Business Key Terms

- 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
- Bank loan
A fixed amount loan from a bank which is generally used to finance long-term assets
- 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 plan
A detailed description of a new or existing business, including the company’s strategy, aims and
objectives, marketing & financial plan
- Business objective
A stated goal or target of a business (note: a business can have more than one objective!)
- Cash flow
The movements of cash into (“inflows”) and out of (“outflows”) a business
- Cash flow forecast
A projection, usually by week or month, of the likely cash inflows and outflows in a business
- Contribution
The difference between total sales and total variable costs
- Contribution per unit
A key number for breakeven analysis: the difference between selling price per unit and variable
cost per unit.
- Costs
Amounts incurred by a business as a result of its trading operations
- Demand
The amount of a product or service that customers are willing and able to pay at a given time
- Demographic
Defining a market in terms of social-economic factors such as segmentation age, income, class
etc
- 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)Franchisee The person or
company which operates a franchised business format - under licence from a franchisor
- Franchisor
The owner of a business format (franchise) which is licensed out to othr people or businesses
(franchisees)
- Full-time employee
An employees who works more than 30 hours a week in a business (compare with part-time,
which is working for less than 30 hours)
- Income budget
The budget which sets out estimates of the likely demand for and value of the firms sales
- Inputs
The resources (land, labour, capital, enterprise) that go into producing goods and services
- Limited liability
Shareholders are only liable for the money they have invested - not for the overall debts and
liabilities of their company
- Location
The pace (or places) from which a firm does business. Can be both a physical location and also
virtual.
- Margin of safety
The difference between the actual level of output and the break even output
- Market
Any place (e.g. physical, electronic) where buyers and sellers come together with a view to
exchanging transactions
- Market growth
The percentage growth in the size of the market, measured over a specific period
- Market research
The process of planning, collecting, and analysing data relevant to help make marketing
decisions
- Market segmentation
The process of dividing a market into smaller sections (segments) segmentation which contain
customers with similar needs and wants
- Market share
The share of the total market that is owned by a particular business, product or brand. Usually
expressed in percentage terms. The firm with the largest percentage market share is known as
the market leader.
- Market size
The total value or quantity of demand in a specific market over a specific period of time. Can be
measured in value terms (e.g. sales) or in terms of quantities (e.g. units) bought or sold.
- Niche market
A smaller part of a larger market in which customers have more specific needs and wants.
- Opportunity cost
The cost of a decision as measured by the benefits foregone of the next best alternative
- Patent
The right to be the only user of producer of a specified product or process
- Permanent employee
An employee who is employed on a formal employment contract and remains with the firm for
an open-ended period until the contract is ended. Compare with a temporary employee (“temp”)
who is employed for a shorter, time-limited period.
- Primary research
The market research that involves the collection of data that does not yet exist
- Profit
The difference between total sales and total costs
- Qualitative research
Market research concerned with collecting data on attitudes, opinions, beliefs, intentions etc.
- Quantitative research
Market research concerned with collecting data that can be quantified - e.g. sales statistics
- Return
The rewards to enterprise – e.g. profit, satisfaction
- Revenue
The income or sales that a business achieves in a period. Calculated by multiplying selling price
per unit x units sold.
- Risk
The probability or chance that hoped-for outcomes will not occur
- Sample
In market research, a sample is a subset of a population. Sampling is the process of taking and
analysing a research sample.
- Share capital
The finance invested in a business (limited company) by the shareholders – part of the equity
capital of a firm
- Social enterprise
A business that has objectives other than making profit. Part of a group of organisations in the
“not-for-profit” sector
- Sole trader
A one-person business with unlimited liability for the debts of that business
- Supplier
A business that provides goods and services to other firms.
- Total costs
The total of variable and fixed costs in a business
- Trade credit
Amounts owed to suppliers of a business – a source of finance
- Trademark
A word, symbol, or phrase used to identify a particular company’s product and differentiate it
from other companies’ products
- Unlimited liability
Unlimited liability describes the potential risk that sole traders and partnerships face. They are
liable for the debts of the business
- USP
Unique selling point - a feature of a product or service that makes it stand out compared with the
competition
- Variable costs
Costs that vary directly in proportion to output (e.g. materials, pay related to amounts produced
or sold)
- Venture capital
Investment made by specialist funds to finance the launch, early development or expansion of a
private company
- Working capital
The amount of money that a business has available to conduct its day-to-day activities