4.1

Acquisition

A company that is inherited or bought.

Accounts payable

An unwritten promise to pay creditors for property, such as merchandise, supplies, or equipment, purchased on credit, or for services received on credit.

Accounts receivable

An unwritten promise by a customer to pay, at a later date, for goods sold or services rendered.

Angel investor

Private investor(s) willing to supply financing for new and/or risky small venture start-ups.

Book value

The cost of a fixed asset less its accumulated depreciation.

Business plan

A summary of how a business owner, manager, or entrepreneur intends to organize the business endeavor and implement the activities necessary for the venture to succeed.

Capital

Financial resources available to a business; an owner's financial interest in a business.

Cash flow

The amount of cash a company generates and uses during a period.

Competition

The practice of trying to obtain something that is being sought by others under similar circumstances at the same time.

Copyright

The registered right of a creator to reproduce, publish, and sell the work which is the product of the intelligence and skill of that person.

Current assets

Cash or other asset that will be converted into cash or consumed within one year.

Debt capital

Any borrowed or loaned capital invested in a business that must be repaid to investors/creditors; also known as Borrowed Capital, Debt Equity, or Loan Capital.

Depreciation

The loss in value of a fixed asset due to wear and tear and the passage of time; or, a method of matching the cost of a fixed asset against the revenues that the fixed asset will help produce during its useful life.

Earnings valuation approach

A method of business valuation that centers on estimating the projected future income of the business, typically over a 5-10 year period.

EBITDA

Earnings Before Interest, Taxation, Depreciation, and Amortization; a firm's profits after subtracting cost of goods sold and cash operating expenses but before subtracting interest expense, taxes, depreciation, and amortization.

Equity capital

Capital that is invested or available for investment in the business by the owner(s); also known as Personal capital.

Fair market value

The amount for which real or personal property would be sold in a voluntary transaction between a buyer and seller, neither of whom is under any obligation to buy or sell.

Fixed assets

Property of a relatively permanent nature (e.g. land, building, machinery, furniture, fixtures, and other equipment) used in the operation of a business.

Goodwill

An intangible asset such as the name of a funeral home; an intangible asset that enables a business to earn a profit in excess of the normal rate of profit earned by other businesses of the same kind.

Intangible asset

An asset that cannot be touched or grasped (e.g. patents, copyrights, goodwill).

Inventory

Those goods or stock of goods which are held for resale.

Liabilities

Any debts that a business owes to other parties.

Liquidation value approach

A method of business valuation that involves the anticipated value of an asset that would be realized in case of liquidation of the business.

Liquidity

A measure of the extent to which a person or organization has cash to meet immediate and short-term obligations, or assets that can be quickly converted to do this.

Market value approach

An approach used in business valuation which determines value based upon previous sales of similar businesses.

Patent

The registered right of an inventor to make, use, and sell an invention.

Replacement value approach

A method of business valuation in which the fair market price to purchase similar assets in similar condition is used to determine the value of the business.

Startup

A company that is in the first stage of its operations; i.e. a company started "from scratch."

Tangible asset

An asset that can be appraised by value or seen or touched.

Trademark

An intangible asset that is a distinct name, sign, or symbol that the federal government grants exclusive rights to use for a specified period of time.

Venture capitalist (VC)

Anyone that invests in or financially sponsors a new business.

Working (Circulating) capital

The difference between a company's current assets and current liabilities; also, the current assets (e.g. cash, inventory, etc.) needed for daily operations.