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glossary [2014/10/13 21:47]
mdavis 		glossary [2015/11/18 11:16]
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   - **Accounts Payable (aka A/​P)** ​ Amounts owed by your company to other parties for goods or services purchased from them. They appear on your balance sheet as a liability (because you owe the accounts payable). Meanwhile, the cash flow statement entry titled accounts payable reflects the change in accounts payable between the previous period and the current period.   - **Accounts Payable (aka A/​P)** ​ Amounts owed by your company to other parties for goods or services purchased from them. They appear on your balance sheet as a liability (because you owe the accounts payable). Meanwhile, the cash flow statement entry titled accounts payable reflects the change in accounts payable between the previous period and the current period.
   - **Accounts Receivable (aka A/​R)** ​ Amounts owed to your company by other parties for goods or services purchased by them from you. They appear on your balance sheet as an asset (because somebody owes you the accounts receivable). Meanwhile, the cash flow statement entry titled accounts receivable reflects the change in accounts receivable between the previous period and the current period.   - **Accounts Receivable (aka A/​R)** ​ Amounts owed to your company by other parties for goods or services purchased by them from you. They appear on your balance sheet as an asset (because somebody owes you the accounts receivable). Meanwhile, the cash flow statement entry titled accounts receivable reflects the change in accounts receivable between the previous period and the current period.
 +  - **Accrued Liabilities** Regular expenses that the company has incurred but an invoice has not yet been received. If Offtoa, the only accrued liabilities that appear on the Balance Sheet and Cash Flow Statement correspond to monthly payroll, which has been incurred but not yet paid.
   - **Accumulated Deficit (aka Cumulative Losses)** ​ The sum of all net profits and losses from previous periods. When negative, it is called an accumulated deficit. When positive, it is called retained earnings.   - **Accumulated Deficit (aka Cumulative Losses)** ​ The sum of all net profits and losses from previous periods. When negative, it is called an accumulated deficit. When positive, it is called retained earnings.
   - **Acquisition** ​ An example of an exit strategy in which your entire company, or just its assets, are purchased by another entity. That entity pays for the purchase using either cash or its own company equity.   - **Acquisition** ​ An example of an exit strategy in which your entire company, or just its assets, are purchased by another entity. That entity pays for the purchase using either cash or its own company equity.
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   - **Attrition Rate (aka Churn)** ​ The rate at which current customers stop being customers. The opposite of retention rate.   - **Attrition Rate (aka Churn)** ​ The rate at which current customers stop being customers. The opposite of retention rate.
   - **Average Order Size (aka AOS)** ​ The average size of a purchase by a customer.   - **Average Order Size (aka AOS)** ​ The average size of a purchase by a customer.
 +  - **B2B (aka Business to Business)** Your customers are other businesses.
 +  - **B2C (aka Business to Consumer)** Your customers are consumers, not businesses.
   - **Balance Sheet** ​ A standard financial statement that shows all your company’s assets, liabilities,​ and shareholders’ equity at a specific point in time.   - **Balance Sheet** ​ A standard financial statement that shows all your company’s assets, liabilities,​ and shareholders’ equity at a specific point in time.
   - **Base Starting Salary** ​ An employee’s starting salary if s/he were working full-time. If an employee were working half-time and earning $25,000, his/her base starting salary would be $50,000.   - **Base Starting Salary** ​ An employee’s starting salary if s/he were working full-time. If an employee were working half-time and earning $25,000, his/her base starting salary would be $50,000.
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   - **Board of Directors** ​ A group of individuals generally elected by shareholders of the company and who have the responsibility to oversee the company’s activities, appoint the president and CEO of the company, and execute the responsibilities described in the company’s bylaws.   - **Board of Directors** ​ A group of individuals generally elected by shareholders of the company and who have the responsibility to oversee the company’s activities, appoint the president and CEO of the company, and execute the responsibilities described in the company’s bylaws.
   - **Board Member** ​ A member of the company’s board of directors. Also known as a director.   - **Board Member** ​ A member of the company’s board of directors. Also known as a director.
-  - **Cap Table (see Capitalization Table)**+  - **Business to Business ​(see B2B)** 
 +  - **Business to Consumer (see B2C)**
   - **CAC (see Customer Acquisition Cost)**   - **CAC (see Customer Acquisition Cost)**
 +  - **Cap Table (see Capitalization Table)**
   - **Capital Asset (see Fixed Asset)**   - **Capital Asset (see Fixed Asset)**
   - **Capitalization Table (or Cap Table)** ​ A standard table that shows rounds of investment as multi-part columns and investors (or aggregated classes of investors) as rows. The multi-part columns are divided into three smaller columns: # of shares, % ownership, and fully diluted % ownership. The entries in the table show how the number of shares and the % ownership changes for each investor with each successive investment round.   - **Capitalization Table (or Cap Table)** ​ A standard table that shows rounds of investment as multi-part columns and investors (or aggregated classes of investors) as rows. The multi-part columns are divided into three smaller columns: # of shares, % ownership, and fully diluted % ownership. The entries in the table show how the number of shares and the % ownership changes for each investor with each successive investment round.
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   - **COGS (See Cost of Goods Sold)**   - **COGS (See Cost of Goods Sold)**
   - **Collection Period (aka Days Outstanding)** ​ The number of days between when that revenue is booked and when customers pay for goods or services related to that revenue. During this number of days, that amount remains as an accounts receivable.   - **Collection Period (aka Days Outstanding)** ​ The number of days between when that revenue is booked and when customers pay for goods or services related to that revenue. During this number of days, that amount remains as an accounts receivable.
-  - **Commission** ​ The percent of a sale of an item that is awarded to employees (usually salespeople) for the roles they played in making that sale. The amount of commissions will be included on the Marketing and Sales Expense line of the income statement. In addition, commissions are burdened with payroll tax (just like salaries), but not fringe or disability.+  - **Commission** ​ The percent of a sale of an item that is awarded to employees (usually salespeople) for the roles they played in making that sale.The amount of commissions will be included on the Marketing and Sales Expense line of the income statement. In addition, commissions are burdened with payroll tax, fringe and disability ​(just like salaries).
   - **Common Stock** ​ An example of equity in a company. Common shares are generally sold to founders of the company. They are generally used in stock options, i.e., stock options awarded to employees and others are generally options to purchase common stock at some predefined strike price. Investors in start-ups generally purchase preferred stock, but sometimes purchase common stock.   - **Common Stock** ​ An example of equity in a company. Common shares are generally sold to founders of the company. They are generally used in stock options, i.e., stock options awarded to employees and others are generally options to purchase common stock at some predefined strike price. Investors in start-ups generally purchase preferred stock, but sometimes purchase common stock.
   - **Competitor **  A company that is selling products that directly or indirectly cause customers to forgo purchasing your product. Notice that a competitor could be in an entirely different industry than you are in. For example, a highly-effective rapid transit system could be seen as a competitor to an automobile dealer in a metropolitan area. See direct competitor and substitute competitor.   - **Competitor **  A company that is selling products that directly or indirectly cause customers to forgo purchasing your product. Notice that a competitor could be in an entirely different industry than you are in. For example, a highly-effective rapid transit system could be seen as a competitor to an automobile dealer in a metropolitan area. See direct competitor and substitute competitor.
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   - **Days Outstanding (see Collection Period)**   - **Days Outstanding (see Collection Period)**
   - **Debt to Equity Ratio **  Liabilities divided by shareholders’ equity.   - **Debt to Equity Ratio **  Liabilities divided by shareholders’ equity.
 +  - **Deferred Revenue (aka Unearned Revenue)** Cash received by the company that will become revenue after the company provides products and/or services to the customer.
   - **Depreciation** ​ When you purchase a fixed asset, you can take a percentage of its cost as an expense each month over its entire useful life. This expense is called depreciation,​ and is subtracted from the value of the fixed asset on the balance sheet.   - **Depreciation** ​ When you purchase a fixed asset, you can take a percentage of its cost as an expense each month over its entire useful life. This expense is called depreciation,​ and is subtracted from the value of the fixed asset on the balance sheet.
   - **Direct Competitor** ​ An example of a competitor. In this case, the competitor is producing goods or services that are perceived by the customer as performing the same function in roughly the same manner.   - **Direct Competitor** ​ An example of a competitor. In this case, the competitor is producing goods or services that are perceived by the customer as performing the same function in roughly the same manner.
-  - **Disability Insurance** ​ An expense of your company. In most states, this is a mandated payment of a percentage of total gross payroll (excluding ​commissions) to cover workers’ compensation in the event of a work-related injury.+  - **Disability Insurance** ​ An expense of your company. In most states, this is a mandated payment of a percentage of total gross payroll (including ​commissions) to cover workers’ compensation in the event of a work-related injury. 
 +  - **Distributor** A company that sells your products and/or services to a target market. A distributor usually purchases your products and then resells them to its customers (retaining the spread). However a distributor could also just find the customers and have you sell directly to the end customer, in which case the distributor would earn a commission.
   - **Division (or Department) **  A part of your company. For example, • General and Administrative (G&A) • Marketing and Sales (M&S) • Manufacturing and Production (M&P) • Research and Development (R&D).   - **Division (or Department) **  A part of your company. For example, • General and Administrative (G&A) • Marketing and Sales (M&S) • Manufacturing and Production (M&P) • Research and Development (R&D).
   - **Down Round** ​ An investment round in which equity is sold at a price lower than it was sold in an earlier round.   - **Down Round** ​ An investment round in which equity is sold at a price lower than it was sold in an earlier round.
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   - **Founder **  An individual who is present when the company is founded, and who purchases a percent ownership in the company.   - **Founder **  An individual who is present when the company is founded, and who purchases a percent ownership in the company.
   - **Founders’ Shares** ​ The shares in a company purchased by a founder when the company is created.   - **Founders’ Shares** ​ The shares in a company purchased by a founder when the company is created.
-  - **Fringe Rate** ​ The cost to provide all employment benefits to employees, expressed as a percent of gross payroll (excluding ​commissions). This includes the company’s contributions to medical/​dental insurance plans, 401(k)’s, life insurance, and so on.+  - **Fringe Rate** ​ The cost to provide all employment benefits to employees, expressed as a percent of gross payroll (including ​commissions). This includes the company’s contributions to medical/​dental insurance plans, 401(k)’s, life insurance, and so on.
   - **Fully Diluted** ​ Refers to the total number of shares in the company assuming that all individuals exercise all their individual rights to the extreme. In most cases, this means that all stock options in the authorized option pool are granted by the officers of the company, and all individuals granted those options exercise those options. Contrast with undiluted.   - **Fully Diluted** ​ Refers to the total number of shares in the company assuming that all individuals exercise all their individual rights to the extreme. In most cases, this means that all stock options in the authorized option pool are granted by the officers of the company, and all individuals granted those options exercise those options. Contrast with undiluted.
   - **General and Administrative (aka G&A) **  A specific division of the company. The labor costs for any employee not directly assigned to a sales & marketing, manufacturing and production, or research & development functions should be assigned to G&A. Also, any “other expense” not directly assigned to a sales & marketing, manufacturing and production, or research & development function should be assigned to G&A.   - **General and Administrative (aka G&A) **  A specific division of the company. The labor costs for any employee not directly assigned to a sales & marketing, manufacturing and production, or research & development functions should be assigned to G&A. Also, any “other expense” not directly assigned to a sales & marketing, manufacturing and production, or research & development function should be assigned to G&A.
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   - **Internal Rate of Return (aka IRR) **  A standard way of calculating financial return for investors in a start-up. IRR is the annualized compounded rate of return. For example, an investment of $100,000 that yields a return of $150,000 in one year has produced an IRR of 50%. An investment of $100,000 that yields a return of $225,000 in two years has also produced an IRR of 50%. An investment of $100,000 that yields a return of $337,500 in three years has also produced an IRR of 50%.   - **Internal Rate of Return (aka IRR) **  A standard way of calculating financial return for investors in a start-up. IRR is the annualized compounded rate of return. For example, an investment of $100,000 that yields a return of $150,000 in one year has produced an IRR of 50%. An investment of $100,000 that yields a return of $225,000 in two years has also produced an IRR of 50%. An investment of $100,000 that yields a return of $337,500 in three years has also produced an IRR of 50%.
   - **Internet Services** ​ An expense of your company, incurred when you pay for services such as web hosting, email, and so on.   - **Internet Services** ​ An expense of your company, incurred when you pay for services such as web hosting, email, and so on.
-  - **Inventory ​Inventory** ​ consists of (a) raw materials purchased by the company, (b) work-in-process (i.e., partially assembled products), and © finished products that are waiting to be sold to customers.+  - **Inventory** ​ consists of (a) raw materials purchased by the company, (b) work-in-process (i.e., partially assembled products), and %%(c)%% ​finished products that are waiting to be sold to customers.
   - **Inventory Days **  On average, the number of days items are expected to remain in inventory?   - **Inventory Days **  On average, the number of days items are expected to remain in inventory?
   - **Inventory Turnover** ​ Cost of goods sold divided by average inventory, where average inventory is the average of inventory at the end of the current period and the inventory at the end of the previous period. Inventory turnover can also be thought of as the number of times during the year that inventory is replaced, i.e., an inventory turnover of 2 means that, on average, the entire inventory is replaced twice a year. A low turnover (when compared to the rest of your industry) means that you may end up with obsolete goods in your inventory. A high turnover (when compared to the rest of your industry) means that you may end up with the inability to fulfill customer orders.   - **Inventory Turnover** ​ Cost of goods sold divided by average inventory, where average inventory is the average of inventory at the end of the current period and the inventory at the end of the previous period. Inventory turnover can also be thought of as the number of times during the year that inventory is replaced, i.e., an inventory turnover of 2 means that, on average, the entire inventory is replaced twice a year. A low turnover (when compared to the rest of your industry) means that you may end up with obsolete goods in your inventory. A high turnover (when compared to the rest of your industry) means that you may end up with the inability to fulfill customer orders.
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   - **Market Penetration** ​ The percent of the market size that your company is selling to.   - **Market Penetration** ​ The percent of the market size that your company is selling to.
   - **Market Size** ​ The number of customers in the target market.   - **Market Size** ​ The number of customers in the target market.
-  - **Marketing and Sales (aka M&S) **  The specific division of your company involved in the creation of awareness by customers, branding, and all aspects of the sales funnel.+  - **Marketing and Sales (aka M&​S)** ​ The specific division of your company involved in the creation of awareness by customers, branding, and all aspects of the sales funnel.
   - **Marketing and Sales Expense** ​ An expense of your company that broadly covers advertising,​ trade shows, etc.   - **Marketing and Sales Expense** ​ An expense of your company that broadly covers advertising,​ trade shows, etc.
 +  - **MOI (See Multiple of Investment)**
 +  - **Multiple of Investment (aka MOI)** When a liquidity event occurs and an investor receives some part of the proceeds, then MOI for that investor is the amount received divided by the amount of the original investment. ​
   - **Net Income (See Earnings After Tax)**   - **Net Income (See Earnings After Tax)**
-  - **Net Income Margin (aka Net Profit Margin) **  Earnings after tax (aka net income) divided by revenues.+  - **Net Income Margin (aka Net Profit Margin)** ​ Earnings after tax (aka net income) divided by revenues.
   - **Net Profit (see Earnings After Tax)**   - **Net Profit (see Earnings After Tax)**
   - **Net Profit Margin (see Net Income Margin)**   - **Net Profit Margin (see Net Income Margin)**
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   - **Postage and Shipping **  An expense of your company, incurred when you package and ship items.   - **Postage and Shipping **  An expense of your company, incurred when you package and ship items.
   - **Post-Money Valuation** ​ The number of outstanding shares in the company (after an investment round) times the price per share paid in the most recent round of investment. In other words, this is what the parties believe the company is worth.   - **Post-Money Valuation** ​ The number of outstanding shares in the company (after an investment round) times the price per share paid in the most recent round of investment. In other words, this is what the parties believe the company is worth.
-  - **Preferred Stock** ​ An example of equity in a company. Preferred shares are generally sold to investors in the company. Owners of preferred stock in start-ups enjoy certain preferences over common share owners. Typical preferences are: • Liquidation rights • Participation rights • Antidilution rights.+  - **Preferred Stock** ​ An example of equity in a company. Preferred shares are generally sold to investors in the company. Owners of preferred stock in start-ups enjoy certain preferences over common share owners. Typical preferences are: • Liquidation rights • Participation rights • Antidilution ​rights • Redemption ​rights.
   - **Pre-Money Valuation** ​ The post-money valuation minus the amount of money invested in the current round. In other words, this is what the parties believe the company is worth just before the investment round.   - **Pre-Money Valuation** ​ The post-money valuation minus the amount of money invested in the current round. In other words, this is what the parties believe the company is worth just before the investment round.
   - **Price (for products or services)** ​ The amount that the customer pays your company in return for one unit of the product or service.   - **Price (for products or services)** ​ The amount that the customer pays your company in return for one unit of the product or service.
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   - **Pro Forma** ​ When describing financial statements, pro forma indicates predictive, or looking to the future, as opposed to actual, or reporting on the past. Literally, “as a matter of form.”   - **Pro Forma** ​ When describing financial statements, pro forma indicates predictive, or looking to the future, as opposed to actual, or reporting on the past. Literally, “as a matter of form.”
   - **Raw Material** ​ Any item purchased from a supplier to be used in the manufacturing process.   - **Raw Material** ​ Any item purchased from a supplier to be used in the manufacturing process.
-  - **Recruitment and Training **  An expense of your company, incurred when you recruit new employees or train new or existing employees.+  - **Recruitment and Training** ​ An expense of your company, incurred when you recruit new employees or train new or existing employees. 
 +  - **Redemption Rights** A very common preference associated with preferred stock in a start-up. They define the terms under which the company will repurchase the stock from the investor.
   - **Rent** ​ An expense of your company, incurred when you pay a landlord to occupy office space.   - **Rent** ​ An expense of your company, incurred when you pay a landlord to occupy office space.
   - **Research and Development (aka R&D aka Product Development) **  The specific division of your company involved in the creation and development of new products and processes.   - **Research and Development (aka R&D aka Product Development) **  The specific division of your company involved in the creation and development of new products and processes.
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   - **Retention Rate** ​ The rate at which current customers remain current customers. The opposite of churn and attrition rate.   - **Retention Rate** ​ The rate at which current customers remain current customers. The opposite of churn and attrition rate.
   - **Return on Investment** ​ The financial return investors receive between the time they invest in the company and the liquidity event. Usually measured as an internal rate of return.   - **Return on Investment** ​ The financial return investors receive between the time they invest in the company and the liquidity event. Usually measured as an internal rate of return.
-  - **Revenue **  The sums that customers pay the company for goods and services provided to them.+  - **Revenue** ​ The sums that customers pay the company for goods and services provided to them. 
 +  - **Revenue-Based Loans** Loans that are repaid with a percentage of revenues made by the company instead of with a predetermined fixed monthly payment.
   - **“Sales by Annual Growth” Sales Model** ​ A method of modeling your sales by predicting how many units you expect to sell each month (of each product in each market) during the first year, and then predicting an annual growth rate for each successive year.   - **“Sales by Annual Growth” Sales Model** ​ A method of modeling your sales by predicting how many units you expect to sell each month (of each product in each market) during the first year, and then predicting an annual growth rate for each successive year.
   - **“Sales by Manufactured Product Availability” Sales Model **  A method of modeling your sales by predicting how many units you expect to sell each month (of each product in each market) by estimating how many such products you can manufacture.   - **“Sales by Manufactured Product Availability” Sales Model **  A method of modeling your sales by predicting how many units you expect to sell each month (of each product in each market) by estimating how many such products you can manufacture.
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   - **Telephone** ​ An expense of your company, incurred when you pay a telephone company for either office phones or employee-held cellular phones.   - **Telephone** ​ An expense of your company, incurred when you pay a telephone company for either office phones or employee-held cellular phones.
   - **Travel** ​ An expense of your company, incurred when you pay for your employees to travel or reimburse them for meals and entertainment.   - **Travel** ​ An expense of your company, incurred when you pay for your employees to travel or reimburse them for meals and entertainment.
 +  - **Unallocated Costs of Goods Sold** Labor expenses allocated to Cost of Goods Sold but not to any specific product.
   - **Undiluted ** Refers to the total number of shares in the company that have been issued, excluding stock options. Contrast with fully diluted.   - **Undiluted ** Refers to the total number of shares in the company that have been issued, excluding stock options. Contrast with fully diluted.
 +  - **Unearned Revenue (See Deferred Revenue)**
   - **Unit of Manufacture (aka Lot Size) **  The number of products created during one production run.   - **Unit of Manufacture (aka Lot Size) **  The number of products created during one production run.
   - **Unit of Purchase** ​ The size or quantity of raw material or product that the company purchases from a supplier. For example, a 24-box carton of candies, a 200 gallon shipment of gasoline, a vehicle.   - **Unit of Purchase** ​ The size or quantity of raw material or product that the company purchases from a supplier. For example, a 24-box carton of candies, a 200 gallon shipment of gasoline, a vehicle.
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   - **Warrant** ​ A warrant to purchase X shares gives the bearer of the warrant the right to purchase X shares in the company as a specific price up until a specific date. A warrant often serves as a “sweetener” to other deals, such as • Preferred stock, so that a purchaser of preferred shares may also negotiate the right to purchase additional shares. • Convertible loans, so that the lender may also negotiate the right to purchase additional shares.   - **Warrant** ​ A warrant to purchase X shares gives the bearer of the warrant the right to purchase X shares in the company as a specific price up until a specific date. A warrant often serves as a “sweetener” to other deals, such as • Preferred stock, so that a purchaser of preferred shares may also negotiate the right to purchase additional shares. • Convertible loans, so that the lender may also negotiate the right to purchase additional shares.
   - **Waste (see Spoilage)**   - **Waste (see Spoilage)**
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