Glossary

A B C D E F G H I J K L M N O P Q R S T U V W Y Z

A

ABC method a system of classifying items in inventory by relative value

acceptance sampling the use of a random, representative portion to determine the acceptability of an entire lot

accounts payable (trade credit) outstanding credit payable to suppliers

accounts receivable the amount of credit extended to customers that is currently outstanding

accounts receivable turnover the number of times accounts receivable “roll over” during a year

accrual method of accounting (accrual-basis accounting) a method of accounting that matches revenues when they are earned against the expenses associated with those _revenues

accrued expenses short-term liabilities that have been incurred but not paid

acid-test ratio (quick ratio) a measure of a company’s liquidity that excludes inventories

advertising the impersonal presentation of a business idea through mass media

advisory council a group that functions like a board of directors but acts only in an advisory capacity

agency power the ability of any one partner to legally bind the other partners

agents/brokers intermediaries that do not take title to the goods they distribute

aging schedule a categorization of accounts receivable based on the length of time they have been outstanding

area developers individuals or firms that obtain the legal right to open several franchised outlets in a given area

articles of association or incorporation the document that establishes a corporation’s existence

artisan entrepreneur a person who starts a business with primarily technical skills and little business knowledge

asset-based valuation approach determination of the value of a business by estimating the value of its assets

assorting the intermediary function of bringing together homogeneous lines of goods into a heterogeneous assortment

attitude an enduring opinion based on knowledge, feeling, and behavioural tendency

attractive small firm any small firm that provides substantial profits to its owner

attribute inspection the determination of product acceptability based on whether it will or will not work

average collection period the average time it takes a firm to collect its accounts receivable

average pricing an approach in which total cost for a given period is divided by quantity sold in that period to set a price

B

bad-debt ratio a number obtained by dividing the amount of bad debts by the total amount of credit sales

balance sheet a financial report that shows a firm’s assets, liabilities, and owners’ equity capital at a specific point in time

batch manufacturing a type of manufacturing operation that is intermediate (between job shops and repetitive manufacturing) in volume and variety of products

benchmarking the process of studying the products, services, and practices of other firms and using the insights gained to improve quality internally

benefit variables specific characteristics that distinguish market segments according to the benefits sought by customers

board of directors the governing body of a corporation, elected by the stockholders

brand a verbal and/or symbolic means of identifying a product

break-even point sales volume at which total sales revenue equals total costs

breaking bulk the intermediary function of making large quantities of a product available in smaller amounts

budget a document that expresses future plans in monetary terms

buildup process a forecasting method in which all potential buyers in the various submarkets are identified and then the estimated demand is added up

business angel a private investor who finances new, risky, small ventures

business format franchising an agreement whereby the franchisee obtains an entire marketing system and ongoing guidance from the franchisor

business incubator a facility that provides shared space, services, and management assistance to new businesses

business plan a document that sets out the basic idea underlying a business and related start-up considerations

business policies basic statements that provide guidance for managerial decision making

buyout purchase of an existing business

C

cafeteria plans (flexible benefits) a type of benefit plan that allows employees to choose which specific benefits they wish to receive

capital gains and losses gains and losses incurred from sales of property that are not a part of the firm’s regular business operations

capitalization rate a figure, determined by the level of risk involved in the business and the expected growth rate of future earnings, that is used to assess the earnings-based value of a business

cash budget or cash flow forecast a planning document strictly concerned with the receipt and payment of dollars

cash conversion period the time required to convert paid-for inventories and accounts receivable into cash

cash flow–based valuation approach determination of the value of a business by comparing the expected and required rates of return on the investment

cash-flow forecast (cash budget) a planning document strictly concerned with the receipt and payment of dollars

cash method of accounting (cash-basis accounting) a method of accounting that reports transactions only when cash is received or a payment is made

chain of command the official, vertical channel of communication in an organization

channel of distribution the system of relationships established to guide the movement of a product

chattel mortgage a loan for which items of inventory or other moveable property serve as collateral

cognitive dissonance the anxiety that occurs when a customer has second thoughts immediately following a purchase

common carriers transportation intermediaries available for hire to the general public

competitive advantage a benefit that exists when a firm has a product or service that is seen by its target market as better than those of competitors

consumer credit financing granted by retailers to individuals who purchase for personal or family use

continuous quality improvement a constant and dedicated effort to improve quality

contract carriers transportation intermediaries that contract with individual shippers

contract employees independent contractors hired for fixed periods of time or for specific projects

control chart a graphic illustration of the limits used in statistical process control

control cycle a period of time over which an activity is implemented, measured, corrected, and reimplemented

core competencies value-creating organizational capabilities that are unique to a firm

corporate refugee a person who leaves big business to go into business for himself or herself

corporation a business organization that exists as a legal entity and provides limited liability to its owners

corrective maintenance repairs necessary to restore equipment or a facility to good condition

cost of goods sold the cost of producing or acquiring goods or services to be sold by a firm

credit an agreement between a buyer and a seller that provides for delayed payment for a product or service

credit bureaus privately owned organizations that summarize a number of firms’ credit experiences with particular individuals

culture behavioural patterns and values that characterize a group such as consumers in a target market or members of a firm

current assets (working capital) liquid assets that can be converted into cash within a company’s operating cycle

current debt (short-term liabilities) borrowed money that must be repaid within 12 months

current ratio a measure of a firm’s relative liquidity, determined by dividing current assets by current liabilities

customer profile a description of potential customers in a target market

cycle counting a system of counting different segments of the physical inventory at different times during the year

D

daywork a compensation system based on increments of time

debt capital business financing that was provided by creditors and must be repaid at some predetermined date

debt-equity ratio the ratio of total debt to total equity

debt ratio a measure of a firm’s debt, determined by dividing total debt by total assets

delegation of authority granting to subordinates the right to act or make decisions

demographic variables specific characteristics that describe customers and their purchasing power

depreciation expense costs related to a fixed asset, such as a building or equipment, distributed over its useful life

direct channel a distribution system without intermediaries

disclosure document a detailed statement that includes information about a franchisor’s finances, experience, and size and informs potential franchisees of restrictions, costs, and provisions for renewal or cancellation of the franchise

distribution physically moving products and establishing intermediary relationships to support such movement

double-entry system a self-balancing accounting system that uses journals and ledgers

dual distribution a distribution system that involves more than one channel

E

earnings-based valuation approach determination of the value of a business based on its potential future earnings

economic order quantity (EOQ) the quantity to purchase in order to minimize total inventory costs

employee ownership a method by which a firm is sold either in part or in total to its employees

employee stock ownership plan (ESOP) a method by which a firm is sold either in part or in total to its employees

employment insurance (EI) benefits paid to workers who become unemployed provided they meet certain requirements, such as having been employed for a minimum number of weeks

empowerment increasing employees’ authority to make decisions or take actions on their own

entrepreneur a person who starts and/or operates a business
entrepreneurial team two or more people who work together as entrepreneurs
equipment loan an installment loan from a seller of machinery used by a business

evaluative criteria the features of a product that customers use to compare brands

evoked set a group of brands that a customer is both aware of and willing to consider as a solution to a purchase problem

executive summary a section of the business plan that conveys a clear and concise overall picture of the proposed venture

external equity or external financing funds that derive initially from the owners’ investment in a firm

external locus of control belief that one’s life is controlled more by luck or fate than by one’s own efforts

F

factoring obtaining cash by selling accounts receivable to another firm

family business a company in which family members are directly involved in the ownership and/or operation

family council an organized group of family members who gather periodically to discuss family-related business issues

financial acquisition a purchase in which the value of the business is based on the stand-alone cash-generating potential of the firm being acquired

financial leverage the use of debt in financing a firm’s assets

financial plan a section of the business plan that provides an account of the new firm’s financial needs and sources of financing and a projection of its revenues, costs, and profits

financial ratios restatements of selected income statement and balance sheet data in relative terms

financial statements (accounting statements) reports of a firm’s financial performance and resources, including an income statement, balance sheet, and statement of cash flows

financing cash flows payments received by a firm’s investors or paid into a firm by its investors

financing costs the amount of interest owed to lenders on borrowed money

firm’s cash flows after-tax cash flows generated from operations less the firm’s investments in assets

fixed asset turnover a measure of the relationship of sales to fixed assets

fixed assets relatively permanent resources intended for use in the business

flexible pricing strategy a marketing approach that offers different prices to reflect differences in customer demand

follow-the-leader pricing strategy a marketing approach that uses a particular competitor as a model in setting prices

foreign refugee a person who leaves his or her native country and becomes an entrepreneur in the new country

founder an entrepreneur who brings a new firm into existence

franchise the privileges in a franchise contract

franchise contract the legal agreement between franchisor and franchisee

franchisee an entrepreneur whose power is limited by a contractual relationship with a franchising organization

franchising a marketing system revolving around a two-party legal agreement, whereby the franchisee conducts business according to terms specified by the franchisor

franchisor the party in a franchise contract who specifies the methods to be followed and the terms to be met by the other party

free cash flow operating profits plus depreciation less cash taxes and less the investments required to grow the firm

free trade agreement (FTA) an accord that eases trade restrictions between Canada and the United States

free-flow pattern a flexible retail store layout that is visually appealing and gives customers freedom of movement

fringe benefits supplements to compensation, designed to be attractive and beneficial to employees

G

general agreement on tariffs and trade (GATT) an international agreement that aims to reduce tariffs and other trade barriers among countries

general manager an entrepreneur who functions as an administrator of a business

general partner a partner in a limited partnership who has unlimited personal liability

general-purpose equipment machines that serve many functions in the production process

geographic variables defining a market by its location, size, or extent

grid pattern a block-like retail store layout that provides for good merchandise exposure and simplifies security and cleaning

gross profit sales less the cost of goods sold

growth trap a cash shortage resulting from rapid growth

H

harassment policies policies that ensure all employees are treated equitably

harvesting the exit process used by entrepreneurs and investors to unlock the value of a business

headhunter a search firm that locates qualified candidates for executive positions

high-potential venture (gazelle) a small firm that has great prospects for growth

home-based business a business that maintains its primary facility in the residence of its owner

I

income statement (profit and loss statement) a financial report showing the profit or loss from a firm’s operations over a given period of time

indirect channel a distribution system with one or more intermediaries

industry environment the combined forces that directly affect a given firm and all of its relevant competitors

informal capital funds provided by wealthy private individuals to high-risk ventures, such as start-ups

initial public offering (IPO) the issuance of stock that is to be traded in public financial markets

inspection the examination of a product to determine whether it meets quality standards

inspection standard a specification of a desired quality level and allowable tolerances

installment account a line of credit that requires a down payment, with the balance paid over a specified period of time

institutional advertising the presentation of information about a particular firm, designed to enhance the firm’s image

intangible resources organizational resources that are invisible and difficult to quantify

internal control a system of checks and balances that safeguards assets and enhances the accuracy and reliability of financial statements

internal equity funds that come from retaining profits within a firm

internal locus of control belief that one’s success depends on one’s own efforts

inventory a firm’s raw materials and products held in anticipation of eventual sale

inventory turnover the number of times inventories “roll over” during a year

ISO 9000 the standards governing international certification of a firm’s quality management procedures

J

job description a written summary of the duties required by a specific job

job shops a type of manufacturing operation in which short production runs are used to produce small quantities of unique items

job specification a list of skills and abilities needed to perform a specific job

just-in-time inventory system a method of reducing inventory levels to an absolute minimum

L

laws of motion economy guidelines for increasing the efficiency of human movement and tool design

legal entity a business organization that is recognized by the law as having a separate legal existence

letter of credit an agreement to honour demands for payment under certain conditions

leveraged buyout (LBO) a purchase heavily financed with debt, where the potential cash flow of the target company is expected to be sufficient to meet debt repayments

licensing a legal arrangement that allows a foreign manufacturer to use the designs, patents, or trademarks of the licensor

lifestyle business a business that fits an owner’s lifestyle and provides satisfaction because it reflects the owner’s special interests and pattern of life

limited liability the restriction of an owner’s legal financial responsibilities to the amount invested in the business

limited partner a partner in a limited partnership who is not active in its management and has limited personal liability

limited partnership a partnership with at least one general partner and one or more limited partners

line activities activities contributing directly to the primary objectives of a firm

line-and-staff organization an organizational structure that includes staff specialists who assist management

line of credit an informal agreement between a borrower and a bank as to the maximum amount of funds the bank will provide at any one time

line organization a simple organizational structure in which each person reports to one supervisor

liquidation value approach determination of the value of a business based on the money available if the firm were to liquidate its assets

liquidity the degree to which a firm has sufficient working capital available to meet maturing debt obligations

loan covenants bank-imposed restrictions on a borrower that enhance the chances of timely repayment

lock box a post-office box for receiving remittances from customers
long-range plan (strategic plan) a firm’s overall plan for the future

long-term debt loans from banks or other sources with repayment terms of more than 12 months

long-term notes loans from banks or other sources with repayment terms of more than 12 months

M

macroenvironment the broad environment, with its multiple factors, that affects most businesses in a society

make-or-buy decision a firm’s choice between producing and purchasing component parts for its products

management buyout (MBO) leveraged buyout that includes the firm’s top management as significant shareholders in the acquired firm

management functions the activities of planning, leading, organizing, and controlling

management plan a section of the business plan that describes a new firm’s organizational structure and the backgrounds of its key players

management team managers and other key persons who give a company its general direction

marginal firm any small firm that provides minimal profits to its owner
market a group of customers or potential customers who have purchasing power and unsatisfied needs

market analysis an evaluation process that encompasses market segmentation, marketing research, and sales forecasting

market-based valuation approach determination of the value of a business based on the sale prices of comparable firms

market segmentation the division of a market into several smaller groups with similar needs

marketing mix the combination of product, pricing, promotion, and distribution activities

marketing plan a section of the business plan that describes the user benefits of the product or service and the type of market that exists

marketing research the gathering, processing, reporting, and interpreting of market information

master licensee a firm or individual acting as a sales agent with the responsibility for finding new franchisees within a specified territory

matchmakers specialized brokers who bring together buyers and sellers of businesses

merchant middlemen intermediaries that take title to the goods they distribute

mission statement a concise written description of a firm’s philosophy

modified book value approach determination of the value of a business by adjusting book value to reflect differences between the historical cost and the current value of the assets

mortgage a long-term loan from a creditor for which real estate is pledged as collateral

motion study an analysis of all the motions a worker makes to complete a given job

motivations forces that organize and give direction to the tension caused by unsatisfied needs

multiple-unit ownership a situation in which a franchisee owns more than one franchise from the same company

multisegmentation strategy a strategy that recognizes different preferences of individual market segments and develops a unique marketing mix for each

N

need for achievement a desire to succeed, where success is measured against a personal standard of excellence

needs the starting point for all behaviour
net income available to owners (net income) income that may be distributed to the owners or reinvested in the company

net working capital the sum of a firm’s current assets (cash, accounts receivable, and inventories) less current liabilities (short-term notes, accounts payable, and accruals)

networking the process of developing and engaging in mutually beneficial relationships

niche marketing choosing market segments not adequately served by competitors

normalized earnings earnings that have been adjusted for unusual items, such as fire damage

North American Free Trade Agreement (NAFTA) an accord that eases trade restrictions among Canada, the United States, and Mexico

O

open charge account a line of credit that allows the customer to obtain a product at the time of purchase, with payment due when billed

operating expenses costs related to general administrative expenses and selling and marketing a firm’s product or service

operating income (earnings before interest and taxes) profits before interest and taxes are paid

operating income return on investment (OIROI) a measure of operating profits relative to total assets

operating plan a section of the business plan that offers information on how a product will be produced or a service provided, including descriptions of the new firm’s facilities, labour, raw materials, and processing requirements

operating profit margin the ratio of operating profits to sales, showing how well a firm manages its income statement

operations management the planning and control of the operations process

operations process (production process) the activities that produce a firm’s goods and services

opinion leader a group leader who plays a key communications role

opportunistic entrepreneur a person who starts a business with both sophisticated managerial skills and technical knowledge

ordinary income income earned in the ordinary course of business, including any salary

organizational capabilities the integration of several organizational resources that are deployed together to the firm’s advantage

organizational resources basic inputs that a firm uses to conduct its business

outsourcing purchasing products or services that are outside the firm’s area of competitive advantage

owners’ equity capital owners’ financial investments in a company, including profits retained in the firm

P

partnership a legal entity based on the voluntary association of two or more persons to carry on, as co-owners, a business for profit

partnership agreement a document that states explicitly the rights and duties of partners

penetration pricing strategy a marketing approach that sets lower than normal prices to hasten market acceptance of a product or service or to increase market share

percentage-of-sales technique a method of forecasting asset investments and financing requirements

perception the individual processes that give meaning to the stimuli confronting consumers

perceptual categorization the process of grouping similar things so as to manage huge quantities of incoming stimuli

perpetual inventory system a method for keeping a running record of inventory

personal selling a sales presentation delivered in a one-on-one manner

physical distribution (logistics) the activities of distribution involved in the physical relocation of products

physical inventory system a method that provides for periodic counting of items in inventory

piggyback franchising the operation of a retail franchise within the physical facilities of a host store

pledged accounts receivable accounts receivable used as collateral for a loan

pre-emptive right the right of stockholders to buy new shares of stock before they are offered to the public

precipitating event an event, such as losing a job, that moves an individual to become an entrepreneur

prestige pricing setting a high price to convey an image of high quality or uniqueness

preventive maintenance activities intended to prevent machine breakdowns, injuries to people, and damage to facilities

price a specification of what a seller requires in exchange for transferring ownership or use of a product or service

price-lining strategy a marketing approach that sets a range of several distinct merchandise price levels

primary data new market information that is gathered by the firm conducting the research

prime rate the interest rate charged by a commercial bank on loans to its most creditworthy customers

private carriers lines of transport owned by the shippers

private placement the sale of a firm’s capital stock to selected individuals

pro forma financial statements reports that provide projections of a firm’s financial condition

procedures specific work methods to be followed in business activities

process layout a factory design that groups similar machines together

product a total bundle of satisfaction—a service, a good, or both—offered to consumers in an exchange transaction

product and trade name franchising a franchise relationship granting the right to use a widely recognized product or name

product item the lowest common denominator in the product mix—the individual item

product layout a factory design that arranges machines according to their roles in the production process

product line the sum of related individual product items

product mix a firm’s total product lines

product mix consistency the similarity of product lines in a product mix

product strategy the way the product component of the marketing mix is used to achieve a firm’s objectives

production process (operations process) the activities that produce a firm’s goods and services

productivity the efficiency with which inputs are transformed into outputs

products and/or services plan a section of the business plan that describes the product and/or service to be provided and explains its merits

professional manager a manager who uses systematic, analytical methods of management

profit and loss statement (income statement) a financial report showing the profit or loss from a firm’s operations over a given period of time

profit retention the reinvestment of profits in a firm

profit-sharing plans a percentage of profits distributed to employees

promotion marketing communications that inform and persuade consumers

promotional mix a blend of personal and nonpersonal communication techniques aimed at a target market

prospecting a systematic process of continually looking for new customers

prospectus a marketing document used to solicit investors’ monies

psychographic variables variables related to how people think and behave

publicity information about a firm and its products or services that appears as a news item, free of charge

purchasing the process of obtaining materials, equipment, and services from outside suppliers

Q

quality the features of a product or service that enable it to satisfy customers’ needs

quality circle a group of employees who meet regularly to discuss quality-related problems

quick ratio (acid-test ratio) a measure of a company’s liquidity that excludes inventories

R

real estate mortgage a long-term loan with real property held as collateral

reengineering a fundamental restructuring to improve the operations process

reference groups groups that an individual allows to influence his or her behaviour

refugee a person who becomes an entrepreneur to escape an undesirable situation

reliability the consistency of a test in measuring job performance ability

repetitive manufacturing a type of manufacturing operation in which long production runs are used to produce a large quantity of a standardized product

replacement value approach determination of the value of a business based on the cost of replacing the firm’s assets

retained earnings profits that are reinvested in the business instead of being distributed to the owners

return on equity the rate of return that owners earn on their investment

revolving charge account a line of credit on which the customer may charge purchases at any time, up to a pre-established limit

revolving credit agreement a legal commitment by a bank to lend up to a maximum amount

risk premium the difference between the required rate of return on a given investment and the risk-free rate of return

S

sales forecast a prediction of how much of a product or service will be purchased within a market during a specified time period

sales promotion an inclusive term for any promotional techniques that are neither personal selling nor advertising

secondary data market information that has been previously compiled

segmentation variables the parameters used to distinguish one form of market behaviour from another

self-service layout a type of retail store design that gives customers direct access to merchandise

serendipity the faculty for making desirable discoveries by accident
service mark a legal term indicating the exclusive right to use a brand to identify a service

share certificate a document specifying the number of shares owned by a shareholder

short-range plan a plan that governs a firm’s operations for one year or less

short-term liabilities or notes (current debt) borrowed money that must be repaid within 12 months

single-entry system a checkbook system of accounting reflecting only receipts and disbursements

single-segmentation strategy a strategy that recognizes the existence of several distinct market segments but focuses on only the most profitable segment

skimming price strategy a marketing approach that sets very high prices for a limited period before reducing them to more competitive levels

Small Business Loans Act a federal government program that provides financing to small businesses through private lenders, for which the federal government guarantees repayment

small business marketing business activities that identify a target market, determine that market’s potential, and prepare, communicate, and deliver a bundle of satisfaction to that market

sole proprietorship a business owned and operated by one person

span of control the number of subordinates supervised by one manager

special-purpose equipment machines designed to serve specialized functions in the production process

spontaneous financing short-term debts, such as accounts payable, that spontaneously increase in proportion to a firm’s increasing sales

staff activities activities that support line activities

stages in succession phases in the process of transferring leadership from parent to child in a family business

standard operating procedure an established method of conducting a business activity

start-up creating a new business from scratch

statement of cash flows a financial report that shows changes in a firm’s cash position over a given period of time

statistical process control the use of statistical methods to assess quality during the operations process

strategic acquisition a purchase in which the value of the business is based on both the firm’s stand-alone characteristics and the synergies that the buyer thinks can be created

strategic alliance an organizational relationship that links two or more independent business entities in a common endeavour

strategic decision a decision regarding the direction a firm will take in relating to its customers and competitors

strategy an action plan that guides resource investments to capitalize on business opportunities

sustainable competitive advantage an established, value-creating industry position that is likely to endure over time

SWOT analysis a framework that provides a concise overview of a firm’s strategic situation

T

tangible resources organizational resources that are visible and easy to measure

term loan money loaned for a five- to 10-year term, corresponding to the length of time the investment will bring in profits

time study the determination of the average time it takes a worker to complete a given task

times interest earned ratio the ratio of operating income to interest charges

total asset turnover the ratio of sales to total assets, showing the efficiency with which a firm’s assets are used to generate sales

total cost the sum of cost of goods sold, selling expenses, and overhead costs

total fixed costs costs that remain constant as the quantity produced or sold varies

total quality management (TQM) an all-encompassing management approach to providing high-quality products and services

total variable costs costs that vary with the quantity produced or sold

trade credit financing provided by a supplier of inventory to a given company, which sets up an account payable for the amount

trademark an identifying feature used to distinguish a manufacturer’s product

transfer of ownership traditionally the final step in conveyance of power from parent to child—that of distributing ownership of the family business

Type A ideas start-up ideas centred around providing customers with an existing product not available in their market

Type B ideas start-up ideas, involving new technology, centred around providing customers with a new product

Type C ideas start-up ideas centred around providing customers with an improved product

U

unity of command a situation in which each employee’s instructions come directly from only one immediate supervisor

unlimited liability liability on the part of an owner that extends beyond the owner’s investment in the business

unsegmented strategy a strategy that defines the total market as the target market

V

validity the extent to which a test assesses true job performance ability
variable inspection the determination of product acceptability based on a variable such as weight or length

variable pricing strategy a marketing approach that sets more than one price for a good or service in order to offer price concessions to certain customers

variance the difference between planned or forecast activity and actual activity

venture capitalist an investor or investment group that commits money to new business ventures

W

warranty a promise that a product will perform at a certain level or meet certain standards

work teams groups of employees with freedom to function without close supervision

working capital (current assets) liquid assets that can be converted into cash within a company’s operating cycle

working-capital cycle the daily flow of resources through a firm’s working-capital accounts

working-capital management the management of current assets and current liabilities

World Trade Organization (WTO) an international organization that administers GATT and works to lower tariffs and trade barriers worldwide

Z

zoning ordinances local laws regulating land use