Glossary - General Business
Entrepreneur - An individual who creates and builds on a business opportunity to the point where it becomes profitable and expands. Entrepreneurs differ from ‘small business owners’ in that they do not simply create a revenue stream which replaces formal employment. Instead, they develop new products, market sectors or methods of operating which differ from the norm. Because they seek to change the nature of the status quo via new thinking and different methods, Entrepreneurs will frequently also generate great wealth. As an example, Richard Branson is an entrepreneur, whereas a self-employed lawyer or plumber is a small business owner.
Executive Summary - An uncomplicated and non-technical summary which provides an overview of a longer document, report, proposal or business plan. It is typically found in the early pages of the document and summarises the key issues, solutions and recommendations. So named because it enables busy executives to get to grips with the key issues without having to study the document in great detail.
Exit Strategy - A planned way for entrepreneurs, business owners or investors to recoup the effort and capital they have invested in a company. This is typically achieved by an outright sale, selling a majority shareholding, or via a buyout by management and/or employees. From time to time, businesses also need an Exit Strategy to move out of a particular country, market segment, or in order to downsize.
Fatal 2% Rule - The concept that if a new business can attain just 2% of market share it will be successful – and that failure to do so will be ‘fatal’. Although this percentage seems small, it is frequently unattainable for newcomers due to factors such as insufficient capital and resources, aggressive dominant players, and geographical challenges.
Franchise - A business system in which an organisation with an already successful product or service becomes a ‘franchisor’ and sells the system to other individuals or organisations. In return for a fee, the ‘franchisee’ then operates using the franchisor’s brand name and operating systems, and under the guidance of the franchisor. A Franchise is ideal for entrepreneurial individuals or small groups of investors with limited expertise in a particular sector. Well known examples include McDonald’s, Nando’s, Pam Golding Properties, Tiger Wheel & Tyre, etc.
Innovation - A continuous process within an organisation to conceptualise, design, develop and re-develop products and services so that the business is at the cutting edge of technology, trends and customer requirements. Innovation does not refer to minor tweaks and incremental improvements, but to notable leaps forward which competitors will find difficult to imitate or improve upon in the short term
Intrapreneurship - The act of behaving in an entrepreneurial manner, even though the business may be a medium to large organisation. This approach enables otherwise hidebound and slow-moving companies to be innovative and fast-moving in order to take advantage of opportunities and adapt to rapid change. The rise of the internet, dramatic advances in technology, and massive changes in consumer attitudes have all made it vital that bigger organisations engage in Intrapreneurship if they are to survive into the future.
Inventory - Merchandise in stock but not yet sold, unfinished products, and raw materials are all part of the Inventory of a business and are categorised as liquid assets because they can relatively easily be converted into cash. For a company, particularly in the manufacturing or import sector, Inventory is a key part of the overall asset base. Careful Inventory management is also an important challenge for a business, as over-stocking ties up capital, while having too little stock reduces sales and harms customer relationships.
Invoice - A commercial document, issued by the seller, which details a transaction between the seller and a buyer. It will typically include particulars of the item/s sold and the quantities, names and details of the two parties involved, the price payable, invoice number, date, tax information, and terms of sale (for example, cash on delivery, 30 days’ credit, etc).
Leverage - A measurement of the amount of debt a business is using to finance its operations and to create assets. A company with notably more debt than equity is said to be ‘highly leveraged’ and may be at risk of bankruptcy if it becomes unable to meet its debt repayments. Being too highly leveraged also makes it difficult to secure other loans in the future. However, if properly managed, being highly leveraged can also increase return on investment.
Marketing - Industry guru, Philip Kotler, defines it as: ‘The management process that identifies, anticipates and satisfies customer requirements profitably’, while the Chartered Institute of Marketing in the United Kingdom describes Marketing as ‘the right product, in the right place, at the right time’. Modern-day marketing is frequently used as an all-encompassing term covering a variety of related disciplines such as market research, advertising, public relations, customer relationship marketing, etc.
Market Share - The share of business (usually expressed as a percentage) that a company, brand or product has in its industry or market segment. It is used to measure its relative success versus competitors, as well as to gauge potential for expansion. Investors will also use market share figures to decide whether a business is likely to be a profitable investment. Market share is calculated by taking total sales over a specified period and dividing it by the total sales in that industry/sector over the same timeframe.
Mark Up - The difference between the cost price of a product or service, and the price at which it is sold. This will typically be set after considering manufacturing and development costs, overheads, required profit margin, the cost of getting the product or service to market, and the pricing strategies of competitors.
Mission Statement - A short statement which defines key elements such as an organisation’s reason for existing, its objectives, philosophy and the markets it intends to serve. It is typically a concise summary of the broader business strategy and serves as a compass for staff and management, as well as an important statement for customers, suppliers and the community at large.
Operating Expenses - Expenses that are associated with the normal running of a business, but which are not directly relevant to the goods or services being sold by the organisation. These include administrative costs, research and development, sales and marketing, etc. In difficult economic times, operating expenses are continually under the spotlight, as management seeks ways to cut costs without damaging the core functions of the business.
Opportunity Analysis(Market Opportunity Analysis) - This is the analysis of market factors which could impact on a business, in order to develop forecasts which senior management and/or the board can use to set long-term policies and strategies. Factors may include: likely market growth or shrinkage; likely competitor activity; economic forecasts; consumer trends; political factors such as change of government policy, etc.
Opportunity Cost - An economics term for the benefit that a business could have gained by putting the same resources to a different use. For example, a company may be faced with the choice of upgrading its production line to produce more of its current range, or to install a new production line to manufacture an all-new product. Opportunity Cost is, therefore, an important part of the long-term decision-making process of a business
Payment Terms - The legal or contractual conditions under which a seller agrees to enter into a sale. These will typically stipulate the period of time in which the buyer must pay off the amount owing, and may include an upfront deposit, full payment in advance, cash on delivery, payment 30 days from invoice, or similar.
PEST(Political, Economic, Social and Technological (PEST) Analysis) - it is a framework of macro-environmental factors used for environmental scanning during the strategic planning process. Similar to a SWOT Analysis (Strengths, Weaknesses, Opportunities and Threats) it considers factors such as unemployment, inflation, political stability, tax policies, demographics, education and skills of the workforce, technological advancement, etc.)
Point-of-sale(POS) - it is the main computer linked by a network to a number of checkout terminals, usually in a retail environment. Using the information generated by the system, management can analyse shopping trends, identify peak and trough periods, track stock levels and generate new orders. The POS system can also typically be linked to credit card readers, receipt printers, cash tracking software and other electronic systems designed to track stock and cash flow. In marketing terms, point-of-sale refers to in-store promotional activities designed to target consumers at the point where they are making the buying decision. It often leads to impulse buying)
Procurement(Purchasing) - It is the process of obtaining the goods and services which a business needs in order to continue to operate. The work of a Procurement department will typically include: determining purchasing requirements; developing suitable standards; identifying and negotiating with suppliers; administering the delivery of stock, etc.
Product Line(Product Range) - It is related products and services offered by a single company to the marketplace. For example, automaker Toyota offers smaller and bigger cars, bakkies, mini-buses, light commercial vehicles and 4x4s in order to cater for as wide a range of customers as possible. Extending the Product Line is usually a good way for an established company or brand to leverage its good standing with consumers and expand into other areas. For example, Tag Heuer offers not just watches, but other lifestyle accessories such as eyewear and mobile phones.
Profit Margin - A measure of how much out of every rand that a company keeps in earnings. Usually expressed as a percentage, it is Net Profit (see listing under ‘N’) divided by Sales. A higher profit margin typically indicates that a business has good control over its costs, or that it has established itself as a premium brand and can, therefore, increase its prices more than its competitors, while still offering a similar product.
Research & Development(R & D) - is the range of activities which a business conducts in order to come up with new products, technologies and procedures, or to enhance existing ones. While the term is commonly associated with high-technology industries such as IT, electronics and pharmaceuticals, it can be applied to any organization where innovation, or planned and sustained improvement, is required.
Retailer - An individual or organization selling goods to consumers, as opposed a wholesaler or a business-to-business supplier, which sells goods to other businesses – usually in bulk and sometimes at a discounted rate. The retailer will normally purchase from wholesalers, or direct from the manufacturer, and sell to consumers at a mark-up. The definition encompasses anything from a small neighborhood ‘spaza’ shop to the likes of giant retailers like Checkers or Edgars.
Sales Forecast - A projection of likely sales revenue for a business, based on an analysis of market trends and broad economic trends, industry surveys, previous sales history, and input from the sales team and existing customers. It is a vital part of the management strategy of any business, as sales will normally be the main form of income and cash flow. Without an accurate Sales Forecast, a business cannot successfully plan for the future or determine the stock and assets which it needs to have in place, as well the expenses which it may incur.
Sales on Credit (Credit Sales) - It is products and services sold on the understanding that payment will be made at a later, mutually agreeable, date. This may involve payment via a single lump sum – over 30 to 90 days, for example – or payment in instalments over a period which may last for several years. In the latter case, this will frequently involve an interest payment as well. The opposite of Cash Sales.
Seed Capital (Starting Capital) - It is the capital needed by a business to get started. This may come from the personal assets of the founder or from family and friends. It may also be supplied by an Angel Investor, an affluent individual who invests in an entrepreneurial start-up or expansion, in the hope of receiving a very high Return on Investment in a relatively short timeframe. Venture Capitalists and traditional banks usually view businesses in the start-up phase as high risk and are reluctant to provide Seed Capital.
Shareholder(Stockholder) - It is an individual, institution or business which owns at least one share (although usually many) in a public company. Shareholders are regarded as the ultimate ‘owners’ of a public company and the board and management are answerable to the Shareholders. Although Shareholders will profit when the business does well, they also share in the risk of a loss when the business performs poorly.
Starting Capital (Seed Capital) - It is the capital needed by a business to get started. This may come from the personal assets of the founder or from family and friends. It may also be supplied by an Angel Investor, an affluent individual who invests in an entrepreneurial start-up or expansion, in the hope of receiving a very high Return on Investment in a relatively short timeframe. Venture Capitalists and traditional banks usually view businesses in the start-up phase as high risk and are reluctant to provide Starting Capital.
Stock - Also known as Shares. It is a security which signifies ownership or part-ownership of business and entitles the holder to share in the assets and earnings (as well as the losses). A holder of Stock is a Shareholder in the business. Stock may also refer to the goods or merchandise held by a manufacturer, wholesaler or retailer – and which is available for sale or onward distribution.
Succession Planning - A strategic planning process carried out within an organisation to identify, train and nurture employees, managers and executives with the abilities and/or potential to fill more senior roles within the business. Succession Planning is particularly important at senior level, where illness, death or the sudden departure of a key person can leave the organisation without direction and lacking critical skills.
Sustainable Development - The strategy of only promoting growth and development in situations where there will not be a negative long-term impact in the environment and the planet’s natural resources. Once a concept restricted to environmental activists and a few ‘enlightened’ organisations and governments, Sustainable Development has now received widespread acceptance as a necessary long-term economic and business strategy.
Switching Costs - The business strategy of ensuring that a customer will incur a high cost – either in monetary cost or in terms of time and difficulty – if they switch from that company’s product or service to that of a competitor. Cellular networks and cellular service providers are a common example, as are banks.
SWOT Analysis - A business tool, particularly common in strategic planning and marketing, which is used to assess Strengths, Weaknesses, Opportunities and Threats. It can be applied to the organisation as a whole, to specific products or services, or to competitor organisations and their products and services. A SWOT Analysis helps a business to be objective about its own strengths and shortcomings, as well as those of its competitors – and to plan accordingly.
Target Market - That segment of the overall market to which a business wants to sell its products or services. Very few products are so generic as to be suitable to everyone, everywhere. Therefore, companies will identify more specific targets which may be segmented by age, gender, lifestyle, income, ethnicity, cultural or religious beliefs, geographical location, etc. Target Market also applies in the business-to-business environment where, for example, a manufacturer of surgical equipment for operating theatres would target surgeons and hospitals as likely customers.
Time Management - The process of maintaining proper control over the amount of time spent on activities and tasks, whether in the workplace or an individual’s private life. Typically a successful Time Management system will involve analysing key tasks, setting priorities, allocating specific times to specific jobs, delegating, organising, and scheduling activities in a logical manner. Time Management is particularly important in organisations where meeting deadlines is critical.
Trade Margin(Margin of Profit or Mark-up) - It is the difference between the cost price of a product or service, and the price at which it is sold. The Trade Margin will typically be decided after considering manufacturing and development costs, overheads, required profit margin, the cost of getting the product or service to market, and the pricing strategies of competitors.