Business terms A-D

Business terms A-D

    The time that expires between an invoice being raised and that invoice being settled. For example, your payment terms might be ‘net plus 30’ – meaning that you pay invoices 30 days after they are raised.

Allowable expense    An expense that HMRC will allow you to offset against tax. This might include payroll costs, stock costs, and so on. Most typically used with reference to Self Assessment.

Angel investor    An individual investor. Angel investors will typically invest money in a startup in exchange for equity, although the terms of angel investment deals can vary wildly.

Apprentice    An individual carrying out on-the-job training. Apprentices are employees, and normally work for a fixed period of time – for example until they have finished their training. Employers often choose to take them on permanently once their training is complete.

Asset    Broadly, property owned by your business. Normally something from which you expect to derive profit.

Automatic enrolment
    An employer’s obligation to give every qualifying employee automatic access to an occupational pension scheme. Employers must also make contributions on their employees’ behalf. Small businesses can use the National Employment Savings Trust, rather than setting up their own occupational pension scheme. Automatic enrolment will be phased in from 1 October 2012.

Balance sheet    A snapshot of your financial position on a given date. This document shows your assets, liabilities, and equity, and gives a picture of the financial health of the business. Limited companies are required to provide Companies House with balance sheets annually, but businesses may also use them as, for example, analysis tools or to support a loan application.

Bankruptcy    The legal process of being declared insolvent. Refers only to individuals. Insolvent businesses, meanwhile, might enter into administration or liquidation.

Base rate    The rate against which banks set their own interest rates. The base rate (or bank rate) is set by the Bank of England’s Monetary Policy Committee.

BCP    See Business Continuity Planning

Bookkeeping    Day-to-day financial record keeping. Most businesses now use software to do their bookkeeping, although some still do it on paper.

Break even point    The moment at which costs and revenue are equal, and you begin to make a profit. Startups often do not break even for several years.

Bridging loan    A short-term loan, usually used to ‘bridge’ a period before finance becomes available – for example before you arrange a longer-term credit facility. Particularly common in property deals.

Business Continuity Planning    The development of processes and procedures to allow ‘continuity’ of business in the event of a disaster – that is, to make sure that your business can continue operating.

Business plan    A document setting out your goals, and the means by which you will reach them. The business plan is often the most important document a firm has, and can serve a number of purposes including getting finance from a lender.

Business rates    Tax paid on commercial property. The amount you pay will depend on the size, nature, and location of the property. A range of business rate reliefs is available for small businesses or those in Enterprise Zones.

Capital expenditure
    An expenditure relating to the improvement or acquisition of assets like plant, machinery, or property. Distinct from overheads.

Capital gain    An increase in value of an asset between the time that you acquired it and the time that you dispose of it. Capital Gains Tax may be due in these cases.

Capital Gains Tax
    A tax levied on the sale or disposal of an asset, when that asset has increased in value since you acquired it.

Cash flow    A measure of the money coming in and out of your business over a specific time period. Cash flow is one of the most important indicators of the health of a business.

Click-through rate    In pay per click marketing: the number of clicks an ad generated, as a proportion of the number of total impressions.

Closing    The act of actually making a sale. Often considered to be the final part of the sales process.

Consumer confidence
    An indicator of consumers’ views of the economy. Indices of consumer confidence consider respondents’ views on their current financial situation, and their feelings about the future.

Consumer Prices Index
    A measure of inflation that looks at the price of a ‘basket’ of consumer goods. Unlike the Retail Price Index, CPI does not take mortgage interest payments into account.

Consumer Rights Directive    A controversial European rule that will harmonise a number of different existing pieces of consumer rights legislation.

Contractor    An individual or business that ‘contracts with’ another business to provide goods or services. Contractors are distinct from employees. See also IR35.

Copyright    Legal rights granted to the creator of a piece of work to exploit that work. In the UK copyright is granted automatically at the point of creation.

Corporation Tax    Tax paid on the profits of limited companies and some other organisations. Corporation Tax is currently levied at 20 per cent.

CPI    See Consumer Prices Index.

CTR    See Click through rate.

Deflation    An inflation level below 0 per cent.

Depreciation    The reduction in value of a specific asset over a its useful life. Used in accounting to allocate cost over a specific period. For example, if you buy an asset for £1,000 and expect it to last five years, providing it depreciates at a steady rate you might allocate costs of £200 per year.

Direct mail    A form of marketing involving the sending of printed material to potential or existing customers.

Distance Selling Regulations    Rules governing the sale of goods to customers who are not physically present. The Regulations cover things like delivery times and complaints procedures.

Dividend    Payment made to shareholders in a company. Some business owners choose to take some or all of their payment in dividends for tax reasons.


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