

Owner’s Return
This is another way of expressing profit in a business. With many small businesses, the profit of the business is the owner’s wage, so instead of trying to deduct a wage (which can be arbitrary at this level) and try and come up with a residual profit, we calculate what the owners profit is, including wage.

[P]

Paid-up Capital
The total capital of a company. It comprises both shares issued for cash or for acquisition of assets, and bonus shares.

Partnership
A legal business relationship of two or more people who share responsibilities, resources, profits, and liabilities.

Passive Investment
An investment where the owner of the investment takes no active role in the activity of the investment . For instance an investment in the share market or an investment property is a passive investment.
Compare Active Investment.

Patent
The granting by a government of monopoly rights to the owner of an invention to manufacture and sell it for a certain number of years, conditional on the owner being willing to immediately reveal the ideas incorporated in the invention, so that they can be published for the advancement of knowledge of the general public.

Payable
Ready/due to be paid.

Pay As You Go (PAYG) Instalments
The amounts paid directly to the Commissioner of Taxation to meet income tax and other liabilities. Usually paid each quarter.

Payee
The person to whom money is paid.

PEBIT
Proprietor’s Earnings Before Interest and Tax
This  is similar to EBIT, except that the owner’s wage is added to the profit.

PEBITDA
Proprietor’s Earnings Before Interest Tax and Depreciation
This  is similar to EBITDA, except that the owner’s wage is added to the profit.

Personal Assets
The money you have in the bank, whatever is owed to you, any securities (shares) that you own, the property you own, whatever part of your home that you own, your furniture and appliances and all the miscellaneous things that you personally own. generally try to protect the personal assets by putting a business and its assets in a company name. Someone to whom you may owe an obligation may want access to those personal assets should the company be unable to meet its financial obligations. This party may seek a personal guarantee where your personal assets guarantee any liability under a company contract.

Personnel
Persons collectively in the employ of a business.

Petty Cash
A small amount of money kept for minor purchases for the business which do not warrant the writing of a cheque.

Posting
Making entries in an account system or book from original documents such as invoices and receipts.

Power of Attorney
The power to act on behalf of another person for specified purposes. To grant the power to deal with real property, the power of attorney usually needs to be registered.

Premium
The amount paid for an insurance policy.

Price to Earnings (P/E) Ratio
The ratio created by comparing Price (Valuation) to Earnings (Profit). It is a term more often used with larger companies and is used in Stock Exchange quotations. The earnings here are usually after tax, distinguishing between these and EBIT earnings Refer EBIT

Principal
In the case of a loan this refers to the actual amount borrowed and on which interest is paid.

Profit
The total revenue less total expenses for a period of time calculated in accordance with generally-accepted accounting principles.

Profit and Loss Statement
The statement of revenue and expenses showing the profit or loss for a certain period of time.

Profit Margin
The amount that the price of a product or service is raised above its cost in order to provide a gross profit.            Refer Margin

Pro Forma Invoice
A document giving all the details of a proposed transaction, but not committing either the sender or recipient until the recipient pays the sender the amount shown. Commonly used by wholesalers for the first transaction with new customers.

Projection
A forecast of future trends in the operation of a business.

Promotion
A means of increasing the public’s or industry’s awareness of a business and its services or goods.

Proprietorship
The value of the proprietor’s assets in a business less any external liabilities.

Proprietary Company
A business which is owned by not fewer than 2 persons and not more than 50 persons and which restricts the right of the shareholders to transfer shares. Such a business is a separate legal entity and must use the words “Proprietary Limited” (Pty Ltd or Pty Limited) after its name.

Pro Rata
In proportion.

[R]

Rate of Stock Turnover (Stock Turn)
The ratio of cost of goods sold over average stock (at cost). This indicates how many times, on average, the entire inventory (stock) was sold and replaced during the year.

Ratio
The relationship of one thing to another

Receipt
Documentary evidence provided by a person or business that goods/money have been received by them.

Receivership
The legal condition into which a company is placed when an official receiver is appointed to investigate and manage its affairs.

Requisition
A question or questions asked by a buyer or buyer’s solicitor about the vendor’s capacity or title in relation to a business or property being sold.

Residual
The pre-agreed estimated value which will attach at the end of a leasing period to an item subject to a leasing agreement.

Retail
To sell directly to the consumer, usually in small quantities in comparison with the total level of sales.

Return On Investment (ROI)
The ratio of net profit after income tax, over owner’s equity. Usually expressed as a percentage. the return on an investment is the inverse of the multiplier. If you hear that a business is worth two times its adjusted net profit, then the return on investment is 50%. The multiplier is three then the ROI is 33%.

Right of Assignment
In relation to business premises, a right given in the lease agreement for a tenant to assign the lease to another tenant when the business operating from those premises is sold.

[S]

Sales
The total value of goods sold or the revenue from services rendered.

S.A.V.
This is how stock is valued for the purpose of the transfer of a business.
Refer Stock At Valuation.

Search Engine Marketing
This is marketing using one of the search engines that sells advertising. This includes Google, Bing, Yahoo and Youtube etc.

Search Engine Optimisation
This is the process whereby one improves the structure of a website so that the website ranks highly in the search engines. There is a whole science to search engine optimisation, complicated by the fact that the major search engines will keep changing the way websites are ranked. Having said that, you will rank well if your website answers questions that people are asking via the search engines.

Secured

Protected or guaranteed, as in the case of a loan where the lender holds the title of some asset until the borrower has repaid the loan in full.

Service Business
A retail business that deals in activities for the benefit of others.

Sole Trader
A person who trades by himself/herself without the use of a company structure or partners and bears sole and full responsibility for the actions of the business.

Solvent
The condition of a business when all debts can be paid as they come due.

Stock
Physical items that a business uses in its production process or has for sale in the ordinary course of doing business.

Stock At Valuation (S.A.V.)
This is how stock is valued, at Wholesale or Cost Price, for the purpose of the transfer of a business.

Stock Control
The method of determining how much stock should be held and how much needs to be re-ordered and when, with the aim of controlling stock holding costs while maintaining efficient operation of the business.

Stock Turnover
The ratio of cost of goods sold over average stock (at cost). This indicates how many times, on average, the entire inventory (stock) was sold and replaced during the year.

Super Profits
These are profits in excess of those required to produce an economic rate of remuneration for all labour and capital employed in the business. Super profit is the amount of profit available after providing economic (market) rates of remuneration for all capital and labour employed in the conduct and management of the business. An accountant would perhaps describe the word “Goodwill” by saying that it represents the capitalised value of actual or prospective Super Earnings.

Supplies
In relation to the GST, supplies include the goods and services sold through an enterprise as well as many other transactions such as providing advice or information, leasing out commercial premises or providing hire equipment.

Supply
For GST purposes, Supply is defined as: “A supply is any form of supply & includes:
o            supply of goods and services provision of advice or information
o            a grant, assignment or surrender of real property
o            a creation, grant transfer, assignment or surrender of any right
o            a financial supply , and
o            entry into or release from an obligation to do anything, to refrain from an act or to tolerate an act or situation.”

[T]

Tangible Asset
Something substantial or real that is capable of being given an actual or approximate value.

Tax Invoice
In relation to the GST, this is the most important source document for business. A buyer must hold a tax invoice in order to claim back the GST paid. A tax invoice must be issued by a supplier, on delivery or within 28 days, when the GST inclusive value or market price is more than $55.00. However a business must have documentary evidence to support all input tax credit claims of any value. To be valid, a tax invoice needs certain information and must show:
the words “Tax Invoice”
the supplier’s name and ABN
the issue date
the name and address of the recipient (optional when less than $1,000)
the quantity and description of items supplied (optional when less than $1,000)
the dollar amount excluding GST
the GST amount
the total amount including GST, and
the words “including GST”.

Tender
An offer in writing to carry out work which has been specified by another person. The offer quotes a fixed price which will be charged for doing the work.

Term Loan
A loan for a fixed period of more than one year and repayable by regular instalments.

Trade Credit
An arrangement to buy goods or services on account, i.e. without making immediate cash payment.

Trade Discount
An allowance made by a seller to a buyer at the time of purchase for the deduction of a percentage of the price, provided the payment is made within agreed terms.

Trademark
Used to distinguish goods as the product of a particular manufacturer. One needs to register a trademark and in the process have the trademark approved by the regulatory authority responsible for this.

Trial Balance
A list of all balances in the ledger at a given time.

[U]

Under-Capitalisation
Insufficient investment of funds in a business.

Unsecured Loan
A loan made without any guarantee that the lender will be repaid.

[V]

Valuation
The process of appraising the worth of property in accordance with recognised criteria.

Variable Costs
The costs additional to the fixed costs of running a business.

Vendor
The seller of goods, property, a business or a property.

Venture Capital
Capital invested in a business where the chances of success are uncertain.

Volume
An amount or quantity of business

[W]

Walk In Walk Out (WIWO)
An expression normally used in its abbreviated form, in relation to a business for sale. It indicates that the business is for sale as a going concern and may be purchased without interruption to trading.

Working Capital
The amount of money one needs to operate a business. It is the capital of a business which is used in its day-to-day trading operations, often calculated as current assets minus current liabilities.

Wholesale
Selling in large quantities to businesses which will then resell to consumers in smaller quantities.

Workers’ Compensation
Money paid to an employee to compensate for injuries received in connection with their work. All employers must insure against claims for this kind of compensation.

Working Capital
The excess of current assets over current liabilities of any business at any time.

Share This