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Starting a Business Glossary

As any seasoned entrepreneur will tell you, starting a business involves a very steep learning curve. You need to learn the basics of cash flow, profit and loss, legal structures, employee management, financing, and a whole host of interrelated disciplines. You'll also be confronted by numerous business terms that may be new to you. But don't be intimidated, you have to start somewhere.

As a starting point, you should get up to speed with the following glossary of terms related to the process of starting a new business. Also, be sure to check out the collection of articles and resources in FindLaw's Starting a Business section for more valuable advice and legal pointers.

Accrual basis accounting. An accounting method that records sales, expenses, or other events at the time they occur, rather than when cash changes hands.

Amortization. The gradual payment of a debt through a schedule of payments or the writing off of an intangible asset against expenses over the period of its useful life.

Articles of Incorporation. A document filed with the secretary of state of a state that sets forth certain required information about the corporation.

Balance sheet. A listing of a company's assets, liabilities, and net worth as of a fixed point in time.

Board of Directors. A group of individuals, elected by the shareholders of a company, who oversee the management of the company.

Break-even analysis. The method of determining the exact point at which a company makes neither a profit nor a loss.

Business plan. A written document that describes a business, its objectives, strategies, market, and financial forecast.

Capital. Monies that are invested into a business enterprise.

Cash basis accounting. An accounting method that records sales and expenses when the transfer of cash occurs.

Cash flow statement. A charting of sources and uses of cash of a business.

Certificate of Incorporation. A certificate issued by the secretary of state of a state indicating that a company's articles of incorporation have been accepted for filing and that the company is incorporated.

Collateral. Business or personal property that a borrower pledges to a lender as security to ensure repayment of a loan.

Corporation. An organization formed under state law for the purpose of carrying on a business enterprise is such a manner as to make the enterprise distinct from its owners.

Current assets. Assets of a business that can be liquidated within a relatively short period of time.

Current liabilities. Debts that must be paid within a relatively short period of time, usually within one year.

Current ratio. A ratio of a business's current assets to its current liabilities.

Data analysis. The process of studying and transforming data into useful information for businesses.

Data asset. Any asset that is comprised of data, such as an application, document, web page, or database.

Data dictionary. A centralized collection of a company's data and its attributes.

Data governance. The process of managing your business data's availability, reliability, and security. Companies may implement new data governance programs to improve their data's reliability, quality, and security.

Data intelligence. The tools and processes companies use to better understand and interpret their data.

Data lineage. The process of recording and interpreting the journey data takes from its source to its end user.

Data management. The process of creating procedures and policies to manage business data. Data governance is a type of data management.

Data model. A visual representation of a company's data elements.

Data Steward. A company employee who manages a business's data quality, procedures, privacy and safety.

Debt financing. The use of borrowed money to finance a business.

Depreciation. The process of expensing the value of a business asset over its useful life.

Equity. The net value of assets minus liabilities.

Equity financing. The securing of a monetary investment from an investor in which the investor becomes a part owner of the business.

Financial reports. Reports that show the financial status of a company at a given time.

Financial services. Economic services, such as banking, investing, and insurance.

Financial statement. A presentation of financial information derived from the accounting records. Financial statements include a Balance Sheet, Income Statement (or Profit and Loss Statement), and Cash Flow Statement.

Fiscal year. The twelve-month period established by a business for accounting, planning, and tax purposes.

Fixed costs. Business costs that do not vary with sales volume.

Forecasting. The calculation of reasonable probabilities about a business's financial future.

Goodwill. An intangible asset of a business derived from the perceived value of the business's assets.

Gross profit. Net sales minus the cost of goods sold.

Guaranty. A promise by a third party to repay a loan in the event the primary borrower fails to do so.

Income statement. A presentation of the sales, expenses, and profit or loss of a business on a periodic basis.

Intangible asset. An asset that does not have a physical presence, such as goodwill, a patent, or a trademark.

Inventory financing. The process of obtaining capital for a business by borrowing money with inventory used as collateral.

Joint venture. An agreement between two or more businesses to mutually accomplish a business objective.

Key performance indicators (KPIs). Measurable and quantifiable indicators of a company's overall performance.

Leverage. The use of borrowing to increase the ability of a business to conduct its operations.

Limited liability company. An organization, distinct from a corporation, formed under state law for the purpose of carrying on a business enterprise is such a manner as to make the enterprise distinct from its owners.

Line of credit. A commitment by a lender to lend up to a certain amount of money to a business.

Loan or credit agreement. An agreement that your lender may require if you are borrowing a large amount of money. This agreement contains additional terms beyond the promissory note or mortgage. It might cover things like repayment terms, warranties, default terms, and more.

Metadata. Data that describes other business data in order to catalog it, track its location, and evaluate the data quality.

Mortgage. A loan for real property in which the real property is the collateral for the loan.

Net profit after taxes. A company's net profit before taxes, minus federal, state, or local income or franchise taxes.

Net profit before taxes. Net sales or total receipts of a business minus all expenses except taxes.

Net sales. Total sales of a business minus discounts, returns, and pricing adjustments.

Net worth. The net value of assets minus liabilities.

Operating expenses. The expenses of a business not directly associated with the making of a product or providing of a service, such as administrative, technical, or selling expenses.

Partnership. An association of two or more persons to carry on as co-owners of a business for profit.

Promissory note. A document that records a promise to repay a loan within a specific time frame and at a certain interest rate

Public offering. The sale by a company of shares of its stock to the public in the financial market.

Retained earnings. Net profit after taxes that is retained in the business as working capital.

Securities and Exchange Commission. The federal governmental agency that maintains order of the stock and securities exchanges.

Security agreement. An agreement which provides a lender with a security interest in certain personal property (not real estate) as collateral for a loan

Small Business Administration. The federal governmental agency that guarantees loans made by banks to small businesses.

Sole proprietorship. A business that is owned and operated by an individual owner without incorporation or partners. The owner is liable for the business's debts to the full extent of his or her personal property.

Stakeholder. A person who owns a share or has an interest in a business venture.

Subchapter S corporation. A corporation that has elected under Subchapter S of the Internal Revenue Code not to pay any corporate taxes on its earnings, and instead to have its shareholders pay taxes on it.

Subject matter expert. A person who is an authoritative source on a particular subject.

Unsecured loan. A loan made with no collateral posted to ensure repayment.

Variable cost. A cost that varies directly with sales, such as raw materials, labor, and sales commissions.

Working capital. Current assets minus current liabilities.

If you have additional questions about any of these terms (or others) related to the process of starting a business, you may want to meet with an attorney. Consider calling a business and commercial law attorney in your area for expert legal advice.

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