Business terms O-Z

Occupational pension    A pension scheme for employees, to which access is provided by the employer. All employers will be obliged to offer access to an occupational pension scheme under new auto-enrolment rules.

Operating profit    Profits derived from core business activities, before deductions for tax and excluding income derived from investments.

Opportunity cost    A way of looking at the cost of something by considering the benefits you could have derived from making another choice. For example, if a restaurant fills a table with customers, each of which has a 50% discount voucher, there is a potential opportunity cost because the table is not available for other customers who may have paid the full price.

Ordinary share    Shares in a company that are not preferred shares.

Outsource    To contract with an external provider for goods or services. Contrasts with inhouse.

Overhead    Operating expenses necessary for the everyday operation of a business. For example rent.

Page view    A single user request for an individual web page – for example as a result of the user clicking on a link, or entering a web address into their browser.

Pay As You Earn    The system by which deductions including income tax and student loan repayments are made from most employees’ wages.

PAYE    See Pay As You Earn

Payroll    The record-keeping and administrative process for employees’ salaries and deductions.

Period of accounts    The period to which a set of accounts relates. These periods could occur monthly, quarterly, or annually. A typical accounting period would correspond with the tax year. Not to be confused with accounting period.

Petty cash    Small amount of cash set aside for miscellaneous expenditures.

Product liability insurance    Insurance that pays out in the event that a faulty product causes injury or damage to a person or their product.

Professional indemnity insurance    Insurance that pays out in the event that a client suffers financial loss as a result of your negligence or mistake.

Profit and loss account    A record of revenue and expenses over a given period – for example a financial year. Might include metrics like operating profit.

Profit and loss forecast    A prediction of revenue and expenses for a given period – for example the coming financial year. Profit and loss forecasts should be drawn up for a range of different potential outcomes and situations.

Profit margin    Profit expressed as a percentage of total revenue, either on an individual product or on total sales. Not to be confused with markup.

Public liability insurance    Insurance that pays out in the event that an injury or damage is suffered by a member of the public or their property as a result of a mistake made by a business.

Recession    Two consecutive quarters of negative economic growth.

Retail prices index    A measure of inflation. Unlike the consumer prices index, the retail prices index takes into account mortgage interest payments.

Return on investment    A measure of the financial success of an investment or other activity. Calculated as return divided by cost. Often used to provide a basic overview of the success of marketing activities.

Revenue    Income generated, for example through sales.

RoAS    Return on advertising spend. See Return on investment.

ROI    See Return on investment

RPI    See retail prices index

Sale or return    An arrangement whereby goods are provided to a trader, who then pays only for those that are sold. The goods remain the property of the original seller until they are paid for. Unsold goods are returned to the original seller.

Self employment    Working for yourself, rather than for an employer. Self-employed people normally pay tax through Self Assessment, rather than through PAYE.

Shareholder    One who owns shares in a limited company. A share in the company might provide the holder with a right to income, or the right to vote on the certain business activities.

Small claims court    Commonly used term to refer to the small claims track of the County Court. The small claims track normally deals with cases with a value up to £5,0000.

Small Profits Rate    A reduced rate of Corporation Tax available to businesses with profits up to £300,000.

SME    Small or medium sized enterprise. The European Commission considers a business to be an SME if it employs fewer than 250 people, and has a turnover of no more than €50 million or a balance sheet total of no more than 43 million.

Sole trader    A business owned by one individual, and with no separate legal status of its own.

Startup    A business in the early stages of development. A startup may still be investigating potential markets, and developing products or services.

Startup capital    The money required to start a business. This might include things like equipment purchases, rent, and marketing costs.

Stock    The goods you have available for sale.

Subcontracting    An arrangement whereby one business contracts with another business to complete work. Businesses will often subcontract if they lack the skills or resources to complete a project.

Telecommuting    An arrangement whereby work is completed from home or another remote location, rather than a central office. Telecommuting relies on online technologies like email and virtual private networks.

Trademark    A symbol, logo, word or similar used to indicate that a product or service is from a specific business, or to differentiate it from other products or services. Trademarks may be registered or unregistered.

Turnover    Also known as ‘revenue’. The amount of income received during a specific period – for example a financial year.

Value Added Tax    Value Added Tax. A tax that is charged when a VAT-registered business sells something (a product or a service) to a company or individual. There are three separate rates of VAT; the standard rate is currently 20%.

VAT    See Value Added Tax

Venture capital    Money invested in a business by venture capitalists (known as VCs). Venture capitalists tend to be less risk-averse than banks, but normally prefer businesses with high growth potential.

Warranty    A guarantee that the vendor or manufacturer of a product will repair or replace it in the event of a fault. Terms of warranties may vary.

Working capital    A business’s theoretical position were it to raise all of its current assets, and pay off all of its current liabilities. Negative working capital suggests that a business may have difficulty meeting its short-term obligations.