Essential Business Concepts and Terminology
Adding Value
A process through which a business increases the worth of the resources included in production so that customers perceive the product to be worth more than the cost of the inputs.
Advisor
An external contact of a business that provides support and advice, sometimes for free.
Aims
Long-term goals a business can work towards.
Bank Loan
A fixed amount loan from a bank which is generally used to finance long-term assets.
Bank Overdraft
Borrowings from a bank on a current account which are payable on demand.
Batch Production
Producing a batch of one type of product.
Break-Even
The point at which the business no longer makes a loss or profit.
Break-even Output (or Point)
The point at which the total sales of a business equal total costs. (i.e., the business is making neither a profit nor a loss).
Budget
A detailed plan of income and expenses expected over a certain period of time.
Business Angel
A particular type of investor, usually a successful entrepreneur, who is willing to invest in high-risk, high-growth firms at a very early stage.
Business Location
Where a business is located.
Business Objective
A stated goal or target of a business (note: a business can have more than one objective!).
Business Plan
A detailed description of a new or existing business, including the company’s strategy, aims and objectives, and marketing and financial plan.
Business
Something that provides a good or a service.
Cash Flow Forecast
A projection, usually by week or month, of the likely cash inflows and outflows in a business.
Cash Flow
The movements of cash into (inflows) and out of (outflows) a business.
Centralized Structure
A business that makes decisions by a few people in the center of the business.
Commission
The reward paid to employees for increased sales.
Commodities
Businesses that produce raw materials in bulk.
Contribution per Unit
A key number for break-even analysis: the difference between selling price per unit and variable cost per unit.
Contribution
The difference between total sales and total variable costs.
Cost-Plus Pricing
Adding a percentage of profit to a product’s selling price.
Costs
Amounts incurred by a business as a result of its trading operations.
Current Assets
Assets that are easier to turn into cash.
Current Liabilities
Debts that need to be paid within a year.
Decentralized Structure
A business that spreads decision-making.
Demand
The amount of a product or service that customers are willing and able to pay at a given time.
E-commerce
Buying and selling goods via the internet.
Economies of Scale
When the cost for the outputs of the business decreases as the business grows.
Elasticity of Demand
The responsiveness of demand to a change in price or incomes.
Electronic Market
A market in which buyers and sellers are brought together using digital means of communication (e.g., online) in order to exchange information (e.g., prices) and conduct transactions. Compare with physical markets where buyers and sellers meet face-to-face.
Enterprise
The process by which new businesses are formed in order to offer products and services in a market.
Entrepreneur
An individual who sets up and runs a new business and takes on the risks associated with the business.
Expenditure Budget
The budget which sets out the expected costs to be incurred by the firm, usually split into various categories (e.g., production, marketing, administration).
Fixed Costs
Costs that do not vary with the level of output – e.g., rent, salaries.
Flat Structure
Businesses that have few layers within the business structure.
Flow Production
Producing a very large quantity of one type of product.
Franchisee
The person or company which operates a franchised business format – under license from a franchisor.
Franchisor
The owner of a business format (franchise) which is licensed out to other people or businesses (franchisees).
Full-Time Employee
An employee who works more than 30 hours a week in a business (compare with part-time, which is working for less than 30 hours).
Gap in the Market
Where there is a demand for a good or service that is not currently being met by any businesses.
Globalization
How businesses are now on an international trade instead of national.
Growth
Businesses growing internally or externally.