020 7394 4040

Starting and Running a Business Glossary

Accruals
Amounts payable by a business for services received before the Balance Sheet date but not payable until after the Balance Sheet date. For example, if the Balance Sheet date is 30 September and there is a quarterly bill for electricity, if the next bill is due for the quarter ending 31 October, there will be an accrual for the cost of electricity for the two months to 30 September.
Accounts
Financial records, where business transactions are entered using double entry book-keeping principles.
Assets
Items owned by a business.
Avalising
A form of non-recourse financing for exporting use. Avalising is a simple form of a bill of exchange, allowing a business to import goods from an overseas supplier on extended credit terms not normally on offer. Avalising is a form of guarantee; to ‘aval’ is to endorse a bill of exchange or promissory note.
Balance sheet
The balance sheet shows the state of a business, or other organisation, at one particular point in time, i.e. the close of business on the date to which the accounts are prepared. The balance sheet is divided into two parts – part 1, the statement of total net assets, shows the net total value of everything the business owns less everything it owes – in theory, how much the business is worth. Part 2, the statement of source of finance, shows how the assets listed in part 1 have been paid for.
Board
The directors of a limited company.
Business partnership
A partnership is formed between one or more businesses so business partners (owners) can work together to achieve and share profits or losses.
Capital
The amount of the owner’s stake in a business.
Capital expenditure
Spending on capital assets (also called plant and equipment, or fixed assets, or long-term assets). Business assets that are acquired to expand business capacity to earn or produce. 
Capital Gains Tax (CGT)
A tax charged on profits from the disposal of assets, unless the disposal is in the course of trade when the profit will be taxed as income.
Cash at bank
In accounting terms, cash at bank includes current and deposit bank and building society accounts.
Cash book
Summarises a business' daily receipts and payments, and contains the method of payment and names of the parties concerned with each transaction. These transactions can be cash, cheque, standing order, direct debit or credit card. The left-hand pages of a cash book records money coming in – sales, while the right-hand pages shows the money paid out – purchases.
Cash flow forecast
When businesses are preparing budgets for the profit and loss account, a cash flow forecast is often prepared at the same time. This will show the expected movement of cash in and out of the business and will include capital expenditure, loan repayments, tax payments, etc., as well as receipts and payments relating to the profit and loss account. The cash flow forecast will usually show the bank balance at the end of every month and will indicate if additional funds are going to be required by the business at any time.
Cash flow statement
One of the three main financial statements (along with balance sheet and profit and loss account), the cash flow statement shows actual cash inflows and outflows of the business over a specified period of time. The cash flow statement reconciles the profit and loss account with the balance sheet.
Cash in hand
Cash in hand includes petty cash, as well as any cash from takings, etc., which is held before it's paid into the bank.
Cash purchases
Goods bought and paid for immediately.
Cash sales
Goods sold, with immediate payment received in cash or by cheque, credit card or debit card.
Contingent liabilities
In accounting terms, where there is the possibility of a business liability in connection with an event that has already happened but the liability will only arise if some event happens in the future; for example, if legal action is being taken against the company over a matter that occurred during the year but the outcome of the case is uncertain.
Control of Substances Hazardous to Health Regulations 1999 (COSHH Regulations)
These regulations cover almost every workplace from offices, where hazardous substances such as solvents in correcting fluids and chemicals used in photocopier toner are used, to factories where any number of substances covered by the regulations may be used or produced.
Contract for services
A contract engaging the services of an independent contractor. Contrast this with a service contract between an employer and employee.
Corporation Tax
Tax levied on profits of limited companies.
Cost of sales
The direct cost to the business of producing sales. In a simple business buying and selling goods, the cost of sales is the amount that the business paid to its suppliers for the goods that have been sold. In a manufacturing business, there will be a number of items making up the cost of sales. These will include the cost of raw materials and parts used in the manufacture, the wages for the employees directly involved in the manufacture, the costs (such as electricity) to operate machinery used in the manufacture and any other direct costs involved in bringing the product into a condition to be sold. In a business providing a service, the direct cost of providing that service will normally be the salary costs of the employees directly involved in earning the fees.
Credit purchases
Goods bought, with payment to be made at a later date.
Credit sales
Goods sold, with payment to be received at an agreed date in the future.
Creditor
An individual who is owed money by a debtor or money owed by a business as at the balance sheet date.
Current assets
In accounting terms, current assets are made up of cash and other assets that are expected to be turned into cash in the near future. Examples of current assets are (1) cash at bank; (2) cash in hand; (3) short-term investments; (4) stock of goods for resale, etc., (5) work-in-progress; (6) debtors; (7) prepayments.
Current liabilities
Amounts owing by a business and payable in the near future. Current liabilities include a bank overdraft, bank loans and other loans, hire purchase, creditors and accruals.
Damages
A sum of money claimed or awarded as compensation by a court or tribunal.
Data Protection Act
The Data Protection Act governs the protection of personal data in the UK.
Debtor
Someone who owes money to another person or money owed to a business by its customers. etc.
Depreciation
Fixed assets, such as fixtures and fittings, motor vehicles and plant machinery, which will wear out in time. Depreciation is an accountant’s estimate of how much this property of the business has worn out during the period covered by the accounts.
Director
An officer of the limited company who manages company business and has a duty of care, skill and good faith.
Double entry
The debiting and crediting of accounts.
Drawings
Amounts taken out of a business for personal use. They include cash, personal expenses and personal tax payments paid by the business.
Employers’ liability insurance
Businesses are legally required to take out employers’ liability cover to protect them against claims from employees that arise from personal injury or death sustained at work or in the course of their employment. 
Expenses
The costs of running the business on a day-to-day basis (e.g. wages, rent, telephone, etc.).
Fire risk assessment
A record of a premises’ fire risk; where five or more people are employed, the fire risk assessment has to be recorded in writing.
Fire safety log book
Records information regarding fire safety.
Fixed assets
Fixed assets are generally used in a business over a number of years. There are two different types of fixed assets – tangible and intangible. Most tangible fixed assets can be seen and touched. Examples are land and buildings, motor vehicles, plant and machinery, and furniture. Long-term investments, usually shares in other companies, are also tangible fixed assets. Examples of intangible fixed assets are patents, copyrights and trademarks.
Forfaiting
A form of non-recourse financing for exporting use. Involves bills of exchange, promissory notes or deferred letters of credit. A business can discount these instruments to a forfaiting company and the risk of non-payment passes to it. Because these bills vary between 90 and 180 days, it’s not unknown for them to pass from one forfaiting company to another. 
Franchise
A form of business or organisation in which a firm which already has a successful product or service (the franchisor) enters into a continuing contractual relationship with other businesses (franchisees) operating under the franchisor's trade name and usually with the franchisor's guidance, in exchange for a fee.
Goodwill
The value of a business to a purchaser over and above its net asset value.
Gross profit
Gross profit is the amount left after deducting the cost of sales from the sales figure.
Gross salary
Earnings before deducting PAYE and employees’ National Insurance, etc.
Heads of agreement
A legal document stating the intent of both parties to enter into a binding agreement (e.g. to buy/sell a business or enter into a joint venture).
Health and Safety Executive (HSE)
A national independent watchdog for work-related health, safety and illness. The HSE is an independent regulator and acts in the public interest to reduce work-related death and serious injury across Great Britain’s workplaces.
Health and safety policy
Businesses that employ staff need a health and safety policy concerning those aspects of the law affecting their type of business. The employees must be kept up to date and involved with the health and safety procedure. The health and safety regulations applicable to the type of business must be displayed for all to see.
Hidden liabilities
Sums owing by a business that aren’t shown on the balance sheet (e.g. tax liabilities, leasing commitments or pension commitments).
Holding company
In accounting terms, when a company is owned by another company.
Incorporate
To form a limited company by following procedures prescribed by law. On incorporation the limited company becomes a separate legal entity distinct from its owners.
Issued shares
Shares which have been actually allotted by the limited company and in respect of which the allottees have been entered in the limited company’s register of members.
Joint venture
A co-operative enterprise which two or more businesses enter into together. The businesses, on creation of a joint venture, may form a separate corporation or business partnership. But businesses can retain their own individuality while entering into a joint venture agreement and this can be operated as a separate entity altogether.
Joint venture firm
An investment company that invests its shareholders' money in business start-ups.
Ledger
The three sections into which accounts are traditionally divided: sales, purchases and general.
Liabilities
Items owed by a business.
Limitation, limitation period
The limitation period is the time window in which claimants can bring a claim  In employment matters the limitation periods to bring a claim to an employment tribunal are far shorter than the County Court and other types of civil claims.
Limited liability partnership (LLP)
A limited liability partnership is essentially a general partnership in form, with one important difference. Unlike a general partnership, in which individual partners are liable for the partnership's debts and obligations, an LLP provides each of its individual partners protection against personal liability for certain partnership liabilities.
Material damage insurance
Insurance cover protecting a business' stock and equipment against dangers such as fire, flood, storm, burst pipes and other specified causes.
Mission statement
Also called ‘executive summaries’ and best described as a vision of a business. Business owners use mission statements to outline their business aims which also take into their personal objectives.
Net profit/loss
In business accounts, net profit is arrived at by deducting all the expenses of the business from the gross profit. There is a net loss if the total expenses are more than the gross profit.
Prepayments
Usually payments made in advance; for example, an insurance premium may have been paid up to a date after the balance sheet date. The amount paid in advance is, theoretically, repayable by the insurance company and, as such, is like a debtor, but is called a prepayment.
Professional indemnity insurance
Offers cover for legal liability for professional errors and omissions made while running a business. Also covers employees of the business.
Profit
The excess of income over expenses made by a business from selling goods during a particular time period.
Profit and loss account
A financial statement that lists the money that a business has received (or is due to receive) during the period covered by the accounts and, from them, deducts the money the business has paid out (or has been due to pay out) during the period (expenditure). The difference is the profit or loss.
Public liability insurance
Protects a business against legal action taken by members of the public (not employees) that arise from any business activities.
Professional indemnity insurance
Offers cover for legal liability for professional errors and omissions made while running a business. Also covers employees of the business.
Profit
The excess of income over expenses made by a business from selling goods during a particular time period.
Profit and loss account
A financial statement that lists the money that a business has received (or is due to receive) during the period covered by the accounts and, from them, deducts the money the business has paid out (or has been due to pay out) during the period (expenditure). The difference is the profit or loss.
Public liability insurance
Protects a business against legal action taken by members of the public (not employees) that arise from any business activities.
Usually payments made in advance; for example, an insurance premium may have been paid up to a date after the balance sheet date. The amount paid in advance is, theoretically, repayable by the insurance company and, as such, is like a debtor, but is called a prepayment.
Purchase ledger
The record of a company's daily purchases.
Purchases
Goods bought that are intended for resale.
Registered office
The official address of a company as registered at Companies House.
Reporting of Injuries, Diseases and Dangerous Occurrences Regulations (RIDDOR)
The Reporting of Injuries, Diseases and Dangerous Occurrences Regulations 1995 (RIDDOR) place a legal duty on employers, self-employed people and people in control of premises to report work-related deaths, major injuries or over-three-day injuries, work related diseases and near miss accidents.
Revenue expenditure
Costs that are attributed to maintaining earnings or capacity in business.
Sales
The sale of goods, whether on credit or for cash, in which the business trades.
Sales ledger
The record of a company's daily sales.
Service business
A business that sells a service or advice instead of a tangible product.
Sole trader
The most common form of business structure and the easiest and quickest form of corporation for a small, privately-owned business. Taxes are lower than those of a public company, but a sole trader is personally liable for all of its actions and debts, and may not be entitled to benefits (e.g. unemployment payments) that would accrue to those running public companies.
Statutory books
The records that a limited company must keep as required by law. Changes must in many cases be notified to Companies House. The records should be kept at the limited company’s registered office and be available to the public for inspection.
Stock
Either goods on hand (i.e. finished goods or materials to be used to manufacture goods) or privately held or publicly traded shares or securities representing investment in, or partial ownership of, a business. Public trading of such stock occurs on the stock market.
Turnover
The total of sales, both cash and credit, for a particular time period.
Unincorporated association
A group of people who have joined together for a particular reason, such as a club, but who have not formed a partnership, company, friendly society or industrial society. Unincorporated associations can own property, enter into contracts and employ people but they do so through one or more individuals, such as the club officers. As the association takes on no legal personality of its own, it cannot be sued but the individuals may be.
Waste Electric and Electronic Equipment (WEEE) Regulations
Manufacturers and retailers producing or selling electrical and electronic goods must comply with the Waste Electric and Electronic Equipment (WEEE) Regulations, which state that measures must be introduced to allow customers to return items for disposal.
Work in progress
In accounting terms, work in progress represents the work done for clients at the balance sheet date but which hasn’t yet been billed to them. 
Working capital
The total of current assets less current liabilities. It’s a net total thrown up within the balance sheet and, in crude terms, if fixed assets form the engine which runs the business, working capital is the fuel of that engine.

BUSINESS ARTICLES

Dear Customer, Thank you for purchasing our paper products. Updates & Downloads for our paper DIY Kits To access the downloadable forms and legal updates relevant to the paper DIY Kit you have purchased, please click on the appropriate product link...

Category: Updates and downloads

Established in 1993, Lawpack is the UK’s leading provider of legal forms and DIY legal kits. We also produce a range of legal guides and have just launched our new legal services, which can help you to write a Will...

Category: Uncategorized

What is a company resolution? A company resolution is an official record of the decision of the directors or members of a company. Once a resolution is passed, the company is bound by it. If a majority is not reached...

Category: Company management articles

Poor health and safety can leads to illness and accidents, and significant costs for your business. Employers who take their responsibilities seriously and follow the correct health and safety procedures improve the productivity of their businesses and increase their reputation...

Category: Employment contract articles