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| Small Business Terms Glossary Search for Terms F FASB n: (see Financial Accounting Standards Board) FEIN n: Federal Employer Identification Number (see Employer Identification Number) Fair Market Value. The price at which an item can be sold by a willing seller to a willing buyer, neither of which are under any pressure to buy or sell. Furthermore, it's assumed that both parties are dealing rationally, have knowledge of relevant facts, and are not related. Fidelity Bond. A bond which pays an employer up to an amount stated in the bond for losses caused by dishonesty or infidelity on the part of an employee. factoring- v: The buying and selling of invoices or accounts receivables. fiduciary adj: legal term; relating to trust and legal accountability for certain financial matters of another individual or entity. n: an individual or entity to whom another has assigned fiduciary responsibility. fiduciary duty n: legal term; assigned responsibility to act on behalf of an owner or owners in their best financial interest. When an individual represents a party or a group in a position of trust or confidence, it is that person's duty to act primarily for the benefit of the party or group he/she represents. A fiduciary dutycompels one to make decisions that are in the best financial interest of to the party represented. In entrepreneurship and venture finance, directors sitting on a company's board of directors legally carry a fiduciary dutyor fiduciary responsibility to always act in the best financial interests of the company and its shareholders. fiduciary responsibility n : (see: fiduciary duty) Financial Accounting Standards Board n: Usually referred to by its acronym FASB; the accounting industry organization that determines and promulgates operating standards for the accounting profession in the U.S. FASB determines and publishes GAAP (generally accepted accounting principles). financial investor n: an investor (individual or firm) who makes investment decisions primarily based on the prospect for financial gain; financial investors tend to uses financial skills and methods to increase returns and manage risks. (By contrast, strategic investors typically companies make investment decisions based on the prospect of strategic benefit for their organization, such as future access to a key new technology or product.)Example: Venture capitalistsare classic examples of financial investors; their partnership agreements with their limited partnerinvestors stipulate that they will strive to invest their fund(s) in such a way as to try to maximize financial return for their investors. financial projections n: detailed financial statements, typically developed by a company's management, that represent the expected future financial results of a company; an important component of a company's business plan; a distilled version of financial projections should also appear in a company's executive summary and investor presentation . Different from pro forma financial statements, which represent expected future financial results after a specific, significant event, such as a fundraising round, or a merger or acquisition. fiscal year- n: Any 12-month period used by a company or government as an accounting period. financial risk n: a.k.a. financingrisk; one of the four categories of venture risk; the likelihood that a new venture or young business will fail to raise sufficient capital financing (all rounds) to fund the startup to a self-financing, self-sustaining, cash flow-positive operating state. financial statements n: finance/accounting term; a set of financial accounting tables that together describe the financial performance of a company or business unit for the most recently completed period (typically a year or quarter); often also summarize financial results from prior periods for comparison purposes; financial statements are typically comprised of an income statement (a.k.a. a profit and loss statement, or P&L), a cash flow statement, and a balance sheet. (see also pro forma financial statements) financing risk n: (see financial risk) financing round n: a discrete fund-raising event for a company, usually occurring over the course of several weeks to no more than a few months, during which the company raises financing with a specificseries of stock or security, at a set price or valuation. Each time a company raises money, it completes afinancing round. A company will set a goal to raise a set amount of capitalin each round at a certain valuation or price per share. Once that amount of money is raised, the round is closed. In the case ofpreferred stock, each financing round is referred to as a series (e.g., Series A, or Series B). fixed cost- n: A production cost which does not vary significantly with the volume of output. An example would be administrative costs. (Also see VARIABLE COST). Flow-Through Entity. An entity where the income, losses, and certain other items of income and deduction are passed through to the owners. For example, partnerships, trusts, and S corporations. Forward Supply Contract. A contract for future supply of definite quantities of goods or services over a fixed period. franchise n: A franchise is a form of licensing. The franchiser provides his services through a series of franchisees. Before investing in any franchise, check with the International Franchise Association at 1 800 543 1038 to see if the franchise is a member in good standing. Free and Clear. In real estate the term is used to indicate that the investment analysis has ignored any debt on the property. (Debt can distort the analysis by increasing the return if the interest rate is lower than the rate of return on property and vice versa if the interest rate is higher.) free on board (FOB) Commercial term in which the seller's obligations are fulfilled when the goods reach a point specified in the contract. friends and family financing n: a form of startup funding in which the entrepreneur asks friends and family members for investments in an early-stage business. This is frequently the first financing round for young companies often when a company is just being launched and is still far from producing a product and generating revenue and typically precedes financing by angels, venture capitalists and/or banks. (Referred to by some cynics as the friends, family and fools round, implying that very-early-stage companies will often raise money from anyone willing to give them money, sometimes including individuals lacking in financial acumen or venture-investing experience or perspective.) founder n: an individual who, either by her or himself or in concert with others, starts a new company from scratch; if there are multiple founders of a given business, they can be referred to as either founders or cofounders. founders' equity n: ownership shares in a company issued to the original organizers, or founders; founders' equity in a corporation is typically in the form of common stock. If the company is legally organized as an LLC, the founders hold member interest rather than stock. FUD factor n: acronym for fear, uncertainty and doubt. The FUD factor is a commonly-used sales tactic by which one vendor raises concerns in the mind of a prospective customer regarding certain qualities or capabilities of the vendor's competitors. Full Absorption Costing. Method of computing costs that starts with Direct Costs (materials, direct labor, variable overhead) but adds non-variable overhead. Full Costs. All costs including Direct Costs and general and administrative expenses as well as selling expenses. fund n: a pool of committed capital dedicated to investment in a specific asset class; for example, aventure capital fund is a professionally-managed fund dedicated to investing in high-potential private companies. v: to provide capitalor moneyto financially enable a business entity. fund vintage n: the year a fund was formed (typically refers to the year it was closed)Example: A venture capital fund that was closed in July, 2000 is a "2000-vintage fund. " G GAAP n: (see generally accepted accounting principles) GP n: (see general partner) Garage Liability Insurance. A policy for businesses that work with autos. The policies provide coverage for operations in progress and completed operations as well as the premises. General Crime Exclusions. Refers to perils in an insurance policy that are excluded because they are usually covered under another type of policy. general counsel n: the attorney or lawyer of record for a company, who is ultimately responsible for the legal affairs of the business; usually attends the regular meetings of the company's board of directors; in startups, often also holds the title of secretary of the corporation general partner n:abbreviated as GP, the managing partner of a partnership, such as an LLP, or the managing entity of an LLC. In contrast, limited partners have ownership stakes in a partnership due to having contribut ed capital, but are not involved in the management of the partnership. In the case of anLLP, the general partners have limited legal liability. (Not to be confused with the job title of general partner used in some investment firms and other partnerships and LLCs.) Example: A typical venture capital fund has the legal form of a limited liability partnership(LLP) in which investors in the fund are limited partners, and the venture capital firm that raised the fund has the legal role or designation of general partner(i.e., the VC firm is legally responsible for managing the fund's investments). General Property Form. A standard form for insuring commercial buildings and their contents. generally accepted accounting principles noradj: accounting term; usually referred to by its acronym GAAP; the guidelines, rules, procedures and detailed practices in accounting that govern the practice of accounting in the U.S. The Financial Accounting tandards Board (FASB), a self-regulating group organized by the accounting industry, determines, publishes and administers/enforces GAAP standards. go public v: to take a privately-held company through an initial public offering (IPO), thereby enabling its stock shares to be traded (bought and sold) by the general public for the first time. governance n: (see corporate governance) grace period- n: Time allowed a debtor in which legal action will not be undertaken by the creditor when payment is late. Graduated Payment Mortgage. A loan where the initial payments are lower than the amount needed to amortize the loan. Debt service grows each year till it reaches a set amount. Used to increase the affordability of a home or real estate investment. grant n: a type of funding typically provided by government agencies or non-profit foundations. If your company wins a grant, this is "free money" i.e., the grant does not purchase an ownership stake in your company, and your company does not have to pay it back. v: to give. In the corporate world, used frequently in reference to stock options for employees; employees are granted stock options. Gross Lease. As opposed to a net lease, a gross lease is one where the tenant is responsible for either none of the increase in operating expenses of the building, or only the amount above a stop. If a base or stop is involved, the lease is sometimes known as a modified gross lease. gross margin n: finance/accounting term; a ratio, usually expressed as a percentage, equal to the selling price minus the cost of goods sold(COGS) i.e., the gross profit divided by the selling price.Gross margin is essentially the same as gross profit, but expressed as a percentage of selling price or revenue rather than in absolute dollars. Example: Some industries, such as software, are inherently high-gross margin businesses, since the cost to produce each incremental unit (the cost of the CD or the electronic download from the company's website) is near-zero compared to its selling price. If a software company charges $280.00 per unit for its product and incurs a production cost (disc and packaging), or cost of goods sold, of $7.00, then its gross margin is calculated as ($280 - $7) / $280 = 97.5%. The gross profit in this example is $273 per unit. In a shoe store, the gross margin on a pair of $100 shoes is determined by subtracting the cost to the store of acquiring the product (as opposed to its original cost of production by the manufacturer). Therefore, if a given pair of shoes is acquired by the store for $50 and sold for $100 (referred to in the retail industry as 100% mark -up), then the gross margin is calculated as ($100 - $50) / $100 = 50%. gross profit n: finance/accounting term; equal to the selling price minus the cost of goods sold (COGS); the same as gross margin, but expressed in absolute dollars as opposed to as a percentage of revenue. (see examples under gross margin) guarantee n: Pledge by a third party to repay a loan in the event that the borrower cannot. A special case is a PERSONAL guarantee in which you personally guarantee an obligation. guaranteed/insured loans n: programs in which the federal government makes an arrangement to indemnify a lender against part or all of any defaults by those responsible for repayment of loans. An example is a small business loan guaranteed by the SBA. H Hard Costs. The direct costs of acquiring a business (such as the purchase price), constructing a building (brick and mortar), etc., as opposed to legal, accounting, consulting, financing, costs, which are called soft costs. Hedged Position. A hedged position occurs if you own a second asset that should move in the opposite way the first asset would react to changes in the market. For example, you own a stock and a put and/or a call on the stock. Holdback. The portion of a loan not paid out to the borrower until a certain requirement is completed. For example, a lender may release 10% of the total amount of a loan on completion of the foundation, an additional 15% when rough plumbing is in, etc. Hold Harmless. An agreement where one party agrees to release another party from any legal liability that may occur as the result of a specific event. harvest v: (see Harvest stage) Harvest stage n: The fifth and last stage of the Venture Value Chain. In the Harvest stage, the executives and/or board of directors of the business seek to provide the business's owners with a return on their investment by either seeking a liquidity event (i.e., and initial public offering or sale of the business) or otherwise producing cash returns by managing the business in such a way as to maximize profits and dividends. |
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