A Dictionary for Small Business Owners
Accounts Payable: Money owed to suppliers and/or vendors.
Accounts Receivable: Money owed by clients to the business.
Arbitration Clause: A clause in client or vendor contracts determining how conflicts in a partnership should be handled.
Articles of Organization: A government document summarizing an LLC’s structure and basic information, filed with the Secretary of State.
Assets: A piece of property owned by the business. This can include real estate, office furniture, electronics, and inventory.
Balance Sheet: A summary statement of the business’s assets, debts, and owner’s equity at a specific point in time.
Break-even Point: The point at which revenues equal expenses
Capital: Financial assets that are used to general wealth through investment. This can include facilities, cash, patents, and brand names.
Cash Flow: Money that flows in and out of the company. It is also the amount of cash remaining after expenses are paid.
Collateral: Assets that can be used to back a loan. The lender has the legal right to seize collateral if the borrower fails to repay the loan.
Employee-at-will: A type of contractual relationship between employers and employees. An at-will employee can be dismissed by an employer for any legal reason and without warning.
Equity: The investment made by owners or stockholders of a business. The amount of equity someone has in a business represents that person’s stake in the business.
Equity Financing: The raising of money in a corporation by issuing and selling shares of stock or taking on a partner.
Expenses: Day-to-day costs of running a business. Deductible expenses of a company are reduced from the company’s revenue to lower the company’s tax liability. Business expenses include: payroll, insurance, leases, and payments to suppliers.
Fixed Costs: Expenses that remain the same regardless of changes in the production of goods (ex: leases, insurance, etc)
Gross Income: The company’s revenue minus the cost of goods sold.
Independent Contractor: A person or entity who enters into a contract with a business to perform work or provide services as a non-employee. Independent contractors are not considered employees and thus the company contracting with the independent contractor does not have to provide benefits or workers compensation to the contractor.
LLC: Short for “Limited Liability Company,” it is a business entity that protects its owners from potential liability incurred in the company’s name.
Non-Disclosure Agreement (“NDA”): A legal agreement between at least two parties which outlines the confidential information that the parties to the agreement are aware of, but that they wish to remain confidential to people not party to the agreement.
Operating Agreement: A document used by LLCs which outlines financial and functional decisions. It governs the internal operations of the business.
Partnership: A business entity wherein two or more people are owners of a business. There are two types: a general partnership and a limited partnership. The biggest difference between the two is that a limited partnership offers limited liability protection for its limited partners.
Patent: A legal right given by the federal government that allows the patent owner exclusive rights to the production and sale of the patented product. It also prohibits others in the market from copying the owner’s idea.
Principal Place of Business: The main location where a company’s business is performed. This is where the company’s official records are kept (operating agreements, bylaws, articles of organization, articles of incorporation, etc.). This is also generally where management of the company is located.
Profit and Loss Statement: A financial statement prepared and used for the accounting of a business. It summarizes the revenues and expenses incurred during a specific period.
Proprietary Information: Information that is is unique and legally owned by the company.
Registered Agent: A third-party who is registered on behalf of a business and designated to receive service, correspondence, and other government notifications.
Revenue: The amount of money a company actually receives in a specific period.
Schedule C: A schedule C refers to a tax form on a 1040 (individual tax return) in which you report income or loss from a business you operated. This can include a sole proprietorship.
Subchapter S-Corporation: A subchapter S-Corporation (often referred to as an S-Corp) refers to the way a business is taxed. An S-Corp allows for profits, losses, deductions, and credit to be passed through shareholders before they are federally taxed. Shareholders then report income and losses on individual tax returns and pay taxes at ordinary rates.
Sole Proprietorship: A business owned by a single individual who assumes all risk and gains all the profit.
Trademark: You can trademark a business name or logo as the property of the business. Trademarks give you the exclusive right to use the name or logo in selling or advertising.