business terms

Market

Any medium or arrangement where buyers and sellers interact to exchange goods and services, representing all existing and potential customers.

Market size

The total value or volume of sales generated by all businesses across an entire market within a given time period.

Market share formula

$$\text{Market share} = \frac{\text{business sales}}{\text{total market sales}} \times 100$$

Consumer goods

Physical products purchased by the end consumer for personal satisfaction or use.

Capital goods

Manufactured assets used by businesses to produce other consumer or industrial goods and services.

Target market

The specific group of potential customers toward which a business directs its marketing efforts.

Market segment

A distinct identifiable subgroup of a market that shares common characteristics, needs, or buying habits.

Niche market

A small, highly specialised segment of a broader market with distinct consumer demands.

Marketing

The management process responsible for identifying, anticipating, and satisfying customer requirements profitably.

Product orientation

An inward-looking business approach focusing on the development and production of goods, often assuming that quality will generate sales.

Market orientation

An outward-looking business approach prioritizing research into customer needs before developing and selling products.

Marketing mix (4Ps)

The four tactical marketing tools—Product, Price, Promotion, and Place—blended to achieve business goals.

Unique selling point (USP)

A distinct feature, benefit, or characteristic that makes a product stand out from competitors.

Brand loyalty

The recurring tendency of consumers to repeatedly purchase products from a specific brand instead of competing alternatives.

Cost-plus pricing

A pricing method where a set profit mark-up is added to the unit cost of production.

Competitive pricing

Setting prices based on the prices charged by rival firms in the same market.

Penetration pricing

Setting a low initial price to enter a competitive market and quickly gain market share.

Price skimming

Setting a high initial price for an innovative or unique product and subsequently lowering it over time.

Price discrimination

Charging different prices to different groups of customers for the exact same product or service.

Channels of distribution

The path, chain, or sequence of intermediaries through which a product passes from the producer to the consumer.

Direct distribution

A channel where the manufacturer sells directly to the end customer without intermediaries.

Primary research

The collection of original, first-hand data tailored directly to the business's specific needs.

Secondary research

The analysis of second-hand data that has already been gathered and published by another source.

Random sampling

A sampling technique where every member of the target population has an equal probability of being chosen, minimizing bias.

Production

The operational process of making goods or providing services to satisfy customer needs.

Productivity

A measure of efficiency calculated as the rate of output produced per worker or unit of factor input over a specific period of time.

Efficiency

The optimal organization of operations to manufacture goods or deliver services with minimum waste and lowest possible cost.

Added value

The difference between the final selling price of an item and the cost of the bought-in materials and components required to make it.

Added value formula

$$\text{Selling price} - \text{cost of bought-in materials}$$

Fixed costs

Business expenses that do not vary with changes in the level of output in the short term, such as factory rent.

Variable costs

Business expenses that change in direct proportion to the volume of output produced, such as raw materials.

Total costs formula

$$\text{Fixed costs} + \text{variable costs}$$

Unit cost

The average production expenditure incurred to make a single item, calculated by dividing overall expenditure by the number of units produced.

Job production

A manufacturing method focused on producing individual, bespoke, or one-off items tailored to specific customer requirements.

Batch production

A manufacturing technique where a group of identical products are manufactured simultaneously before switching over equipment to make a different group.

Flow production

A continuous, high-volume manufacturing method where standardized goods pass steadily through an automated sequence of production stages.

Lean production

An operational approach dedicated to eliminating all forms of waste and continuously improving process efficiency.

Just-in-time (JIT)

An inventory management system where supplies and components arrive immediately before they are needed, minimizing holding levels.

Buffer stock

A reserve quantity of supplies or finished products kept on hand to prevent stockouts caused by sudden demand spikes or supply delays.

Inventory

The overall collection of raw materials, work-in-progress, and finished goods held in storage by an enterprise.

Capacity

The maximum achievable level of output a business can sustain using its existing equipment, workforce, and resources.

Capacity utilisation formula

$$\frac{\text{actual output}}{\text{maximum output}} \times 100$$

Quality

The degree to which a finished good or delivered service satisfies customer expectations, specifications, and defined standards.

Quality control (QC)

The reactive inspection method where finished goods are checked at the end of the manufacturing process to identify and correct defects.

Quality assurance (QA)

A proactive system focused on preventing defects by establishing rigorous standards and training throughout every stage of production.

Total Quality Management (TQM)

An organization-wide management philosophy that engages every employee in a culture of continuous operational improvement.

Business location

The physical site where an enterprise establishes its operational and trading facilities, influenced by transport links, labour availability, and market access.

Outsourcing

The practice of contracting external specialist enterprises to undertake specific business functions or operational tasks.

Supplier

An external vendor that provides raw materials, components, or services to another enterprise.

Lead time

The total duration that elapses between placing an order with a vendor and receiving the delivery.

Revenue (sales turnover)

The total money received from selling products or providing services before any costs are deducted.

Revenue formula

$$\text{Price} \times \text{quantity sold}$$

Cost of sales

The direct expenses incurred to manufacture or purchase the specific products sold, such as raw materials.

Gross profit

The financial surplus remaining once direct production expenses are subtracted from turnover.

Gross profit formula

$$\text{Revenue} - \text{cost of sales}$$

Expenses (overheads)

Indirect operational costs that do not vary directly with production, such as rent, insurance, and administrative salaries.

Net profit (profit for the year)

The final financial surplus left after all indirect operating expenses are deducted from gross earnings.

Net profit formula

$$\text{Gross profit} - \text{expenses}$$

Profit margin

A financial ratio showing the percentage of sales converted into earnings, indicating the return earned per dollar of turnover.

Profit margin formula

$$\frac{\text{profit}}{\text{revenue}} \times 100$$

Cash

Immediately accessible money and liquid funds held in bank accounts or notes and coins.

Cash flow

The continuous movement of liquid funds moving into and out of an enterprise over a given period.

Cash inflow

Money received by an enterprise, such as receipts from customers, loan proceeds, and immediate sales.

Cash outflow

Money paid out by an enterprise to settle financial obligations, such as employee wages, rent, and vendor bills.

Cash flow forecast

A forward-looking financial schedule estimating future bank receipts and payments to anticipate potential shortages.

Closing cash balance

The total quantity of money remaining in an enterprise's account at the end of a specific accounting period.

Liquidity

The capability of an enterprise to pay its short-term debts and liabilities on time without difficulty.

Working capital

The day-to-day finance available to support routine trading operations.

Working capital formula

$$\text{Current assets} - \text{current liabilities}$$

Current assets

Resources owned by an enterprise that are expected to be converted into money within one year, including stock and debtor balances.

Current liabilities

Short-term obligations and debts that must be settled within a twelve-month period, such as supplier bills and overdraft balances.

Trade receivables (debtors)

Customers who have bought items on credit and currently owe money to the enterprise.

Trade payables (creditors)

Suppliers to whom an enterprise owes money for materials or services obtained on credit.

Credit terms

The formal conditions and agreed timeframe allowed for a buyer to pay their outstanding balance.

Internal finance

Capital raised from within the existing resources of the business, requiring no third-party obligations.

External finance

Capital obtained from outside providers, including commercial banks, private lenders, and investors.

Retained profit

Net earnings kept inside an enterprise after tax and dividend distributions to fund future investment.

Bank loan

A fixed amount borrowed from a financial institution that is repaid over an agreed timeframe alongside interest charges.

Overdraft

A flexible facility allowing an account holder to withdraw more money than they hold, up to an agreed limit, with interest charged on the negative balance.

Interest

The fee charged by a lender for borrowing capital, representing the overall cost of debt.

Collateral (security)

A tangible asset pledged by a borrower to safeguard a lender against non-repayment.

Entrepreneur

An individual who undertakes financial risks to establish and run a new business venture.

Business plan

A formal written document outlining a company's goals, strategy, and financial forecasts, used to guide operations and secure funding.

Business objectives

The specific stated targets or milestones an organisation strives to achieve, such as survival, profit, growth, or market share.

Stakeholders

Individuals, groups, or entities that are affected by or have an interest in the decisions and performance of an enterprise.

Business growth

The expansion of an enterprise in terms of size, output, sales value, or market presence over time.

Internal growth

The expansion of an enterprise achieved by reinvesting profits and utilizing its own existing resources and capabilities.

External growth

The expansion of an enterprise achieved through integration with other existing firms via mergers or acquisitions.

Merger

A mutual agreement where two or more commercial enterprises combine on equal terms to form a single unified business entity.

Takeover (acquisition)

The transaction where one firm purchases a controlling stake in another commercial enterprise.

Economies of scale

The reductions in average unit costs of production that result from increasing the scale of operations and output.

Diseconomies of scale

The increases in average unit costs that arise when an enterprise grows too large, resulting in communication and coordination difficulties.

Competition

The rivalry between commercial enterprises in the same market seeking to win the same customer base.

Competitive advantage

A distinctive condition or capability that allows an enterprise to generate greater sales or margins than its rivals through lower costs or differentiation.

Added value strategy

The deliberate enhancement of product features, branding, or service to command a higher selling price relative to the cost of inputs.