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Hilton Smythe – A-Z Business Glossary

October 10, 2018

Use our business glossary to guide you through selling your business.

Business Broker

Business brokers estimate the value of a business for sale. They advertise it in appropriate forums, and handle interviews with potential buyers and subsequent discussions and sales negotiations. They will facilitate the due diligence investigatory process and assist in the sale in any way they can. ,

Financial Projections

A financial projection is most simply a forecast on future business revenues and expenses. It can take into account internal or historical data and will include a prediction of external market factors. They can also span various time scales but most commonly look at the short and medium term business cycles.

Assets

Most commonly defined as resources or things of value that is owned by a company. These can include cash, accounts receivable, inventory and stocks, investments, land, property and equipment or plant. These can be found on a company’s balance sheet.

Liabilities

A liability in a business sense is defined as the company’s legal financial debts or obligations that arise during the lawful course of a business’ operations. Liabilities are not necessarily a negative in the business world but can be said to be expected. Loans, mortgages or other funding that is owed can be considered to be a liability but are positive for the business.

Subject to Contract

A phrase used on contacts exchanged by parties during contract negotiations. They state that the document is not a legal offer or an acceptance and that negotiations are still ongoing. In other words the document is not legally binding.

Lease

A lease is a specific contract that outlines the terms of which one party agrees to rent a property or item to another party. It guarantees that the lessee (or borrower) has use of an assets and guarantees the lessor (owner) regular payment from the lessee for a specified period of months or years. 

Licensing

An arrangement where one business gives another lawful permission to manufacture its product for a specified payment. These can also include patents, copyrights, designs, trademarks and other items of intellectual property.

VAT

Value Added Tax is a consumption tax added to a product whenever value is added at any stage of the supply chain from production to point of sale.

Verbal Assurance

Verbal assurance is giving a spoken undertaking that something is true or will happen or take place. This is not universally considered to be a binding legal contract but can be enforced in some circumstances.

Risk Capital

Risk capital sometimes, called Venture Capital, consists of investment funds that are allocated to speculative activity and are used to invest in higher risk, higher reward ventures. The purpose of this type of investment is to earn higher rewards than usual over a period of time although occasionally it can dwindle away if several ventures prove to be unsuccessful.

Shares

In business terms a share is a unit of ownership that represents a proportion of a company’s capital. It entitles the shareholder to an equal claim on the company’s profits and an equal obligation for the company’s debts and losses.  There are two main types of shares: Ordinary shares or common stock entitle the shareholder to share in the earnings of the company as and when it occurs and to vote at the company’s annual general meetings and other official meetings. The other kinds are called preference shares or preferred stock which entitle the shareholder to a fixed periodic income (or interest) but do not give them the same voting rights.

Repayment Schedule

A repayment schedule is a detailed outline of a loan agreement between a borrower and a lender that contains full details of the original loan amount, when repayments are due to begin, what proportion of the payment goes to the principal repayment and what goes to repay interest. The Repayment Schedule can be issued on a monthly basis or when the loan is originally acquired.

Agreement of Sale

An Agreement of Sale states the terms and conditions of a sale including the amount at which the transaction has been agreed and the future dates of full payment. This document usually contains several terms and conditions if it relates to property as well as business and must be understood thoroughly by both parties. The agreement of sale is the basis for the Sale Deed.

Sale Deed

A Sale Deed is a legal document that is prepared at the time of full payment made by the buyer to the seller and when the actual transfer of the goods, property or business takes place.

Promissory Note

A Promissory Note is a financial instrument that contains a written promise by one party, the note’s maker or issuer, to pay another party, the not’s payee, a defined sum of money either on demand or to be paid at a specified future date. The promissory note contains all the terms pertaining to the indebtedness such as the principal amount, any interest rate, the maturity date or date when the amount in the note becomes due, the date and place of the issuance and the issuer’s legal signature.

A Promissory Note is also a Debt Instrument that allows companies and individuals to get financing from sources other than banks. These can be individuals or other businesses willing to carry the note and provide the financing under the agreed-upon terms. This means that anyone can be a lender when they issue a promissory note.

Debt Instrument

A Debt Instrument is an obligation either in paper or electronic format that enables the issuing party to raise funds by promising to repay a lender in accordance with the terms set out in a contract. There are different types of debt instruments including notes, bonds, certificates, debentures, mortgages, leases or other agreements set out between a lender and a borrower. These instruments provide ways for market participants to easily transfer the ownership of debt obligations between each other as agreed and appropriate.

Maturity Date

The Maturity Date referred to in a Promissory Note or Debt Instrument is the date on which the principal amount in the note, draft, bond etc. becomes due and is repaid to the investor and interest payments stop. It is also the termination or due date on which an installment loan has to be paid in full.

Venture Capital

Sometimes also known as Private Equity Finance. Venture Capitalists look to invest larger sums of money than Business Angels in return for equity in the company. Venture Capital funding is used more often for high-growth businesses that will be sold or eventually floated on stock markets.

Business Angel

Business angels are wealthy individuals and patrons who look to invest in businesses in return for a share of the business. They can invest their own money or as part of a larger group.  They are often experienced entrepreneurs and businesspeople who in addition to the money will bring their own contacts, knowledge and skills to work for the company.

Equity Finance

Equity finance is money invested into a business in return for a share of ownership and some element of control in the business. Investors do not have the legal right to charge interest on their capital or to be repaid by a set date. They instead hope to make a gain from the growth and profitability of the business. 

Crowd Funding

Crowd funding is where a number of individuals each pledge to invest amounts of money into a business or idea. The money is combined in a fund to help reach various funding goals. Every individual who contributes will receive financial gains or other rewards for pledging their support. 

Enterprise Investment Schemes (EIS)

Some limited companies are able to raise funds via an EIS or Enterprise Investment Scheme. It is open to small companies carrying on a qualified trade. There are several tax advantages for individuals who invest in such companies including income tax relief of 30% on the cost of the shares and deferred Capital Gains Tax on the sale of other assets if the gain is reinvested into EIS shares.