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Small Business Terms Glossary Search for Terms B B2B adj: (see business-to-business) B2C adj: (see business to consumer) back-office operations n : administrative operations that support the primary business of the company. Example: Customer service call-centers, transaction accounting (A/P and A/R), record-keeping, contract administration, statement generation, and general bookkeeping are all back-officeoperations. Outsourcing and offshoringof back -office operations is a current business trend that can potentially help reduce costs. Bad Debt Expense. Generally, the cost of uncollectible accounts receivable which occurs when customers to whom a business has extended credit fail to pay. It can also refer to any debt owed you which is uncollectible. balance sheet n: finance/accounting term; a financial statement that delineates a business's assets, liabilities, and shareholders' equity. This can be thought of as the statement of the net worth of a business. A business's assets minus its liabilities equal its shareholders' equity (i.e., net worth). Balloon Payment. The final installment on a loan which is greater than the prior payments and pays any remaining amount outstanding under the loan. For example, a loan calls for equal monthly payments of $500, where most of the payment is for interest. At the end of the loan a balloon payment of $100,000 is due. bank n: (see commercial bank) Banker's Acceptance. A time draft (note) drawn on and accepted by a bank. This instrument is usually used for financing import-export transactions and generally financing international trade. Payment of the note is guaranteed by the bank. bankruptcy n: legal term, popularly defined as insolvency. Technically, bankruptcy is a legal process put in place to insure fair and equal treatment of creditors of an insolvent company, and also to protect the insolvent debtor to get started again by retaining assets that are protected from liability. Chapter 11 bankruptcy is voluntary, meaning that the debtorchooses to reorganize and restructure in order to repay debts. Chapter 7,or involuntary bankruptcy, involves the shutting down and liquidation of a business in order to repay creditors. Base. Also known as a Stop. In real estate leases tenants are often responsible for operating expenses of the building over a certain dollar amount, the base or stop. The base may be expressed in dollars per square foot, total dollars, or as a base year (in which case the base is the expense in the base year). base case n: in reference to a financial model, or financial projections. The expected case of the model using the assumptions that management deems most likely to occur. The financial results for yourbase case should be better than those for your conservative case but worse than those for youraggressive, or upside case. Basis. Used in determining depreciation or gain or loss on the sale of property. In the simplest situation, your basis in property you purchase is the cost. For example, you pay $1,000 for a machine--that's your basis. How you acquire the property determines your basis. For example, if you inherited the machine, your basis would be the fair market value at the decedent's death. In a simple tradein, your basis is equal to your adjusted basis (see above) in the equipment traded in plus any cash paid. If you contributed the property to a corporation, the corporation's basis would be the basis of the property in your hands. Your basis in the stock in an S corporation is your cost plus profits taxed to you less losses passed through and distributions. There are a number of other ways of arriving at basis. Please see Adjusted Basis, above. Basis Point. A way of quoting the yield on a bond, note, or other debt instrument. One basis point is equal to 0.01%. Thus, a 50 basis point yield increase in a bond would be equal to 0.5%. Batch Processing. Entering transactions in a group rather than as they occur. Bearer Bond. While new issues are rare because of a change in the tax law, the principal and interest on the bond is payable to whoever has possession. On the other hand, the ownership of a bond in registered form is recorded with a bank, the issuer, etc. Bearer Instrument. A note, instrument, or draft, payable to someone other than a designated payee, i.e., the bearer or to cash. Beneficiary. A person entitled to the benefits of a trust, will, insurance policy, pension plan, etc. For example, if you name your daughter as the sole beneficiary of a life insurance policy, only she is entitle to the proceeds. Bid Bond. An agreement in which a third party agrees to be liable in the event the bidder fails to sign the contract as bid (if his bid is accepted). A bid deposit is similar, but the bidder must deposit cash or a certified check. Blanket Mortgage. A single mortgage that covers more than one property. Blanket Order. A purchasing arrangement where the purchaser contracts with a vendor to provide his requirements for an item or service on an as-required basis. Blanket Position Bond. A fidelity bond where each employee is covered up to the bond penalty. The maximum liability is equal to the bond penalty times the number of employees. Blind Pool. A partnership or syndication where the investments to be purchased are not specified at the time the investments are sold. Blue Sky Laws. State laws that govern the issuance and sale of securities (stocks, bonds, etc.) to residents of the state and require the registration of the securities with the state prior to sale. The rules are designed to protect investors from fraud. While a new stock issue may be exempt from federal regulation, it may not be exempt from state rules. board n: (see board of directors) board of directors n: the governing body of a corporation, responsible from a legal and fiduciary perspective for overseeing the activities and behavior of the CEO and other corporate officers on behalf of the company's shareholders. Typically comprised of several individuals ("directors"), commonly including the CEO, perhaps one other employee/founder, as well as multiple outside directors (non- employees) to represent investor shareholders and/or to provide industry knowledge and connections and/or general business experience to the company's executive team. Boardsare commonly comprised of an odd number of members in order to avoid the potential for tie votes. Often simply referred to as theboard;sometimes abbreviated as BOD or BoD. board meeting n: a formal meeting of a company's board of directors, typically scheduled periodically at a frequency ranging from quarterly to monthly. board resolution n: legal term; a formal, written decision of a company's board of directors. A company's bylaws will stipulate the types of major corporate decisions that require a board resolution, which typically calls for a formal board vote and majority approval to be enacted. BoD n: also BOD(see board of directors) bond n: finance/accounting term; a formal debt certificates that include a promise to pay interest (in cash or accrued interest) at a specified annual interest rate and a promise to repay the principalamount, or face value, at a specific maturity date. Bond Discount. The excess of the value of a bond at maturity (the par value) over the issue price of a bond or the purchase price. The difference between the value at maturity and the issue price is often called original issue discount. For example, the par value of a bond is $1,000; the bond is issued at $990. The bond has $10 of original issue discount. Another bond has a par value of $1,000; you purchase it in the open market at $900. The bond has $100 of discount. Bond Premium. The excess of the bond's price over the maturity (par) value. For example, you purchase a bond for $1050; the maturity value is $1,000. The bond has a premium of $50. Bond Sinking Fund. Amounts accumulated and segregated for the purpose of redeeming or retiring bonds. Can also apply to preferred stock. book value n: finance/accounting term; the balance of an account, such as the property, plant and equipment, or equity accounts, shown on the accounting books of a company. For example, the book value of equity equals the amount of equity contributed to a company, through purchases of common or preferred stock, plus the accumulated net income (or loss) of the company. The startup manager should note that book value of equity is not necessarily an accurate measure of the valuation of your company. Book Value of Stock. The book value of the assets of a company less the liabilities. Can be translated into book value per share by dividing by the number of shares outstanding. Boot. A tax term that means cash or unlike property received in an exchange. For example, you trade investment real estate worth $500,000 for another property worth only $300,000. In addition to the deed on the new property you receive $200,000 in cash (or notes). The $200,000 is boot. bootstrap v: launch and build a startup business without using outside funding (particularly equity financing) i.e., funding the business solely with the founders' resources, operating cash flow and/or debt from banks, suppliers or credit cards. On the one hand, founders of bootstrapped startup companies own 100 percent of their business since they have not diluted their ownership stake by selling stock to investors. On the other hand, bootstrapped startups may compromise their chances of success and/or prospects for optimal growth and expansion due to capital constraints (i.e., inadequate supply of money to start, operate and grow the business). burn rate n: the rate of net cash outflow, or the rate (monthly, quarterly, or yearly) at which a company's cash outflows exceed the company's cash inflows; in other words, the rate at which a startup business is using up, or "burning through," its cash. brand n: The distinctive identity of a company or its product. Narrowly defined, a brand is comprised of the company's (or product's) name, tag line and logo. However, many marketing experts use a broader definition of brand, connoting the narrower meaning plus the company's or product's overall image to its target customers. brand awareness n: how well your brand is known, specifically in your target market or customer set. break even point- n:The point at which sales equal total costs. Bridge Loan. See Interim Financing. Broad Form Storekeepers Policy. An insurance policy for a retail store with four or fewer employees that provides both fidelity and crime coverage. brokerage house n: Wall Street term; a firm engaged in the business of brokering (buying, selling, trading and underwriting) securities (financial instruments such as stocks and bonds). Breakpoint. See Overage Rent. Bridge Loan. See Interim Financing. Broad Form Storekeepers Policy. An insurance policy for a retail store with four or fewer employees that provides both fidelity and crime coverage. Builder's Bonds. Mortgage-backed securities issued by builders on mortgages accumulated from the sales of houses. Bullet Loan. Generally, a loan where no principal repayments are made during the loan. Only interest is paid, leaving the total amount borrowed as a balloon payment at maturity. Business Interruption Insurance. A policy that pays a stipulated amount when the business cannot operate because of some insured peril. For example, a policy will pay a certain percentage of the business's earnings lost because of a fire. business development n: business function focused on strategy, creating strategic partnerships and long-term relationships with suppliers and customers. The business development function within a business can be thought of as a jack-of-all-trades position focused on strategic deal-making with an eye toward increasing sales and expanding the company's long-term business success or scope. business model n: the method or process by which a business makes money, or the way a business extracts economic value for its products or services. A company's business model includes how it charges for its offerings and the context in which those products or services are offered for sale to end- user customers (i.e., its distribution channels). Businessowner's Program. An insurance policy designed for small offices or stores, covering the building and contents for full replacement cost as well as liability insurance. business plan n: : a document that tells the story of your company; audiences include prospective investors, bankers, key hires and strategic partners. It should be a concise, organized, visually-impactful and easily-navigable document that is consistent with all other forms of communication used by your company to sell its message to both the outside world, and to employees and current investors in the company. A typical business plan includes: a concise company description including current status of company development (when founded, stage of development or growth, etc.); an analysis of the industry and the market; a description of the target end-user customers and the nature and extent of their unmet need; your business's solution (product and/or service) to the customers' unmet need and how it's notably better/differentiated form current competitive offerings; an execution plan (how you are going to do what you do, including high-level tasks and key milestones and dates); a description of key managers and advisors; and a set of financial projections (typically 5 years). business-to-business adj: also referred to by the shorthand B2B; describes marketing and selling a company's products or services to other businesses (as opposed to individual consumers). For example, Cisco Systems is primarily a B2B company in that it sells most of its Internet routers and other networking equipment to other businesses rather than to consumers. business-to-consumer adj: also referred to by the shorthand B2C; describes marketing and selling a company's products or services to individual consumers (as opposed to other businesses). For example, Amazon.com is a B2C company; that is, they sell products, ranging from books to tools to appliances, directly to individuals. business unit n: a.k.a. strategic business unit or P&L; a stand-alone business that operates within a larger company in effect, a company within a company with its own independent management team, and financially measured or tracked as a separate entity (referred to by accountants as a separate profit and losscenter, or P&L). Buy-Down. A loan in which someone other than the borrower puts up money to reduce the interest rate or borrower's monthly payments. Frequently done by builders in poor markets. It makes the house more affordable. The buy-down usually expires within a few years. bylaws n: also referred to as corporate bylaws, a document that serves as the legal foundation describing a corporation; this document serves the same function for a corporationthat the operating agreement does for an LLC. Byproduct. Output of a production process with relatively little sales value when compared to the main product. |
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