Business jargon made easy

The following glossary contains terms relating to funding within the business sector.

A

Accounts
The formal statement of a company's financial affairs.
Advance
A loan.
AIM
(Alternative Investment Market) Stock market aimed at smaller or younger companies.
Angel
See Business Angel
Annual Return
Summary of company structure, registered address and shareholding, filed each year by every company with Companies House.
APR
(Annual Percentage Rate) The APR gives an idea of how much the company is being charged when borrowing money.
Asset Finance
Loans specifically made against plant, equipment, vehicles, or IT hardware and software.
Assets
The things owned by the company such as vehicles, shares, buildings, and money in the bank.
Audit
Independent assessment of a company's accounts and records.

B

BACS
(Bankers Automated Clearing System). Electronic method for sending money between banks.
Bank of England
The Bank of England is the central bank of the UK and is not a commercial bank. It prints all English bank notes, manages the government's stock register, publishes money and banking data, and provides settlement facilities for the payment systems.
Bankrupt
A person or company that is judged legally insolvent. A person can become bankrupt upon voluntary petition or one invoked his/her creditors.
Base Rate
The interest rate set by banks which is used as the basis for the rates they offer and charge their customers.
Benchmarking
Method of comparing the relative performance range of businesses, used as an effective way of identifying areas for business improvement.
BIMBO
A combination of Management buy-in and buy-out where the team buying the business includes both existing management and new managers.
Bond
A written promise to repay a debt at an agreed time and an agreed rate of interest.
Breakeven
The point at which your gross profit just covers your overheads or fixed costs.
Budget
This is an estimate of income and outgoings, usually completed for a period of at least one month, but can be for the whole year.
Building Society
Financial institutions offering savings accounts and mortgages as their main business. Many are mutual institutions, which are owned by their members rather than shareholders.
Business Angel
A private individual who invests smaller sums, usually in small or start up businesses and who may be able and willing to provide hands on experience and involvement.

C

Capital
Sum of money borrowed from a lender.
Capital gain
This is the profit made between the buying and selling of assets such as shares, unit trusts, or property.
Capital Stake
A share holding or investment in a company.
Capital Growth
The rise in the value of an initial investment, and any income that has been added to it.
Cash Flow
The cash, as opposed to the profit, generated by a business.
CHAPS
(Clearing House Automated Payments System). An electronic system allowing the payment to go from the paying bank to the receiving bank on the same day.
Clearing Bank
Any bank that is a member of any of the constituent companies of APACS.
Clearing House
Central collection site where banks exchange cheques with one another.
Commercial Mortgage
A long term loan secured by business premises.
Contract Hire
A type of operating lease, often for a vehicle, where the leasing company takes an agreed level of responsibility for managing and maintaining the vehicle.
Covenants
Conditions imposed on loans and bonds to protect lenders against default.
Credit
Money received.
Credit Control
Making sure that your customers pay what they should, when they should.
Creditor
Person or company who is owed money.
Crowdfunding
A way of raising finance by asking numerous investors to pledge money so you can start up a new business or launch a new product or service within your existing business.
Current Asset Ratio
The key indicator of whether you can pay your creditors on time. The relationship between current assets like cash, book debts, stock and work in progress and current liabilities like overdraft, trade and expense creditors and other current debt.

D

Debenture
A legal document that formalises the lenders charge over the assets of the company.
Debit
A payment.
Deflation
A decline in the general level of prices in the economy.
Derivative
Financial contract with a value linked to the expected future price movements of the asset it is linked to - such as a share or a currency.
Discounting
Means of raising money against the value of unpaid invoices.
Due Diligence
The detailed investigations that an investor will make before buying a share in your business.

E

Equities
The ordinary shares of publicly-quoted companies.
Equity
The value of something, such as a house, less money owing on it.
European Central Bank (ECB)
Bank established to maintain price stability within the Euro area and supports the general economic policies in the Community.
Exchange Rate
The value of one currency compared to another.
E-Commerce
Business conducted over the Internet and other electronic networks.

F

Factoring
Contracting out your sales ledger management and debt collection, usually in exchange for an advance payment.
Flotation
Raising funds by arranging for your company's shares to be quoted on a stock exchange.
Footsie (FTSE 100)
This is the main UK share index representing the price of the top 100 shares.

G

Gearing
The relationship between a company's debt and its share capital and accumulated reserves. Highly geared companies tend to be more vulnerable than those that borrow less in relation to their shareholders' funds.
Grant
A sum of money that is given to your business after an application process has been followed. There is no interest to be paid and funds are not usually returnable - as long as the terms of the grant are met.
Gross
Before deduction of tax. Net is after tax.
Gross Domestic Product
The value of the goods and services produced by an economy.

H

Hire Purchase
A contract to hire goods for a specified period and at a fixed cost.

I

ICT
(Information and Communications Technology). Computers, Internet, telecommunications and other associated technology and communications.
Incubator
An organisation, often commercial, helping start-up and small businesses to grow. An incubator may take an equity stake, may provide premises, know-how and interim management.
Inflation
The term for general price increases.
Interest
A payment for the use of money, say borrowed from a bank or other lender.
Interest Gearing
How many times interest costs in a company's profit and loss account are covered by profit, before interest and tax.
Interest Margin
The margin between the interest you pay your lender and what your lender has to pay for the money in the first place.
Interest Rate
The cost of credit, expressed as a percentage rate.
Investment
Something people put their money into in order to make money.
Invoice Discounting
Selling your sales invoices (in confidence) to a finance house in exchange for cash. Debt management remains your responsibility.

J

K

L

Leasehold Property
Property held under a lease.
Liability
The money which people owe to other parties.
Limited Company
Company that is registered, has shareholders and a memorandum of agreement.
Liquid Assets
Assets such as shares in a company which can be sold quickly to give a cash amount.

M

MBI
(Management buy in). A new management team from outside buying an existing business from the existing shareholders, often with the help of a venture capital investor.
MBO
(Management buyout). The existing management team buying a business from the current shareholders.
Margin
The difference between the cost of money and the rate received on it.
Mezzanine Finance
A halfway house between equity finance and ordinary debt finance, usually as part of a venture capital finance package. Sometimes unsecured, sometimes secured by a second charge on the company's assets, therefore more expensive than ordinary loans
Mortgage
A charge over property securing a long term loan
Mutuality
Where an organisation is owned by its members without outside shareholders.

N

Net
After tax has been deducted.
Net Tangible Assets (NTAs)
The shareholders' funds in a business; the difference between the total assets less any intangible assets like goodwill and the total of current and term liabilities. Also known as tangible net worth.
Net Worth
Net worth is the difference between the total assets and the total current and term liabilities. Also known as (equity) shareholders' funds, equity or net assets.

O

Offshore Banking
Funds based outside the UK.
OFEX
A market maker for shares in member companies - not a full stock exchange listing.
Overdraft
When a person or business borrows from their bank and is allowed to take out more money than they have in their account. If the overdraft is not agreed prior to taking out money not in your account you are likely to be subject to charges.
Over Trading
Driving up sales to the point where the business runs out of working capital and may fail.

P

Partnership
Business carried out by two or more people where each is jointly liable for the debts of the business.
P+L (Profit and Loss)
Strictly, the calculation of gross profit on trading less fixed costs (or overheads), exceptional items, interest, taxation and dividends. Often taken to include the calculation of gross profit (sales less cost of sales).
PAYE
Scheme set up by businesses to pay income tax and National Insurance contributions to the Inland Revenue from employees' earnings.
PGs
Personal guarantees.

Q

R

Receivership
After a company has defaulted, the appointment of a licensed insolvency practitioner to realise the value of the assets to repay outstanding debts.
Regulations
Laws and rules derived from legislation or treaties.
Research and Development (R&D)
Businesses carry out research and development to innovate, create new products or find better ways of doing things.
Retail Price Index (RPI)
The official measure of inflation calculated by weighting the costs of goods and services to approximate a typical family spending pattern.
Risk Capital
The shareholders' funds in a business, which are always the last to be paid out in liquidation and which are therefore at the highest risk.

S

Security
An asset or assets charged to a lender to secure a borrowing. Also used to describe a guarantee or warranty.
Share
An investment in, and part ownership of, a company.
Share Dealing
The buying and selling of shares.
Shareholders Agreement
This sets out the terms of an investment (usually venture capital or business angel). It often sets out the duties and obligations of the management team.
SME
(Small and medium-sized enterprise). Official definition of a business employing less than 250 employees, and are less than 25% foreign owned.
Social Enterprise
Social Enterprises are businesses. They trade in the market place in order to fulfil social aims, bringing people and communities together for economic development and social gain.
Soft Loan
Loans that are available without the normal security demands placed on borrowers by clearing banks and other commercial lenders. They usually allow some concessions to the borrower on either security requirements, or on interest rates charged. Payment of little or no interest may be a condition of the loan, and in addition, in some cases borrowers can organise payment holidays.
Sole Trader
Where an individual runs a business and all revenue payments are incorporated within the individual's personal finance and tax affairs.
Stock Market
The market for the sale and purchase of shares, government bonds, and other securities.
Stock
The stock of goods for sale held by a business, often including raw materials and partly finished goods or work (work in progress).
Supply Chain
The overall system that covers the flow of material and information from a business to its customer.

T

Trade Finance
An imprecise term covering a number of different activities like seasonal and stocking finance, as well as import and export finance and funding for large one-off transactions.

U

Unsecured Loan
A loan where no security collateral is given or charged to the lender.

V

VAT
(Value Added Tax). Tax applied to the sale of goods and services.
Venture Capital
The British Venture Capital Association defines venture capital as "a means of financing the start-up, development, expansion or purchase of a company, whereby the venture capitalist acquires an agreed proportion of the share capital (equity) of the company in return for providing the requisite funding".

W

Warranty
A document signed by shareholders providing legally enforceable assurances about the status of a company, particularly about taxation matters.
Working Capital
The cash a company needs to operate on a day-to-day basis, particularly to fund the gap between trade credit and what is required to buy raw materials, work in progress, stock and trade debtors.

X

Y

Yield
The earnings generated and realised on an investment over a particular period of time.

Z

Zombie Fund
Private equity investments that spend investor capital at the highest valuation of a business's share price just before the value nosedives.