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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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