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ARM'S LENGTH TRANSACTION |
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A transaction in which the parties are dealing from equal bargaining positions, neither party is subject to the other's control or dominant influence, and the transaction is treated with fairness, integrity and legality. If discovered by a taxing authority, the absence of an arms length transaction may result in additional taxes incurred resulting from transfer at less than fair market value.
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TIME-PRICE DIFFERENTIAL |
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The difference between the purchase price of something and the higher total price of the same thing if purchased on an installment basis (including finance charges). Under truth-in-lending laws, a lender must disclose the time-price differential as well as all finance charges on an installment contract.
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SEED CAPITALIST |
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A VENTURE CAPITALIST who invests in an early stage of a new company or new product.
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LOAN CORRESPONDENT |
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One who negotiates loans for lenders. The correspondent often services the loan and acts as the collection agent for the lender.
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ARTICLES OF INCORPORATION |
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A document filed with a state of the United States by the founders of a corporation. Upon approval of the articles, the state issues a CERTIFICATE OF INCORPORATION that legally establishes the corporation as a business entity. The two documents together (Articles of Incorporation and Certificate of Incorporation) are sometimes called the CHARTER of the corporation, embodying such information as the corporation's name, officers' names, the incorporator, purpose, amount of authorized shares, and number of directors. The charter and the laws of the state give rise to the powers of the corporation. Rules governing the internal management of the corporation are set forth in the BYLAWS as drawn up by the founders/officers.
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NET WORTH |
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The amount owned by the owners; the amount by which assets exceed liabilities. The book value of the investments plus retained earnings. Also called EQUITY; OWNER'S EQUITY. For a corporation, net worth is known as STOCKHOLDERS' EQUITY. For a partnership, the value of the total of all the shares of all the partners. For a proprietorship, net worth is known as OWNER'S EQUITY. For an individual, net worth is also called PERSONAL NET WORTH, the total value of all possessions (assets), such as cash, checking account balance, stocks, bonds, house, car and personal property minus all debts such as a mortgage, loans and revolving credit accounts.
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CONTROLLABLE EXPENSES |
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Those things over which decisions can be exercised concerning the amount of money to be paid out.
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OUTSTANDING BALANCE |
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An amount of a loan that remains to be paid; a note on which there is still a liability.
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CASH DISBURSEMENT |
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A payment of money or simply a payment. Usually, the writing of a check to pay for an item previously obligated to be paid, such as loan payment, salary payment or accounts receivable payment. See also DISBURSEMENT.
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FINANCING |
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The process of obtaining equity or borrowing money for a start-up business. Also refers to the money to be borrowed; a loan; a note.
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LEGAL |
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Pertaining to the LAW; any action that is acceptable under the law.
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EQUITY |
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In business, the owner's investment in the business; the amount owned by the owners; the owner's interest or value remaining after payment of all debts and charges. In a start-up business, the amount of money provided by the owner at the outset; often in conjunction with the amount borrowed as a loan. Normally, with greater owner's equity, the business is more stable. Same as NET WORTH in a business. In banking, the difference between the amount received from the sale of assets and the claims against the assets. Also an estimate of this difference prior to sale. In investment, ownership interest possessed by common and preferred shareholders in a corporation-stock ownership as opposed to bonds and loans that are liabilities. In general, fairness. For example, law courts try to be equitable in their judgment when splitting up corporations or estates.
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BREAKEVEN UNITS |
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The number of units that must be produced and sold in an accounting period to generate revenues sufficient to exactly cover all production costs.
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COST-PLUS CONTRACT |
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A contract agreement wherein the purchaser agrees to pay the cost of all labor and materials plus an amount for contractor overhead and profit (usually as a percentage of the labor and material cost).
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ALLOWANCE FOR BAD DEBTS |
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An account established to record a subtraction from ACCOUNTS RECEIVABLE, to allow for those accounts that will not be paid.
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CAPITAL |
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Wealth (money or property) owned or used in business by a sole proprietor or corporation, to produce more wealth. In a start-up business, capital is the amount of money invested by the owner, before borrowing from others. Same as EQUITY; NET WORTH. In accounting, most often capital is synonymous with the EQUITY (NET WORTH) of a business; the amount by which ASSETS exceed LIABILITIES. There are, however, really two kinds of business capital, EQUITY and LONG-TERM DEBT. In a broad sense, long-term debt is sometimes considered as capital because the money is totally under the control of the owners rather than under the control of the lender. See CAPITAL STRUCTURE. In finance, the total tangible assets of a firm.
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BUSINESS PLAN |
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A documented expression of the facts concerning a business with a forecast of the desired future direction. It is like a roadmap or guidebook concerning where the business wants to go. A business plan usually covers one to five years of historical facts and one to five years of projections into the future. The two main uses are for guidance in decision making by the owner-manager and for presentation to a financial institution when applying for a loan. A business plan is especially important for a start-up business because it sets the course of actions necessary for survival of the business. The main elements to include in a business plan are an executive summary with a description of the firm and its future; profiles of the owner and managers; product description; a description of the industry; marketing plans; and a financial plan. See Self-Help Guide B on "How to Write a Business Plan." See also MARKETING PLAN; FINANCIAL PLAN, LONG-RANGE PLAN; STRATEGIC BUSINESS PLAN.
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ADVANCE PAYMENT |
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In international trade, payment for goods by a foreign customer prior to receiving the goods. This method of payment is beneficial to the supplier but is very risky for the foreign customer because the goods may not get shipped as planned, the goods may get lost or the goods could be damaged during shipment.
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