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Business Plans Handbook _Glossary

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Glossary of Small Business Terms
Absolute liability                                       Adaptation
Liability that is incurred due to product defects        The process whereby an invention is modified to meet
or negligent actions. Manufacturers or retail            the needs of users.
establishments are held responsible, even though         Adaptive engineering
the defect or action may not have been intentional       The process whereby an invention is modified to meet
or negligent.                                            the manufacturing and commercial requirements
ACE                                                      of a targeted market.
See Active Corps of Executives                           Adverse selection

Accident and health benefits                             The tendency for higher-risk individuals to purchase
Benefits offered to employees and their families in      health care and more comprehensive plans, resulting
order to offset the costs associated with accidental     in increased costs.
death, accidental injury, or sickness.                   Advertising
                                                         A marketing tool used to capture public attention and
Account statement
A record of transactions, including payments, new        influence purchasing decisions for a product or service.
debt, and deposits, incurred during a defined period     Utilizes various forms of media to generate consumer
of time.                                                 response, such as flyers, magazines, newspapers, radio,
                                                         and television.
Accounting system
System capturing the costs of all employees and/or       Age discrimination
                                                         The denial of the rights and privileges of employment
machinery included in business expenses.
                                                         based solely on the age of an individual.
Accounts payable
                                                         Agency costs
See Trade credit
                                                         Costs incurred to insure that the lender or investor
Accounts receivable                                      maintains control over assets while allowing the
Unpaid accounts which arise from unsettled claims        borrower or entrepreneur to use them. Monitoring
and transactions from the sale of a company’s            and information costs are the two major types of
products or services to its customers.                   agency costs.
Active Corps of Executives (ACE)                         Agribusiness
A group of volunteers for a management                   The production and sale of commodities and products
assistance program of the U.S. Small Business            from the commercial farming industry.
Administration; volunteers provide one-on-one
                                                         America Online
counseling and teach workshops and seminars              An online service which is accessible by computer
for small firms.                                         modem. The service features Internet access, bulletin
ADA                                                      boards, online periodicals, electronic mail, and other
See Americans with Disabilities Act                      services for subscribers.


Americans with Disabilities Act (ADA)                     Basket clause
Law designed to ensure equal access and opportunity       A provision specifying the amount of public pension
to handicapped persons.                                   funds that may be placed in investments not included
                                                          on a state’s legal list (see separate citation).
Annual report
Yearly financial report prepared by a business that       BBS
adheres to the requirements set forth by the Securities   See Bulletin Board Service
and Exchange Commission (SEC).
Antitrust immunity                                        See Business development corporation
Exemption from prosecution under antitrust laws.          Benefit
In the transportation industry, firms with antitrust      Various services, such as health care, flextime, day
immunity are permitted under certain conditions to set    care, insurance, and vacation, offered to employees as
schedules and sometimes prices for the public benefit.    part of a hiring package. Typically subsidized in whole
Applied research                                          or in part by the business.
Scientific study targeted for use in a product or         BIDCO
process.                                                  See Business and industrial development company
Asians                                                    Billing cycle
A minority category used by the U.S. Bureau of the        A system designed to evenly distribute customer
Census to represent a diverse group that includes         billing throughout the month, preventing clerical
Aleuts, Eskimos, American Indians, Asian Indians,         backlogs.
Chinese, Japanese, Koreans, Vietnamese, Filipinos,
Hawaiians, and other Pacific Islanders.
                                                          See Business birth
                                                          Blue chip security
Anything of value owned by a company.
                                                          A low-risk, low-yield security representing an interest
Audit                                                     in a very stable company.
The verification of accounting records and business
                                                          Blue sky laws
procedures conducted by an outside accounting
                                                          A general term that denotes various states’ laws
                                                          regulating securities.
Average cost                                              Bond
Total production costs divided by the quantity            A written instrument executed by a bidder or
produced.                                                 contractor (the principal) and a second party
Balance Sheet                                             (the surety or sureties) to assure fulfillment of the
A financial statement listing the total assets and        principal’s obligations to a third party (the obligee or
liabilities of a company at a given time.                 government) identified in the bond. If the principal’s
                                                          obligations are not met, the bond assures payment to
The condition in which a business cannot meet its         the extent stipulated of any loss sustained by the
debt obligations and petitions a federal district court   obligee.
either for reorganization of its debts (Chapter 11) or    Bonding requirements
for liquidation of its assets (Chapter 7).                Terms contained in a bond (see separate citation).
Basic research                                            Bonus
Theoretical scientific exploration not targeted to        An amount of money paid to an employee as a reward
application.                                              for achieving certain business goals or objectives.

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                                                                       GLOSSARY OF SMALL BUSINESS TERMS

Brainstorming                                              Business death
A group session where employees contribute their           The voluntary or involuntary closure of a firm or
ideas for solving a problem or meeting a company           establishment. The disappearance of an establishment
objective without fear of retribution or ridicule.         or enterprise from the Small Business Data Base (see
Brand name                                                 separate citation).
The part of a brand, trademark, or service mark that       Business development corporation (BDC)
can be spoken. It can be a word, letter, or group of       A business financing agency, usually composed of
words or letters.                                          the financial institutions in an area or state,
Bridge financing                                           organized to assist in financing businesses unable to
A short-term loan made in expectation of                   obtain assistance through normal channels; the risk is
intermediateterm or long-term financing. Can be used       spread among various members of the business
when a company plans to go public in the near future.      development corporation, and interest rates may vary
                                                           somewhat from those charged by member institutions.
One who matches resources available for innovation         A venture capital firm in which shares of ownership
with those who need them.                                  are publicly held and to which the Investment Act of
                                                           1940 applies.

An estimate of the spending necessary to complete a        Business dissolution
project or offer a service in comparison to cash-on-       For enumeration purposes, the absence of a business
hand and expected earnings for the coming year, with       that was present in the prior time period from any
an emphasis on cost control.                               current record.

Bulletin Board Service (BBS)                               Business entry
An online service enabling users to communicate with       See Business birth
each other about specific topics.
                                                           Business ethics
Business and industrial development company                Moral values and principles espoused by members of
(BIDCO)                                                    the business community as a guide to fair and honest
A private, for-profit financing corporation chartered      business practices.
by the state to provide both equity and long-term debt
capital to small business owners (see separate citations   Business exit
                                                           See Business death
for equity and debt capital).
                                                           Business expansions
Business birth
                                                           The number of establishments that added employees
The formation of a new establishment or enterprise.
                                                           during a specified time.
The appearance of a new establishment or enterprise
in the Small Business Data Base (see separate citation).   Business failure
                                                           Closure of a business causing a loss to at least one
Business conditions
Outside factors that can affect the financial              creditor.
performance of a business.                                 Business format franchising
Business contractions                                      The purchase of the name, trademark, and an ongoing
The number of establishments that have decreased in        business plan of the parent corporation or franchisor
employment during a specified time.                        by the franchisee.

Business cycle                                             Business license
A period of economic recession and recovery. These         A legal authorization issued by municipal and state
cycles vary in duration.                                   governments and required for business operations.

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Business name                                              received during a specified time period. Accumulated
Enterprises must register their business names with        goods devoted to production. Accumulated
local governments usually on a "doing business as"         possessions calculated to bring income.
(DBA) form. (This name is sometimes referred to as a
                                                           Capital expenditure
"fictional name.") The procedure is part of the
                                                           Expenses incurred by a business for improvements
business licensing process and prevents any other
                                                           that will depreciate over time.
business from using that same name for a similar
business in the same locality.                             Capital gain
                                                           The monetary difference between the purchase price
Business norms
                                                           and the selling price of capital. Capital gains are taxed
See Financial ratios
                                                           at a rate of 28% by the federal government.
Business permit
See Business license                                       Capital intensity
                                                           The relative importance of capital in the production
Business plan                                              process, usually expressed as the ratio of capital to
A document that spells out a company’s expected
                                                           labor but also sometimes as the ratio of capital to
course of action for a specified period, usually
including a detailed listing and analysis of risks and
uncertainties. For the small business, it should           Capital resource
examine the proposed products, the market, the             The equipment, facilities and labor used to create
industry, the management policies, the marketing           products and services.
policies, production needs, and financial needs.           Caribbean Basin Initiative
Frequently, it is used as a prospectus for potential       An interdisciplinary program to support commerce
investors and lenders.                                     among the businesses in the nations of the Caribbean
Business proposal                                          Basin and the United States. Agencies involved include:
See Business plan                                          the Agency for International Development, the U.S.
                                                           Small Business Administration, the International Trade
Business service firm
                                                           Administration of the U.S. Department of Commerce,
An establishment primarily engaged in rendering
                                                           and various private sector groups.
services to other business organizations on a fee or
contract basis.                                            Catastrophic care
                                                           Medical and other services for acute and long-term
Business start
For enumeration purposes, a business with a name or        illnesses that cost more than insurance coverage limits
similar designation that did not exist in a prior time     or that cost the amount most families may be expected
period.                                                    to pay with their own resources.

Cafeteria plan                                             CDC
See Flexible benefit plan                                  See Certified development corporation

Capacity                                                   CD-ROM
Level of a firm’s, industry’s, or nation’s output          Compact disc with read-only memory used to store
corresponding to full practical utilization of available   large amounts of digitized data.
resources.                                                 Certified development corporation (CDC)
Capital                                                    A local area or statewide corporation or authority (for
Assets less liabilities, representing the ownership        profit or nonprofit) that packages U.S. Small Business
interest in a business. A stock of accumulated goods,      Administration (SBA), bank, state, and/or private
especially at a specified time and in contrast to income   money into financial assistance for existing business

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                                                                       GLOSSARY OF SMALL BUSINESS TERMS

capital improvements. The SBA holds the second lien        Coinsurance is a payment of a fixed percentage of the
on its maximum share of 40 percent involvement.            cost of each service; copayment is usually a fixed
Each state has at least one certified development          amount to be paid with each service.
corporation. This program is called the SBA 504
Program.                                                   Securities, evidence of deposit, or other property
Certified lenders                                          pledged by a borrower to secure repayment of a loan.
Banks that participate in the SBA guaranteed loan
                                                           Collective ratemaking
program (see separate citation). Such banks must have      The establishment of uniform charges for services by a
a good track record with the U.S. Small Business           group of businesses in the same industry.
Administration (SBA) and must agree to certain
conditions set forth by the agency. In return, the SBA     Commercial insurance plan
                                                           See Underwriting
agrees to process any guaranteed loan application
within three business days.                                Commercial loans
                                                           Short-term renewable loans used to finance specific
                                                           capital needs of a business.
An advocate for the development of an innovation.

Channel of distribution
                                                           The final stage of the innovation process, including
The means used to transport merchandise from the
                                                           production and distribution.
manufacturer to the consumer.
                                                           Common stock
Chapter 7 of the 1978 Bankruptcy Act
                                                           The most frequently used instrument for purchasing
Provides for a court-appointed trustee who is
                                                           ownership in private or public companies. Common
responsible for liquidating a company’s assets in order
                                                           stock generally carries the right to vote on certain
to settle outstanding debts.
                                                           corporate actions and may pay dividends, although it
Chapter 11 of the 1978 Bankruptcy Act                      rarely does in venture investments. In liquidation,
Allows the business owners to retain control of the        common stockholders are the last to share in the
company while working with their creditors to              proceeds from the sale of a corporation’s assets;
reorganize their finances and establish better business    bondholders and preferred shareholders have priority.
practices to prevent liquidation of assets.                Common stock is often used in firstround start-up
Closely held corporation                                   financing.
A corporation in which the shares are held by a few
                                                           Community development corporation
persons, usually officers, employees, or others close to   A corporation established to develop economic
the management; these shares are rarely offered to the     programs for a community and, in most cases, to
public.                                                    provide financial support for such development.
Code of Federal Regulations                                Competitor
Codification of general and permanent rules of the         A business whose product or service is marketed for
federal government published in the Federal Register.      the same purpose/use and to the same consumer
Code sharing                                               group as the product or service of another.
See Computer code sharing
                                                           Computer code sharing
Coinsurance                                                An arrangement whereby flights of a regional airline
Upon meeting the deductible payment, health                are identified by the two-letter code of a major carrier
insurance participants may be required to make             in the computer reservation system to help direct
additional health care cost-sharing payments.              passengers to new regional carriers.

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Consignment                                                 claim of ownership by others. Copyrights may be
A merchandising agreement, usually referring to             acquired for works of art, sculpture, music, and
secondhand shops, where the dealer pays the owner of        published or unpublished manuscripts. All copyrights
an item a percentage of the profit when the item is sold.   should be registered at the Copyright Office of the
Consortium                                                  Library of Congress.
A coalition of organizations such as banks and              Corporate financial ratios
corporations for ventures requiring large capital           The relationship between key figures found in a
resources.                                                  company’s financial statement expressed as a numeric
Consultant                                                  value. Used to evaluate risk and company
An individual that is paid by a business to provide         performance. Also known as Financial averages,
advice and expertise in a particular area.                  Operating ratios, and Business ratios.

Consumer price index                                        Corporation
A measure of the fluctuation in prices between two          A legal entity, chartered by a state or the federal
points in time.                                             government, recognized as a separate entity having its
                                                            own rights, privileges, and liabilities distinct from
Consumer research                                           those of its members.
Research conducted by a business to obtain information
about existing or potential consumer markets.               Cost containment
                                                            Actions taken by employers and insurers to curtail
Continuation coverage                                       rising health care costs; for example, increasing
Health coverage offered for a specified period of time
                                                            employee cost sharing (see separate citation),
to employees who leave their jobs and to their widows,
                                                            requiring second opinions, or preadmission
divorced spouses, or dependents.
                                                            Cost sharing
See Business contractions
                                                            The requirement that health care consumers
Convertible preferred stock                                 contribute to their own medical care costs through
A class of stock that pays a reasonable dividend and is     deductibles and coinsurance (see separate citations).
convertible into common stock (see separate citation).      Cost sharing does not include the amounts paid in
Generally the convertible feature may only be               premiums. It is used to control utilization of services;
exercised after being held for a stated period of time.     for example, requiring a fixed amount to be paid with
This arrangement is usually considered second-round         each health care service.
financing when a company needs equity to maintain
                                                            Cottage industry
its cash flow.
                                                            Businesses based in the home in which the family
Convertible securities                                      members are the labor force and family-owned
A feature of certain bonds, debentures, or preferred        equipment is used to process the goods.
stocks that allows them to be exchanged by the owner
                                                            Credit Rating
for another class of securities at a future date and in     A letter or number calculated by an organization (such
accordance with any other terms of the issue.               as Dun & Bradstreet) to represent the ability and
Copayment                                                   disposition of a business to meet its financial
See Coinsurance                                             obligations.
Copyright                                                   Customer service
A legal form of protection available to creators and        Various techniques used to ensure the satisfaction of a
authors to safeguard their works from unlawful use or       customer.

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                                                                      GLOSSARY OF SMALL BUSINESS TERMS

Cyclical peak                                             Deregulation
The upper turning point in a business cycle.              The lifting of government restrictions; for example,
                                                          the lifting of government restrictions on the entry of
Cyclical trough
The lower turning point in a business cycle.              new businesses, the expansion of services, and the
                                                          setting of prices in particular industries.
See Business name                                         Desktop Publishing
                                                          Using personal computers and specialized software to
                                                          produce camera-ready copy for publications.
See Business death
                                                          Disaster loans
                                                          Various types of physical and economic assistance
A certificate given as acknowledgment of a debt (see
                                                          available to individuals and businesses through the
separate citation) secured by the general credit of the
                                                          U.S. Small Business Administration (SBA). This is the
issuing corporation. A bond, usually without security,
                                                          only SBA loan program available for residential
issued by a corporation and sometimes convertible to
common stock.
                                                          The denial of the rights and privileges of employment

Something owed by one person to another. Financing
                                                          based on factors such as age, race, religion, or gender.
in which a company receives capital that must be
repaid; no ownership is transferred.                      Diseconomies of scale
                                                          The condition in which the costs of production
Debt capital
                                                          increase faster than the volume of production.
Business financing that normally requires periodic
interest payments and repayment of the principal          Dissolution
within a specified time.                                  See Business dissolution

Debt financing                                            Distribution
See Debt capital                                          Delivering a product or process to the user.

Debt securities                                           Distributor
Loans such as bonds and notes that provide a specified    One who delivers merchandise to the user.
rate of return for a specified period of time.            Diversified company
                                                          A company whose products and services are used by
A set amount that an individual must pay before any       several different markets.
benefits are received.                                    Doing business as (DBA)
                                                          See Business name
Demand shock absorbers
A term used to describe the role that some small firms    Dow Jones
play by expanding their output levels to accommodate      An information services company that publishes the
a transient surge in demand.                              Wall Street Journal and other sources of financial
Statistics on various markets, including age, income,     Dow Jones Industrial Average
and education, used to target specific products or        An indicator of stock market performance.
services to appropriate consumer groups.
                                                          Earned income
Demonstration                                             A tax term that refers to wages and salaries earned by
Showing that a product or process has been modified       the recipient, as opposed to monies earned through
sufficiently to meet the needs of users.                  interest and dividends.

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Economic efficiency                                        Enterprise zone
The use of productive resources to the fullest practical   A designated area, usually found in inner cities and
extent in the provision of the set of goods and services   other areas with significant unemployment, where
that is most preferred by purchasers in the economy.       businesses receive tax credits and other incentives to
                                                           entice them to establish operations there.
Economic indicators
Statistics used to express the state of the economy.       Entrepreneur
These include the length of the average work week, the     A person who takes the risk of organizing and
rate of unemployment, and stock prices.                    operating a new business venture.
Economically disadvantaged                                 Entry
See Socially and economically disadvantaged                See Business entry
Economies of scale                                         Equal Employment Opportunity Commission
See Scale economies                                        (EEOC)
                                                           A federal agency that ensures nondiscrimination in the
                                                           hiring and firing practices of a business.
See Equal Employment Opportunity Commission
8(a) Program                                               Equal opportunity employer
A program authorized by the Small Business Act that        An employer who adheres to the standards set by the
directs federal contracts to small businesses owned and    Equal Employment Opportunity Commission (see
operated by socially and economically disadvantaged        separate citation).
individuals.                                               Equity
                                                           The ownership interest. Financing in which partial or
Electronic mail (e-mail)
The electronic transmission of mail via phone lines.       total ownership of a company is surrendered in
                                                           exchange for capital. An investor’s financial return
E-mail                                                     comes from dividend payments and from growth in
See Electronic mail
                                                           the net worth of the business.
Employee leasing
                                                           Equity capital
A contract by which employers arrange to have their
                                                           See Equity; Equity midrisk venture capital
workers hired by a leasing company and then leased
back to them for a management fee. The leasing             Equity financing
company typically assumes the administrative burden        See Equity; Equity midrisk venture capital
of payroll and provides a benefit package to the           Equity midrisk venture capital
workers.                                                   An unsecured investment in a company. Usually a
                                                           purchase of ownership interest in a company that
Employee tenure
The length of time an employee works for a particular      occurs in the later stages of a company’s
employer.                                                  development.

Employer identification number                             Equity partnership
The business equivalent of a social security number.       A limited partnership arrangement for providing start-
Assigned by the U.S. Internal Revenue Service.             up and seed capital to businesses.

Enterprise                                                 Equity securities
An aggregation of all establishments owned by a            See Equity
parent company. An enterprise may consist of a single,     Equity-type
independent establishment or include subsidiaries and      Debt financing subordinated to conventional
other branches under the same ownership and control.       debt.

436                                                                 B U S I N E S S P L A N S H A N D B O O K , Volume 11
                                                                           GLOSSARY OF SMALL BUSINESS TERMS

Establishment                                                  accident and health insurance, group legal services,
A single-location business unit that may be                    dependent care assistance, and vacations.
independent (a single-establishment enterprise) or
owned by a parent enterprise.
                                                               See Free on board
Establishment and Enterprise Microdata File
                                                               Format franchising
See U.S. Establishment and Enterprise Microdata File
                                                               See Business format franchising; Franchising
Establishment birth
                                                               401(k) plan
See Business birth
                                                               A financial plan where employees contribute a
Establishment Longitudinal Microdata File                      percentage of their earnings to a fund that is invested
See U.S. Establishment Longitudinal Microdata File             in stocks, bonds, or money markets for the purpose of
Ethics                                                         saving money for retirement.
See Business ethics
                                                               Four Ps
Evaluation                                                     Marketing terms referring to Product, Price, Place,
Determining the potential success of translating an            and Promotion.
invention into a product or process.

Exit                                                           A form of licensing by which the owner-the
See Business exit                                              franchisor-distributes or markets a product,
                                                               method, or service through affiliated dealers
Experience rating
See Underwriting                                               called franchisees. The product, method, or service
                                                               being marketed is identified by a brand name,
Financial ratios                                               and the franchisor maintains control over the
See Corporate financial ratios; Industry financial ratios
                                                               marketing methods employed. The franchisee is
Financial statement                                            often given exclusive access to a defined geographic
A written record of business finances, including               area.
balance sheets and profit and loss statements.
Financing                                                      A product sold outside of the country.
See First-stage financing; Second-stage financing;
                                                               Export license
Thirdstage financing
                                                               A general or specific license granted by the U.S.
First-stage financing                                          Department of Commerce required of anyone wishing
Financing provided to companies that have expended             to export goods. Some restricted articles need approval
their initial capital, and require funds to start full-scale   from the U.S. Departments of State, Defense, or
manufacturing and sales. Also known as First-round             Energy.
Fiscal year                                                    See Business failure
Any twelve-month period used by businesses for
accounting purposes.                                           Fair share agreement
                                                               An agreement reached between a franchisor and a
504 Program                                                    minority business organization to extend business
See Certified development corporation                          ownership to minorities by either reducing the
Flexible benefit plan                                          amount of capital required or by setting aside
A plan that offers a choice among cash and/or                  certain marketing areas for minority business
qualified benefits such as group term life insurance,          owners.

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Feasibility study                                          Garment registration number
A study to determine the likelihood that a proposed        A number that must appear on every garment sold in
product or development will fulfill the objectives of a    the U.S. to indicate the manufacturer of the garment,
particular investor.                                       which may or may not be the same as the label under
                                                           which the garment is sold. The U.S. Federal Trade
Federal Trade Commission (FTC)
Federal agency that promotes free enterprise and           Commission assigns and regulates garment
competition within the U.S.                                registration numbers.

Federal Trade Mark Act of 1946                             Gatekeeper
See Lanham Act                                             A key contact point for entry into a network.

Fictional name                                             GDP
See Business name                                          See Gross domestic product

Fiduciary                                                  General obligation bond
An individual or group that hold assets in trust for a     A municipal bond secured by the taxing power of the
beneficiary.                                               municipality. The Tax Reform Act of 1986 limits the
                                                           purposes for which such bonds may be issued and
Financial analysis
                                                           establishes volume limits on the extent of their
The techniques used to determine money needs in a
business. Techniques include ratio analysis, calculation
of return on investment, guides for measuring              GNP
profitability, and break-even analysis to determine        See Gross national product
ultimate success.                                          Good Housekeeping Seal
Financial intermediary                                     Seal appearing on products that signifies the
A financial institution that acts as the intermediary      fulfillment of the standards set by the Good
between borrowers and lenders. Banks, savings and          Housekeeping Institute to protect consumer interests.
loan associations, finance companies, and venture          Goods sector
capital companies are major financial intermediaries       All businesses producing tangible goods, including
in the United States.                                      agriculture, mining, construction, and manufacturing
Free on board (FOB)                                        businesses.
A pricing term indicating that the quoted price            GPO
includes the cost of loading goods into transport          See Gross product originating
vessels at a specified place.
                                                           Gross domestic product (GDP)
Frictional unemployment                                    The part of the nation’s gross national product (see
See Unemployment                                           separate citation) generated by private business using
FTC                                                        resources from within the country.
See Federal Trade Commission
                                                           Gross national product (GNP)
Fulfillment                                                The most comprehensive single measure of aggregate
The systems necessary for accurate delivery of an          economic output. Represents the market value of the
ordered item, including subscriptions and direct           total output of goods and services produced by a
marketing.                                                 nation’s economy.

Full-time workers                                          Gross product originating (GPO)
Generally, those who work a regular schedule of more       A measure of business output estimated from the
than 35 hours per week.                                    income or production side using employee

438                                                                 B U S I N E S S P L A N S H A N D B O O K , Volume 11
                                                                          GLOSSARY OF SMALL BUSINESS TERMS

compensation, profit income, net interest, capital           determine the optimal use of labor to increase
consumption, and indirect business taxes.                    production, thereby increasing profit.

HAL                                                          Idea
See Handicapped assistance loan program                      An original concept for a new product or process.

Handicapped assistance loan program (HAL)                    Import
Low-interest direct loan program through the U.S.            Products produced outside the country in which they
Small Business Administration (SBA) for handicapped          are consumed.
persons. The SBA requires that these persons
demonstrate that their disability is such that it is         Money or its equivalent, earned or accrued, resulting
impossible for them to secure employment, thus               from the sale of goods and services.
making it necessary to go into their own business to
make a living.                                               Income statement
                                                             A financial statement that lists the profits and losses of
Health maintenance organization (HMO)                        a company at a given time.
Organization of physicians and other health care
professionals that provides health services to               Incorporation
                                                             The filing of a certificate of incorporation with a

subscribers and their dependents on a prepaid basis.
                                                             state’s secretary of state, thereby limiting the business
Health provider                                              owner’s liability.
An individual or institution that gives medical care.
Under Medicare, an institutional provider is a               Incubator
                                                             A facility designed to encourage entrepreneurship and
hospital, skilled nursing facility, home health agency,
                                                             minimize obstacles to new business formation and
or provider of certain physical therapy services.
                                                             growth, particularly for high-technology firms, by
Hispanic                                                     housing a number of fledgling enterprises that share
A person of Cuban, Mexican, Puerto Rican, Latin              an array of services, such as meeting areas, secretarial
American (Central or South American), European               services, accounting, research library, on-site financial
Spanish, or other Spanish-speaking origin or ancestry.       and management counseling, and word processing
HMO                                                          facilities.
See Health maintenance organization
                                                             Independent contractor
Home-based business                                          An individual considered self-employed (see separate
A business with an operating address that is also a          citation) and responsible for paying Social Security
residential address (usually the residential address of      taxes and income taxes on earnings.
the proprietor).
                                                             Indirect health coverage
Hub-and-spoke system                                         Health insurance obtained through another
A system in which flights of an airline from many            individual’s health care plan; for example, a spouse’s
different cities (the spokes) converge at a single airport   employersponsored plan.
(the hub). After allowing passengers sufficient time to
                                                             Industrial development authority
make connections, planes then depart for different           The financial arm of a state or other political
cities.                                                      subdivision established for the purpose of financing
Human Resources Management                                   economic development in an area, usually through
A business program designed to oversee recruiting,           loans to nonprofit organizations, which in turn
pay, benefits, and other issues related to the               provide facilities for manufacturing and other
company’s work force, including planning to                  industrial operations.

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Industry financial ratios                                   IPO
Corporate financial ratios averaged for a specified         See Initial public offering
industry. These are used for comparison purposes
                                                            Job description
and reveal industry trends and identify differences         The duties and responsibilities required in a particular
between the performance of a specific company               position.
and the performance of its industry. Also
known as Industrial averages, Industry ratios,              Job tenure
                                                            A period of time during which an individual is
Financial averages, and Business or Industrial
                                                            continuously employed in the same job.
                                                            Joint marketing agreements
                                                            Agreements between regional and major airlines, often
Increases in volume of currency and credit, generally
                                                            involving the coordination of flight schedules, fares,
resulting in a sharp and continuing rise in price levels.
                                                            and baggage transfer. These agreements help regional
Informal capital                                            carriers operate at lower cost.
Financing from informal, unorganized sources;
includes informal debt capital such as trade credit or      Joint venture
                                                            Venture in which two or more people combine efforts
loans from friends and relatives and equity capital
                                                            in a particular business enterprise, usually a single
from informal investors.
                                                            transaction or a limited activity, and agree to share the
Initial public offering (IPO)                               profits and losses jointly or in proportion to their
A corporation’s first offering of stock to the public.      contributions.
Innovation                                                  Keogh plan
The introduction of a new idea into the marketplace in      Designed for self-employed persons and
the form of a new product or service or an                  unincorporated businesses as a tax-deferred pension
improvement in organization or process.                     account.
Intellectual property                                       Labor force
Any idea or work that can be considered proprietary         Civilians considered eligible for employment who are
in nature and is thus protected from infringement by        also willing and able to work.
                                                            Labor force participation rate
Internal capital                                            The civilian labor force as a percentage of the civilian
Debt or equity financing obtained from the owner or         population.
through retained business earnings.
                                                            Labor intensity
Internet                                                    The relative importance of labor in the production
A government-designed computer network that                 process, usually measured as the capital-labor ratio;
contains large amounts of information and is                i.e., the ratio of units of capital (typically, dollars of
accessible through various vendors for a fee.               tangible assets) to the number of employees. The
Intrapreneurship                                            higher the capital-labor ratio exhibited by a firm or
The state of employing entrepreneurial principles to        industry, the lower the capital intensity of that firm or
nonentrepreneurial situations.                              industry is said to be.

Invention                                                   Labor surplus area
The tangible form of a technological idea, which            An area in which there exists a high unemployment
could include a laboratory prototype, drawings,             rate. In procurement (see separate citation), extra
formulas, etc.                                              points are given to firms in counties that are

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designated a labor surplus area; this information is           Limited partnerships
requested on procurement bid sheets.                           See Venture capital limited partnerships

Labor union                                                    Liquidity
An organization of similarly-skilled workers who               The ability to convert a security into cash promptly.
collectively bargain with management over the                  Loans
conditions of employment.                                      See Commercial loans; Disaster loans; SBA direct
Laboratory prototype                                           loans; SBA guaranteed loans; SBA special lending
See Prototype                                                  institution categories Local Area Network (LAN)
                                                               Computer networks contained within a single building
See Local Area Network                                         or small area; used to facilitate the sharing of
Lanham Act
Refers to the Federal Trade Mark Act of 1946. Protects         Local development corporation
registered trademarks, trade names, and other service          An organization, usually made up of local citizens
marks used in commerce.                                        of a community, designed to improve the economy
                                                               of the area by inducing business and industry to
Large business-dominated industry                              locate and expand there. A local development

Industry in which a minimum of 60 percent of
                                                               corporation establishes a capability to finance local
employment or sales is in firms with more than 500
                                                               Long-haul rates
                                                               Rates charged by a transporter in which the distance
See Leveraged buy-out
                                                               traveled is more than 800 miles.
Leader pricing
A reduction in the price of a good or service in order         Long-term debt
                                                               An obligation that matures in a period that exceeds
to generate more sales of that good or service.
                                                               five years.
Legal list
A list of securities selected by a state in which certain      Low-grade bond
                                                               A corporate bond that is rated below investment grade
institutions and fiduciaries (such as pension funds,
                                                               by the major rating agencies (Standard and Poor’s,
insurance companies, and banks) may invest. Securities
not on the list are not eligible for investment. Legal lists
typically restrict investments to high quality securities      Macro-efficiency
meeting certain specifications. Generally, investment is       Efficiency as it pertains to the operation of markets
limited to U.S. securities and investment-grade blue           and market systems.
chip securities (see separate citation).                       Managed care
Leveraged buy-out (LBO)                                        A cost-effective health care program initiated by
The purchase of a business or a division of a corporation      employers whereby low-cost health care is made
through a highly leveraged financing package.                  available to the employees in return for exclusive
                                                               patronage to program doctors.
An obligation or duty to perform a service or an act.          Management Assistance Programs
Also defined as money owed.                                    See SBA Management Assistance Programs

License                                                        Management and technical assistance
A legal agreement granting to another the right to use         A term used by many programs to mean business (as
a technological innovation.                                    opposed to technological) assistance.

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Mandated benefits                                          Medicare (Title XVIII)
Specific treatments, providers, or individuals required    A nationwide health insurance program for disabled
by law to be included in commercial health plans.          and aged persons. Health insurance is available to
Market evaluation                                          insured persons without regard to income. Monies
The use of market information to determine the sales       from payroll taxes cover hospital insurance and
potential of a specific product or process.                monies from general revenues and beneficiary
                                                           premiums pay for supplementary medical insurance.
Market failure
The situation in which the workings of a competitive       MEL
market do not produce the best results from the point      See Master Establishment List
of view of the entire society.                             MESBIC
Market information                                         See Minority enterprise small business investment
Data of any type that can be used for market               corporation
evaluation, which could include demographic data,
technology forecasting, regulatory changes, etc.           See Multiple employer trust
Market research                                            Metropolitan statistical area (MSA)
A systematic collection, analysis, and reporting of data   A means used by the government to define large
about the market and its preferences, opinions, trends,    population centers that may transverse different
and plans; used for corporate decision-making.             governmental jurisdictions. For example, the
Market share                                               Washington, D.C. MSA includes the District of
In a particular market, the percentage of sales of a       Columbia and contiguous parts of Maryland and
specific product.                                          Virginia because all of these geopolitical areas
Marketing                                                  comprise one population and economic operating
Promotion of goods or services through various             unit.
media.                                                     Mezzanine financing
Master Establishment List (MEL)                            See Third-stage financing
A list of firms in the United States developed by the
U.S. Small Business Administration; firms can be           Efficiency as it pertains to the operation of individual
selected by industry, region, state, standard              firms.
metropolitan statistical area (see separate citation),
county, and zip code.                                      Microdata
                                                           Information on the characteristics of an individual
Maturity                                                   business firm.
The date upon which the principal or stated value of a
bond or other indebtedness becomes due and payable.        Mid-term debt
                                                           An obligation that matures within one to five years.
Medicaid (Title XIX)
A federally aided, state-operated and administered         Midrisk venture capital
program that provides medical benefits for certain low     See Equity midrisk venture capital
income persons in need of health and medical care          Minimum premium plan
who are eligible for one of the government’s welfare       A combination approach to funding an insurance plan
cash payment programs, including the aged, the blind,      aimed primarily at premium tax savings. The
the disabled, and members of families with dependent       employer self-funds a fixed percentage of estimated
children where one parent is absent, incapacitated, or     monthly claims and the insurance company insures
unemployed.                                                the excess.

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Minimum wage                                              Multiple employer trust (MET)
The lowest hourly wage allowed by the federal             A self-funded benefit plan generally geared toward
government.                                               small employers sharing a common interest.

Minority Business Development Agency                      NAFTA
Contracts with private firms throughout the nation to     See North American Free Trade Agreement
sponsor Minority Business Development Centers             NASDAQ
which provide minority firms with advice and              See National Association of Securities Dealers
technical assistance on a fee basis.                      Automated Quotations
Minority Enterprise Small Business Investment             National Association of Securities Dealers
Corporation (MESBIC)                                      Automated Quotations
A federally funded private venture capital firm           Provides price quotes on over-the-counter securities as
licensed by the U.S. Small Business Administration to     well as securities listed on the New York Stock
provide capital to minority-owned businesses (see         Exchange.
separate citation).
                                                          National income
Minority-owned business                                   Aggregate earnings of labor and property arising from
Businesses owned by those who are socially or

                                                          the production of goods and services in a nation’s
economically disadvantaged (see separate citation).       economy.
Mom and Pop business                                      Net assets
A small store or enterprise having limited capital,       See Net worth
principally employing family members.
                                                          Net income
Moonlighter                                               The amount remaining from earnings and profits after
A wage-and-salary worker with a side business.            all expenses and costs have been met or deducted. Also
                                                          known as Net earnings.
See Metropolitan statistical area                         Net profit
                                                          Money earned after production and overhead
Multi-employer plan
                                                          expenses (see separate citations) have been
A health plan to which more than one employer is
required to contribute and that may be maintained
through a collective bargaining agreement and             Net worth
required to meet standards prescribed by the U.S.         The difference between a company’s total assets and its
Department of Labor.                                      total liabilities.

Multi-level marketing                                     Network
A system of selling in which you sign up other people     A chain of interconnected individuals or organizations
to assist you and they, in turn, recruit others to help   sharing information and/or services.
them. Some entrepreneurs have built successful            New York Stock Exchange (NYSE)
companies on this concept because the main focus of       The oldest stock exchange in the U.S. Allows for
their activities is their product and product sales.      trading in stocks, bonds, warrants, options, and rights
                                                          that meet listing requirements.
The use of several types of media to promote a            Niche
product or service. Also, refers to the use of several    A career or business for which a person is well-suited.
different types of media (sight, sound, pictures, text)   Also, a product which fulfills one need of a particular
in a CD-ROM (see separate citation) product.              market segment, often with little or no competition.

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Nodes                                                       Owner’s capital
One workstation in a network, either local area or          Debt or equity funds provided by the owner(s) of a
wide area (see separate citations).                         business; sources of owner’s capital are personal
                                                            savings, sales of assets, or loans from financial
Nonbank bank
A bank that either accepts deposits or makes loans, but     institutions.
not both. Used to create many new branch banks.             P&L
                                                            See Profit and loss statement
Noncompetitive awards
A method of contracting whereby the federal                 Part-time workers
government negotiates with only one contractor to           Normally, those who work less than 35 hours per
supply a product or service.                                week. The Tax Reform Act indicated that part-time
                                                            workers who work less than 17.5 hours per week may
Nonmember bank
A state-regulated bank that does not belong to the          be excluded from health plans for purposes of
federal bank system.                                        complying with federal nondiscrimination rules.
                                                            Part-year workers
                                                            Those who work less than 50 weeks per year.
An organization that has no shareholders, does not
distribute profits, and is without federal and state tax    Partnership
liabilities.                                                Two or more parties who enter into a legal
                                                            relationship to conduct business for profit. Defined by
                                                            the U.S. Internal Revenue Code as joint ventures,
See Financial ratios
                                                            syndicates, groups, pools, and other associations of
North American Free Trade Agreement (NAFTA)                 two or more persons organized for profit that are not
Passed in 1993, NAFTA eliminates trade barriers             specifically classified in the IRS code as corporations
among businesses in the U.S., Canada, and Mexico.           or proprietorships.
NYSE                                                        Patent
See New York Stock Exchange                                 A grant made by the government assuring an inventor
Occupational Safety & Health Administration                 the sole right to make, use, and sell an invention for a
(OSHA)                                                      period of 17 years.
Federal agency that regulates health and safety
standards within the workplace.
                                                            See Professional corporation
Optimal firm size                                           Peak
The business size at which the production cost per          See Cyclical peak
unit of output (average cost) is, in the long run, at its
minimum.                                                    Pension
                                                            A series of payments made monthly, semiannually,
Organizational chart                                        annually, or at other specified intervals during the
A hierarchical chart tracking the chain of command          lifetime of the pensioner for distribution upon
within an organization.                                     retirement. The term is sometimes used to denote the
OSHA                                                        portion of the retirement allowance financed by the
See Occupational Safety & Health Administration             employer’s contributions.
Overhead                                                    Pension fund
Expenses, such as employee benefits and building            A fund established to provide for the payment of
utilities, incurred by a business that are unrelated to     pension benefits; the collective contributions made by
the actual product or service sold.                         all of the parties to the pension plan.

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Performance appraisal                                      agencies). Also known as Private financing or Private
An established set of objective criteria, based on job     offering.
description and requirements, that is used to evaluate
                                                           Pro forma
the performance of an employee in a specific job.
                                                           The use of hypothetical figures in financial statements
Permit                                                     to represent future expenditures, debts, and other
See Business license                                       potential financial expenses.
Plan                                                       Proactive
See Business plan                                          Taking the initiative to solve problems and anticipate
Pooling                                                    future events before they happen, instead of reacting
An arrangement for employers to achieve efficiencies       to an already existing problem or waiting for a difficult
and lower health costs by joining together to purchase     situation to occur.
group health insurance or self-insurance.                  Procurement
PPO                                                        A contract from an agency of the federal government
See Preferred provider organization                        for goods or services from a small business.

Preferred lenders program                                  Prodigy

See SBA special lending institution categories             An online service which is accessible by computer
                                                           modem. The service features Internet access, bulletin
Preferred provider organization (PPO)
A contractual arrangement with a health care services      boards, online periodicals, electronic mail, and other
organization that agrees to discount its health care       services for subscribers.
rates in return for faster payment and/or a patient        Product development
base.                                                      The stage of the innovation process where research is
                                                           translated into a product or process through
The amount of money paid to an insurer for health          evaluation, adaptation, and demonstration.
insurance under a policy. The premium is generally         Product franchising
paid periodically (e.g., monthly), and often is split      An arrangement for a franchisee to use the name and
between the employer and the employee. Unlike              to produce the product line of the franchisor or parent
deductibles and coinsurance or copayments,                 corporation.
premiums are paid for coverage whether or not
benefits are actually used.                                The manufacture of a product.
Prime-age workers                                          Production prototype
Employees 25 to 54 years of age.                           See Prototype
Prime contract                                             Productivity
A contract awarded directly by the U.S. Federal            A measurement of the number of goods produced
Government.                                                during a specific amount of time.
Private company                                            Professional corporation (PC)
See Closely held corporation                               Organized by members of a profession such as
Private placement                                          medicine, dentistry, or law for the purpose of
A method of raising capital by offering for sale an        conducting their professional activities as a
investment or business to a small group of investors       corporation. Liability of a member or shareholder is
(generally avoiding registration with the Securities and   limited in the same manner as in a business
Exchange Commission or state securities registration       corporation.

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Profit and loss statement (P & L)                           Includes markets for both regularly traded and
The summary of the incomes (total revenues) and costs       nonregularly traded securities.
of a company’s operation during a specific period of
                                                            Public offering
time. Also known as Income and expense statement.
                                                            General solicitation for participation in an investment
Proposal                                                    opportunity. Interstate public offerings are supervised
See Business plan                                           by the U.S. Securities and Exchange Commission (see
Proprietorship                                              separate citation).
The most common legal form of business ownership;           Quality control
about 85 percent of all small businesses are                The process by which a product is checked and tested
proprietorships. The liability of the owner is unlimited    to ensure consistent standards of high quality.
in this form of ownership.
                                                            Rate of return
Prospective payment system                                  The yield obtained on a security or other investment
A cost-containment measure included in the Social           based on its purchase price or its current market price.
Security Amendments of 1983 whereby Medicare                The total rate of return is current income plus or
payments to hospitals are based on established prices,      minus capital appreciation or depreciation.
rather than on cost reimbursement.
                                                            Real property
Prototype                                                   Includes the land and all that is contained on it.
A model that demonstrates the validity of the concept
of an invention (laboratory prototype); a model that        See Resource realignment
meets the needs of the manufacturing process and the
user (production prototype).                                Recession
                                                            Contraction of economic activity occurring between
Prudent investor rule or standard                           the peak and trough (see separate citations) of a
A legal doctrine that requires fiduciaries to make          business cycle.
investments using the prudence, diligence, and
                                                            Regulated market
intelligence that would be used by a prudent person in
                                                            A market in which the government controls the forces
making similar investments. Because fiduciaries make
                                                            of supply and demand, such as who may enter and
investments on behalf of third-party beneficiaries, the
                                                            what price may be charged.
standard results in very conservative investments.
Until recently, most state regulations required the         Regulation D
fiduciary to apply this standard to each investment.        A vehicle by which small businesses make small
Newer, more progressive regulations permit                  offerings and private placements of securities with
fiduciaries to apply this standard to the portfolio taken   limited disclosure requirements. It was designed to
as a whole, thereby allowing a fiduciary to balance a       ease the burdens imposed on small businesses utilizing
portfolio with higher-yield, higher-risk investments. In    this method of capital formation.
states with more progressive regulations, practically       Regulatory Flexibility Act
every type of security is eligible for inclusion in the     An act requiring federal agencies to evaluate the
portfolio of investments made by a fiduciary, provided      impact of their regulations on small businesses before
that the portfolio investments, in their totality, are      the regulations are issued and to consider less
those of a prudent person.                                  burdensome alternatives.

Public equity markets                                       Research
Organized markets for trading in equity shares such as      The initial stage of the innovation process, which
common stocks, preferred stocks, and warrants.              includes idea generation and invention.

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Research and development financing                      appropriated specifically for this purpose. In general,
A tax-advantaged partnership set up to finance          SBA direct loans carry interest rates slightly lower than
product development for start-ups as well as more       those in the private financial markets and are available
mature companies.                                       only to applicants unable to secure private financing
Resource mobility                                       or an SBA guaranteed loan.
The ease with which labor and capital move from firm    SBA 504 Program
to firm or from industry to industry.                   See Certified development corporation
Resource realignment                                    SBA guaranteed loans
The adjustment of productive resources to               Loans made by lending institutions in which the U.S.
interindustry changes in demand.                        Small Business Administration (SBA) will pay a prior
Resources                                               agreed-upon percentage of the outstanding principal
The sources of support or help in the innovation        in the event the borrower of the loan defaults. The
process, including sources of financing, technical      terms of the loan and the interest rate are negotiated
evaluation, market evaluation, management and           between theborrower and the lending institution,
business assistance, etc.                               within set parameters.

Retained business earnings                              SBA loans
Business profits that are retained by the business      See Disaster loans; SBA direct loans; SBA guaranteed
rather than being distributed to the shareholders as    loans; SBA special lending institution categories
dividends.                                              SBA Management Assistance Programs
Revolving credit                                        Classes, workshops, counseling, and publications
An agreement with a lending institution for an          offered by the U.S. Small Business Administration.
amount of money, which cannot exceed a set              SBA special lending institution categories
maximum, over a specified period of time. Each time     U.S. Small Business Administration (SBA) loan
the borrower repays a portion of the loan, the amount   program in which the SBA promises certified banks a
of the repayment may be borrowed yet again.             72-hour turnaround period in giving its approval for a
Risk capital                                            loan, and in which preferred lenders in a pilot
See Venture capital                                     program are allowed to write SBA loans without
                                                        seeking prior SBA approval.
Risk management
The act of identifying potential sources of financial   SBDB
loss and taking action to minimize their negative       See Small Business Data Base
impact.                                                 SBDC
Routing                                                 See Small business development centers
The sequence of steps necessary to complete a product   SBI
during production.                                      See Small business institutes program
S corporations                                          SBIC
See Sub chapter S corporations                          See Small business investment corporation
SBA                                                     SBIR Program
See Small Business Administration                       See Small Business Innovation Development Act of 1982
SBA direct loans                                        Scale economies
Loans made directly by the U.S. Small Business          The decline of the production cost per unit of output
Administration (SBA); monies come from funds            (average cost) as the volume of output increases.

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Scale efficiency                                            Self-employment income
The reduction in unit cost available to a firm when         Income covered by Social Security if a business earns a
producing at a higher output volume.                        net income of at least $400.00 during the year. Taxes
                                                            are paid on earnings that exceed $400.00.
See Service Corps of Retired Executives                     Self-employment retirement plan
SEC                                                         See Keogh plan
See Securities and Exchange Commission                      Self-employment tax
SECA                                                        Required tax imposed on self-employed individuals
See Self-Employment Contributions Act                       for the provision of Social Security and Medicare. The
                                                            tax must be paid quarterly with estimated income tax
Second-stage financing
Working capital for the initial expansion of a company
that is producing, shipping, and has growing accounts       Self-funding
receivable and inventories. Also known as Second-           A health benefit plan in which a firm uses its own
round financing.                                            funds to pay claims, rather than transferring the
                                                            financial risks of paying claims to an outside insurer in
Secondary market
                                                            exchange for premium payments.
A market established for the purchase and sale of
outstanding securities following their initial              Service Corps of Retired Executives (SCORE)
distribution.                                               Volunteers for the SBA Management Assistance
                                                            Program who provide one-on-one counseling and
Secondary worker
                                                            teach workshops and seminars for small firms.
Any worker in a family other than the person who is
the primary source of income for the family.                Service firm
                                                            See Business service firm
Secondhand capital
Previously used and subsequently resold capital             Service sector
equipment (e.g., buildings and machinery).                  Broadly defined, all U.S. industries that produce
                                                            intangibles, including the five major industry divisions
Securities and Exchange Commission (SEC)
Federal agency charged with regulating the trade of         of transportation, communications, and utilities;
securities to prevent unethical practices in the investor   wholesale trade; retail trade; finance, insurance, and
market.                                                     real estate; and services.

Securitized debt                                            Set asides
A marketing technique that converts long-term loans         See Small business set asides
to marketable securities.                                   Short-haul service
                                                            A type of transportation service in which the
Seed capital
Venture financing provided in the early stages of the       transporter supplies service between cities
innovation process, usually during product                  where the maximum distance is no more than
development.                                                200 miles.

Self-employed person                                        Short-term debt
One who works for a profit or fees in his or her own        An obligation that matures in one year.
business, profession, or trade, or who operates a farm.     SIC codes
                                                            See Standard Industrial Classification codes
Self-Employment Contributions Act (SECA)
Federal law that governs the self-employment tax (see       Single-establishment enterprise
separate citation).                                         See Establishment

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Small business                                               Small business investment corporation (SBIC)
An enterprise that is independently owned and                A privately owned company licensed and funded
operated, is not dominant in its field, and employs          through the U.S. Small Business Administration and
fewer than 500 people. For SBA purposes, the U.S.            private sector sources to provide equity or debt capital
Small Business Administration (SBA) considers                to small businesses.
various other factors (such as gross annual sales) in
                                                             Small business set asides
determining size of a business.                              Procurement (see separate citation) opportunities
Small Business Administration (SBA)                          required by law to be on all contracts under $10,000 or
An independent federal agency that provides                  a certain percentage of an agency’s total procurement
assistance with loans, management, and advocating            expenditure.
interests before other federal agencies.
                                                             Smaller firms
Small Business Data Base                                     For U.S. Department of Commerce purposes, those
A collection of microdata (see separate citation) files      firms not included in the Fortune 1000.
on individual firms developed and maintained by the
U.S. Small Business Administration.                          See Metropolitan statistical area
Small business development centers (SBDC)

                                                             Socially and economically disadvantaged
Centers that provide support services to small               Individuals who have been subjected to racial or
businesses, such as individual counseling, SBA advice,       ethnic prejudice or cultural bias without regard to
seminars and conferences, and other learning center          their qualities as individuals, and whose abilities to
activities. Most services are free of charge, or available   compete are impaired because of diminished
at minimal cost.                                             opportunities to obtain capital and credit.
Small business development corporation
                                                             Sole proprietorship
See Certified development corporation
                                                             An unincorporated, one-owner business, farm, or
Small business-dominated industry                            professional practice.
Industry in which a minimum of 60 percent of
                                                             Special lending institution categories
employment or sales is in firms with fewer than 500
                                                             See SBA special lending institution categories
                                                             Standard Industrial Classification (SIC) codes
Small Business Innovation Development Act of 1982            Four-digit codes established by the U.S. Federal
Federal statute requiring federal agencies with large
                                                             Government to categorize businesses by type of
extramural research and development budgets to
                                                             economic activity; the first two digits correspond to
allocate a certain percentage of these funds to small
                                                             major groups such as construction and manufacturing,
research and development firms. The program, called
                                                             while the last two digits correspond to subgroups such
the Small Business Innovation Research (SBIR)
                                                             as home construction or highway construction.
Program, is designed to stimulate technological
innovation and make greater use of small businesses in       Standard metropolitan statistical area (SMSA)
meeting national innovation needs.                           See Metropolitan statistical area

Small business institutes (SBI) program                      Start-up
Cooperative arrangements made by U.S. Small                  A new business, at the earliest stages of development
Business Administration district offices and local           and financing.
colleges and universities to provide small business          Start-up costs
firms with graduate students to counsel them without         Costs incurred before a business can commence
charge.                                                      operations.

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Start-up financing                                        Tax number
Financing provided to companies that have either          A number assigned to a business by a state revenue
completed product development and initial marketing       department that enables the business to buy goods
or have been in business for less than one year but       without paying sales tax.
have not yet sold their product commercially.
                                                          Taxable bonds
Stock                                                     An interest-bearing certificate of public or private
A certificate of equity ownership in a business.          indebtedness. Bonds are issued by public agencies to
                                                          finance economic development.
Stop-loss coverage
Insurance for a self-insured plan that reimburses the     Technical assistance
company for any losses it might incur in its health       See Management and technical assistance
claims beyond a specified amount.
                                                          Technical evaluation
Strategic planning                                        Assessment of technological feasibility.
Projected growth and development of a business to
establish a guiding direction for the future. Also used   The method in which a firm combines and utilizes
to determine which market segments to explore for         labor and capital resources to produce goods or
optimal sales of products or services.                    services; the application of science for commercial or
Structural unemployment                                   industrial purposes.
See Unemployment
                                                          Technology transfer
Sub chapter S corporations                                The movement of information about a technology or
Corporations that are considered noncorporate for tax     intellectual property from one party to another for
purposes but legally remain corporations.                 use.

Subcontract                                               Tenure
A contract between a prime contractor and a               See Employee tenure
subcontractor, or between subcontractors, to furnish
supplies or services for performance of a prime           The length of time for which a loan is made.
contract (see separate citation) or a subcontract.
                                                          Terms of a note
Surety bonds                                              The conditions or limits of a note; includes the interest
Bonds providing reimbursement to an individual,           rate per annum, the due date, and transferability and
company, or the government if a firm fails to complete    convertibility features, if any.
a contract. The U.S. Small Business Administration
guarantees surety bonds in a program much like the        Third-party administrator
                                                          An outside company responsible for handling claims
SBA guaranteed loan program (see separate citation).
                                                          and performing administrative tasks associated with
Swing loan                                                health insurance plan maintenance.
See Bridge financing
                                                          Third-stage financing
Target market                                             Financing provided for the major expansion of a
The clients or customers sought for a business’           company whose sales volume is increasing and that
product or service.                                       is breaking even or profitable. These funds are used
Targeted Jobs Tax Credit                                  for further plant expansion, marketing, working
Federal legislation enacted in 1978 that provides a tax   capital, or development of an improved product.
credit to an employer who hires structurally              Also known as Third-round or Mezzanine
unemployed individuals.                                   financing.

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Time deposit                                               Trend
A bank deposit that cannot be withdrawn before a           A statistical measurement used to track changes that
specified future time.                                     occur over time.
Time management                                            Trough
Skills and scheduling techniques used to maximize          See Cyclical trough
productivity.                                              UCC
Trade credit                                               See Uniform Commercial Code
Credit extended by suppliers of raw materials or           UL
finished products. In an accounting statement, trade       See Underwriters Laboratories
credit is referred to as "accounts payable."
                                                           Underwriters Laboratories (UL)
Trade name                                                 One of several private firms that tests products and
The name under which a company conducts business,          processes to determine their safety. Although various
or by which its business, goods, or services are           firms can provide this kind of testing service, many
identified. It may or may not be registered as a           local and insurance codes specify UL certification.

Trade periodical                                           A process by which an insurer determines whether or
A publication with a specific focus on one or more         not and on what basis it will accept an application for
aspects of business and industry.                          insurance. In an experience-rated plan, premiums are
                                                           based on a firm’s or group’s past claims; factors other
Trade secret
Competitive advantage gained by a business through         than prior claims are used for community-rated or
the use of a unique manufacturing process or formula.      manually rated plans.

Trade show                                                 Unfair competition
An exhibition of goods or services used in a particular    Refers to business practices, usually unethical, such as
industry. Typically held in exhibition centers where       using unlicensed products, pirating merchandise, or
exhibitors rent space to display their merchandise.        misleading the public through false advertising, which
                                                           give the offending business an unequitable advantage
Trademark                                                  over others.
A graphic symbol, device, or slogan that identifies a
business. A business has property rights to its            Unfunded accrued liability
                                                           The excess of total liabilities, both present and
trademark from the inception of its use, but it is still
                                                           prospective, over present and prospective assets.
prudent to register all trademarks with the Trademark
Office of the U.S. Department of Commerce.                 Unemployment
                                                           The joblessness of individuals who are willing to work,
                                                           who are legally and physically able to work, and who
See Product development
                                                           are seeking work. Unemployment may represent the
Treasury bills                                             temporary joblessness of a worker between jobs
Investment tender issued by the Federal Reserve Bank       (frictional unemployment) or the joblessness of a
in amounts of $10,000 that mature in 91 to 182 days.       worker whose skills are not suitable for jobs available
Treasury bonds                                             in the labor market (structural unemployment).
Long-term notes with maturity dates of not less than
                                                           Uniform Commercial Code (UCC)
seven and not more than twenty-five years.                 A code of laws governing commercial transactions
Treasury notes                                             across the U.S., except Louisiana. Their purpose is to
Short-term notes maturing in less than seven years.        bring uniformity to financial transactions.

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Uniform product code (UPC symbol)                            stage of expansion. Funding is obtained through
A computer-readable label comprised of ten digits and        public or private pension funds, commercial banks
stripes that encodes what a product is and how much          and bank holding companies, small business
it costs. The first five digits are assigned by the          investment corporations licensed by the U.S. Small
Uniform Product Code Council, and the last five              Business Administration, private venture capital firms,
digits by the individual manufacturer.                       insurance companies, investment management
Unit cost                                                    companies, bank trust departments, industrial
See Average cost                                             companies seeking to diversify their investment, and
                                                             investment bankers acting as intermediaries for other
UPC symbol
See Uniform product code                                     investors or directly investing on their own behalf.

U.S. Establishment and Enterprise Microdata                  Venture capital limited partnerships
(USEEM) File                                                 Designed for business development, these partnerships
A cross-sectional database containing information on         are an institutional mechanism for providing capital
employment, sales, and location for individual               for young, technology-oriented businesses. The
enterprises and establishments with employees that           investors’ money is pooled and invested in money
have a Dun & Bradstreet credit rating.                       market assets until venture investments have been
                                                             selected. The general partners are experienced
U.S. Establishment Longitudinal Microdata
(USELM) File                                                 investment managers who select and invest the
A database containing longitudinally linked sample           equity and debt securities of firms with high growth
microdata on establishments drawn from the U.S.              potential and the ability to go public in the near
Establishment and Enterprise Microdata file (see             future.
separate citation).                                          Venture capital network (VCN)
U.S. Small Business Administration 504 Program               A computer database that matches investors with
See Certified development corporation                        entrepreneurs.

USEEM                                                        WAN
See U.S. Establishment and Enterprise Microdata File         See Wide Area Network
USELM                                                        Wide Area Network (WAN)
See U.S. Establishment Longitudinal Microdata File           Computer networks linking systems throughout a
VCN                                                          state or around the world in order to facilitate the
See Venture capital network                                  sharing of information.

Venture capital                                              Withholding
Money used to support new or unusual business                Federal, state, social security, and unemployment taxes
ventures that exhibit above-average growth rates,            withheld by the employer from employees’ wages;
significant potential for market expansion, and are in       employers are liable for these taxes and the corporate
need of additional financing to sustain growth or            umbrella and bankruptcy will not exonerate an
further research and development; equity or equity-          employer from paying back payroll withholding.
type financing traditionally provided at the                 Employers should escrow these funds in a separate
commercialization stage, increasingly available prior        account and disperse them quarterly to withholding
to commercialization.                                        authorities.

Venture capital company                                      Workers’ compensation
A company organized to provide seed capital to a             A state-mandated form of insurance covering
business in its formation stage, or in its first or second   workers injured in job-related accidents. In some

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                                                                      GLOSSARY OF SMALL BUSINESS TERMS

states, the state is the insurer; in other states,        Yield
insurance must be acquired from commercial                The rate of income returned on an investment,
insurance firms. Insurance rates are based on a           expressed as a percentage. Income yield is obtained by
number of factors, including salaries, firm history,      dividing the current dollar income by the current
and risk of occupation.                                   market price of the security. Net yield or yield to
Working capital                                           maturity is the current income yield minus any
Refers to a firm’s short-term investment of current       premium above par or plus any discount from par in
assets, including cash, short-term securities, accounts   purchase price, with the adjustment spread over the
receivable, and inventories.                              period from the date of purchase to the date of maturity.


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