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| Small Business Terms Glossary Search for Terms M M&A nor adj: (see mergers and acquisitions) mainstream market n: the vast majority of customers for a technology product, comprised of what Geoffrey A. Moore in Crossing the Chasm refers to as pragmatists, or the early majorityand late majority. Pragmatist customers in a product's mainstream market prefer proven, established, well-supported products and expect technology products to solve problems or make their jobs easier; unlike Moore'sinnovators and early adopters, customers in the mainstream market do not find the latest technology appealing for its own sake, and prefer proven standards. management buy-out n: (see leveraged recapitalization) management risk n: one of the four categories of venture risk; the likelihood that a new venture will fail to meet its business and financial targets due to inadequate and/or inappropriate management, or due to poor teamwork. Manufacturer's Output Policy. An insurance policy that covers the loss of property owned by a manufacturer but located off the premises. Manufacturing Costs. All costs necessary to manufacture the product. margin n: profit, typically expressed as a percentage of gross sales or revenue; the difference between what something costs, and what it is sold for. (see also: gross margin, operating margin, andnet margin) marginal cost- n: Additional cost associated with producing one more unit of output. margin structure n: a representation of the value chain for a given product or service showing what percentage of each dollar of end-user, point -of-purchase revenue accrues to each step in the value chain (e.g., invention, design/engineering, manufacturing, marketing/branding, distribution/inventory/sales). The percentage remaining after accounting for each step in the value chain equals the operating margin, or pre-tax profit expressed as a percent of the selling price of the product or service. market v: to promote to prospective customers with the intent of interesting them in purchasing a product or service n: an active set of end-user customers who purchase, or have the potential to purchase, a certain type of product or service based on common interests or needs Examples: the market for cell phones, the market for electronic medical record software, or the market for DVDs of syndicated television reruns Market-Value Clause. A clause in an insurance policy that allows for the settlement of a claim based on the market value rather than the actual cash value. market maker n: financial/Wall Street term; a brokerage house or investment bank that specializes in buying or selling a specific security of a specific issuer for the purpose of creating a liquid market for buyers and sellers of that security, and to make money in the process by charging a spread (margin) between the purchase price and the sales price of that security. Investment banks and brokerage firms typically make a market in many securities issued by multiple different companies. market research n: the process of systematically investigating the market for a given product or service, gathering and analyzing data regarding the number and location of customers; customers' interests, preferences, and buying habits; and pricing and price sensitivity of demand. Such data is gathered and analyzed for the purpose of gaining insight about a certain market in order to help a company formulate its marketing strategy. Many firms specialize in performing and selling market research to corporate clients (e.g., Information Resources, Inc., AC Nielsen, International Data Corp. and Gartner Group). market rate n: a generic term referring to the ambient price, rate and/or terms available in the market for investments, goods or services; "what the market will bear" at a given point in time. market risk n: one of the four categories of venture risk; the risk that the target market, or envisioned market, for a firm's new products or services turns out to be substantially less attractive than originally expected; the likelihood that a company has overestimated the number of potential customers for its product, the price they are willing to pay, and/or the rate at which they are ready to adopt the new product or approach. Market risk can be caused by several factors, including: the company overestimating the number of customers, customers not finding a new product appealing, customers not being ready to adopt a new approach that your product requires, unanticipated competition, or an unanticipated replacement technology or product. The most common basis for market risk is a company simply overestimating demand, and therefore building sales forecasts around unrealistic expectations of customer interest in their product or service. market segment n: a portion of a business's total potential market for its product or service, comprised of customers with similar interests, needs and buying patterns with respect to the product. (see also market segmentation)Example: Logical market segmentsfor the manufacturers of woodworking tools (such as drills, table saws and lathes) might include amateur do-it-yourselfers, serious woodworking hobbyists, professional carpenters, finish carpenters, and professional cabinet-makers. Different manufacturers and retailers of woodworking tools tend to focus on different market segments while some offer inexpensive tools appealing to amateurs, others tend to focus on high-end, less price-sensitive users with more expensive, feature-rich products. market segmentation n: the process of subdividing a market into distinct groups of customers with similar needs, such that a subset of the market (a segment) can be selected as a target market and can be reached with a distinct marketing mix. One way to check the legitimacy of a market segment is to ask whether the customers in that segment are homogeneousand self-referencing (i.e., do they "talk to each other," read the same publications, attend the same conferences, belong to the same professional associations, shop in the same places, etc.?); self-referencing groups of customers should be relatively easily and cost-effectively reached by a single marketing mix. Markets may be segmented: a) geographically (Where do they live?); b) demographically (i.e., according to age, race, gender, education, religion, etc.); c) psychographically (i.e., according to their interests, attitudes, opinions, and needs); and/or d) behavioristically (i.e., according to usage patterns, history, responsiveness or loyalty). (see also market segment) marketing n: the business function of identifying a target market or set of customers for a given product or service and systematically making those customers aware of the promoting growing, maintaining or defending a market for a product or service. For you and your company, marketing is the actions you perform to grow, maintain or defend your product or products successful position in the marketplace. marketing collateral n: promotional literature and printed or electronic information designed to inform customers about a product or service; can include brochures, data sheets, flyers, point -of-sale displays, promotional CDs or DVDs, websites, and promotional gifts. marketing communications n: the subset of the marketing field, sometimes referred to as promotion or marketing promotion, that entails formulating and communicating messages regarding a product or service to the target audience. Depending on the business, marketing communications can entail the development and distribution of marketing collateral, public relations, advertising, and/or direct marketing. The purpose of marketing communications is to build image and awareness (brand recognition) regarding a product or service among target customers, and to generate qualified sales leads. marketing promotion n: (see marketing communications) Material Participation. Regular, substantial, and continuous involvement in a business on the part of either the taxpayer and/or spouse. Allows losses from trades or businesses to be deducted without limitation under the passive loss rules. Applies to S corporations and partnerships. Maturity Date. The date on which a loan, mortgage, bond, etc. is due and any outstanding principal must be paid. mature market n: stage of market development in which products have reached mainstream customers; annual industry revenue growth slows, eventually hitting a zero-growth plateau; consolidation and shakeout is underway, reducing the industry to a few strong competitors; strong price competition and margin compression become common; annual revenue for the industry flattens. maturity date n: in the case of debt, the date when the total principal amount of the debt outstanding must be repaid. MBO n: acronym for management buy-out(see management buy-outor leveraged recapitalization) Mechanic's Lien. A claim in favor of mechanics, contractors, laborers or material suppliers against a building or other structure. The lien can only be filed by persons who worked on the building or supplied materials. member n: legal term; a partial or full owner of a business legally formed as an LLC (limited liability company) member interest n: legal/finance term; ownership interest in an LLC(limited liability company), serving a similar function to stock in a corporation merchant account n : a bank account that allows your business to process credit card purchases. mergers and acquisitions n: commonly referred to by its acronym, M&A; the field or activity concerned with companies buying (merging with or acquiring) other companies; also refers to the M&A-related advisory services provided to corporations by investment banking firms adj: describing or referring to a merger or acquisition activity, function or deal memorandum of understanding n: legal term; often referred to by its acronym, MOU; another name for a letter of intent,or LOI; a brief, temporary, pre-contract document between two or more entities that outlines the parties' intention regarding a future contractual or business arrangement. minority business- n: The Small Business Administration defines minorities as those who are "socially and economically disadvantaged." The U.S. Code of Federal Regulations (CFR) contains the specific requirements. minute book n: a.k.a. minutes book;a binder, typically maintained by a company'ssecretary or the corporation and/or its general counsel (lead attorney) that contains all relevant corporate governance documents and records of all meetings, transactions and actions of the company's board of directors. A company's minute booktypically includes all: articles of incorporation or formation documents, corporate bylaws, board meeting minutes, board resolutions, shareholder notifications and announcements of shareholder meetings, and a shareholder schedule. mission n: a company's brief statement of what it intends to accomplish, for whom and to what end. A company's mission statementshould communicate, in a powerful, brief form, its raison d'etre (reason for being) to its employees, partners, customers, suppliers and other partners. mission statement n: a brief (typically 15-75 words) statement that concisely conveys a company's mission or raison d'etre(essential reason for being) to its key stakeholders, including employees, shareholders, customers, suppliers, and partners. A good mission statement should communicate what you do, how you do it (your business model), for whom (who's the customer?), and based on what underlying principles of behavior (e.g., integrity, quality, customer satisfaction). MLM (Multi Level Marketing) - n: multilevel marketing (MLM) plans, are a way of selling goods or services through distributors. These plans promise that if you sign up as a distributor, you will receive commissions -- for both your sales of the plan's goods or services and those of other people you recruit to join the distributors. Be careful of plans that offer to pay commissions for recruiting new distributors. This is called "pyramiding" and is illegeal in most states. Modified Adjusted Gross Income. Your AGI (adjusted gross income) computed without considering any passive activity loss, IRA or SEP plans, taxable social security or the deduction for one-half of the self-employment tax. Mortgagee. A lender who loans money to a mortgagor. The loan is usually secured by real estate or other property. MOU n: (see memorandum of understanding or letter of intent) multiple n: finance/valuation term; a general term to describe any metric that is expressed as a multiple of another metric.Example: The price-to-earnings, or PE multiple, is commonly used as a measure of the relative value of a given public company's stock compared to that of other companies. The company's market value of equity per share (share price) is stated in terms of a multiple of reported net income per share (earnings). Multiple Line Insurance. An insurance policy that combines both liability and property damage coverage and insures against a range of perils. multi-tier distribution n: a form of distribution, common in certain industries such as retail, in which vendors (i.e., producers of the original products) sell to an intermediary distributor, who may carry multiple vendors' products, and who in turn sell products to the retailers or sales entities that actually sell to end- user customers. (see example (b) under distributor) N Naked Position. An investor is said to hold a naked position if he holds only a stock, bond, put, call, etc. If he holds both the underlying asset and a put, call, etc. he is said to have a hedged position. Named Nonowner. A policy designed to protect nonowners who drive an uninsured vehicle. Name Schedule Bond. A fidelity bond that covers only the persons listed. nascent market n: a very new, formative market; the market development stage in which vendors sell their products or services to innovator and early adopter customers. In typical nascent markets, rapid innovation occurs, many new competitors (including startups) enter, and competition tends to revolve around innovation and product features rather than around brand, service or price. Negative Amortization. A situation where the outstanding principal on a loan increases because debt service payments are insufficient to cover even all the interest, and the unpaid interest is added to the principal amount. Net Capitalized Cost. In leasing, it's the price of the vehicle after deducting manufacturer's discounts, dealer participation allowances, and cap cost reduction (down payment) from the manufacturer's suggested retail price. net income/loss n: finance/accounting term, sometimes referred to as after-tax income, or simply as earnings; the income or loss remaining after deducting all expenses from revenues, including interest, taxes, depreciation and amortization. net income/loss margin n: financial/accounting term, often referred to as net margin; the income (profit) or loss remaining after deducting all expenses from revenues, expressed as a percentage of revenues. Margin calculations allow for comparisons between different-sized businesses. Net Lease Property. Property where the tenant or lessee pays most, if not all, of the expenses. The tenant may pay the expenses directly, or reimburse the landlord. If the tenant is responsible for all the expenses, the lease is often called triple net or NNN. For tax purposes, a net lease is where the deductions allowed solely by reason of IRC Sec. 162 (general business expenses) are less than 15% of gross rents from that property or property where the lessor is either guaranteed a specific return or is protected in whole or part against loss of income. Deductions allowed solely by reason of Sec. 162 are deductions other than interest, taxes and depreciation. net margin n: (see net income/loss margin) NDA n: (see non-disclosure agreement) NSO n: (see non-qualified stock option) non-disclosure agreement n: also referred to by its acronym NDA, or as confidential disclosure agreement, confidentiality agreement, or secrecy agreement; a contractual agreement between two or more parties in which the parties commit to keep certain specified information confidential, or not to disclose it to others. NDAs are frequently signed by two organizations at the beginning of business discussions in which the parties anticipate divulging business, technology or product planning secrets to each other. An NDAcan be a "one-way NDA" (in which the first party agrees to maintain the confidentiality of the second party's secrets), or "two-way NDA" (in which both parties mutually agree not to disclose the other's secrets). NDAs are typically very brief (1-3 pages) and are often form agreements reflecting very standard legal terms and language. Nonpassive Activity. A trade or business in which the taxpayer materially participates, that is, on a regular continuous, and substantial basis. Losses can be deducted without limitation as to the passive loss rules. Income cannot be offset by passive losses, except those passive losses remaining after disposition of a passive activity. Nonprobate Property. Property owned by a decedent or in which the decedent had an interest on the daste of his or her death which passes to an heir by provisions other than a will or the laws of intestacy. That can include assets held jointly or by a trust, life insurance not payable to the estate, etc. non-qualified stock option n: often referred to by its abbreviation (NSO); a type of stock option that is less advantageous for the employer from a tax standpoint than an incentive stock option (ISO), but is less restrictive and generally easier for employers to set up. Unlike ISOs, which can only be granted to a company's employees, NSOs can be granted to non-employees (e.g., outside directors on a company'sboard of directors, or contractors) Nonprobate Property. Property owned by a decedent or in which the decedent had an interest on the daste of his or her death which passes to an heir by provisions other than a will or the laws of intestacy. That can include assets held jointly or by a trust, life insurance not payable to the estate, etc. Nonrecourse Loan. A loan where the debtor does not assume personal responsibility for the loan. CAUTION. Such a loan has special tax implications. Notice as Soon as Practicable. A clause in an agreement that requires one party to give notice to the other party as soon as practical, relative to all the circumstances. Notice of Claim or Suit. A provision in an insurance policy that requires the insured to forward to the insurer immediately all notices received by the insured. O Office Burglary and Robbery Policy. An insurance policy for businesses that have no stock or merchandise for sale; the policy only covers the contents of the office. Office Personal Property Form. An insurance policy that covers all risks related to occupancy of an office for physical damage. offshore adj: from an American perspective, describing a business entity or activi ty that is based or carried out outside the United Statesv: to outsource a business activity or function (e.g., back-office operations, IT development, call center, manufacturing, etc.) outside the United States Open-End Contract. A contract in which the quantity and/or duration is not specified. Open-End Lease. A lease in which the lesse assumes the risk for depreciation at the end of the lease. That is, if the equipment is worth less at the end of the lease than the residual value set at the beginning of the lease, the lessee must pay the difference. Open-End Mortgage. A mortgage where the amount that can be borrowed with the property as security can be increased, i.e., there is no fixed amount of principal. operating agreement n: the legal foundation document describing an LLC(limited liability company); this document serves the same function for an LLC as corporate bylaws serve for a corporation. operating expenses n: finance/accounting term; expenses related to the operations of the business (e.g., salaries, rent, office equipment, depreciation, selling and administrative expenses, etc.). operating income n: finance/accounting term; also referred to as operating profit; profits from operations calculated by subtracting the cost of goods (or services) sold (COGS), as well as the costs to run the business (salaries, rent, etc.) known as operating expenses, from revenue. Operating income measures the health of the core business before taking into account the effects of financing charges, such as interest, and taxes. operating margin n: finance/accounting term; operating income as a percentage of revenues. Operating margin measures the health of an organization's business operations by showing operating profitability on a percentage basis, which allows for apples-to-apples comparisons with larger and smaller businesses. Opportunity Cost. The cost of not doing something. For example, if your business has excess cash and uses it to purchase an item of equipment, the opportunity cost is the interest you would have earned had that money been earning interest in say, a money market account. Option Premium. The amount paid for an option. Option. The right to buy (or sell) or lease a property at a certain price for a limited period of time. For example, you pay $2,000 for a option to purchase 20 acres of land for $200,000. The option expires in one year. Depending on the terms, you may or may not be able to sell the option. OSDBU (Office of Small and Disadvantaged Business Utilization) - These offices offer small business information on procurement opportunities, guidance on procurement procedures, and identification of both prime and subcontracting opportunities with the United States Government. Out-of-the Money. In options, it means the current exercise of the option would produce a loss. Thus, a call option is out-of-the-money if the current price of the asset is less than the exercise price; a put option is out-of-the-money if the current price of the asset is more than the exercise price. outside director n: a member of a company's board of directors who is not an employee or officer of the company. Outside directors are usually either major investors (or representing a large investor group) and/or individuals with extensive industry experience who can offer useful advice and valuable professional contacts. outsource v: to contract with an outside service provider to handle a certain business function for a company; typically considered with non-core functionsExample:Functions frequently outsourced by companies include IT acquisition and administration/support, manufacturing, packing/shipping/order fulfillment, and various human resources functions such as payroll processing and benefits administration. Overage Rent. Additional rent usually based on a tenant's sales. Such an agreement usually contains one or more breakpoints. For example, you rent space in a mall. The lease calls for you to pay 3% of all sales above $500,000. In 1998 your sales are $700,000. You owe the landlord $6,000 (3% of $200,000). overhead- n: Business expenses not directly related to a particular good or service produced. An example would be utilities. Overhead Costs. Costs related to manufacturing that are not Direct Costs (i.e., materials, direct labor and variable overhead). Overhead costs include fixed, variable, and semivariable costs. Owner's Equity. The amount of an owner's interest in an entity that is at-risk should the company become bankrupt. In the case of a corporation, it consists of capital stock, additional paid-in capital, and retained earnings. Capital stock may be par value or no par value. If par value, the total capital stock is equal to the number of shares outstanding times the par value. Additional paid-in capital is additional amounts paid for the stock over an above the par value. Retained earnings come from the net profits of the corporation. Profits increase retained earnings, losses and distributions decrease them. Example--Madison Inc. issues 200 shares of its common stock to Fred Flood for $60 per share, for a total of $12,000. Madison's common stock has a par value of $0.50. On the balance sheet the transaction would be recorded as capital stock of $100 (200 shares times $0.50 par value), and additional paid-in capital of $11,900 (the difference between the amount received for the stock and the par value). Assume further than Susan Newly buys 200 shares the following week for $70 per share ($14,000 total). The capital stock amount is the same ($100), but now the paid-in capital amount is increased by $13,900. |
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