Glossary OPQRSTUVWXYZ - The ABC's of Small Business

Operating Lease: A simple rental agreement.

Operating Leverage: The extent to which fixed costs are part of a company's cost structure; the higher the proportion of fixed costs, the faster income increases or decreases with sales volumes.

Operating Performance Ratio: An overall measure of the efficiency of operations during a period computed by dividing net income by net sales.

Operating System (also OS): The environment your programs will use to accomplish their work. Currently, there are 3 popular operating systems: Windows, Macintosh, and Unix. Windows comes in two "flavors", NT and 95 (or its more recent incarnation, Windows 98). Unix has several variants, of which the most popular are currently Linux, FreeBSD, and Solaris. Your computer must have an operating system.

Opportunity Cost: A basic term from the disciplines of economics and accounting. In these circles the acceptable definition of the word is, "The advantage forgone as the result of the acceptance of an alternative."

Outstanding Stock: Issued stock that is still being held by investors.

Owners' Equity. Net Assets. The ownership interest in the assets of an entity, equal total assets minus total liabilities.

Palmtop Computer: A computer designed to be exceptionally small and extremely stingy with power. Palmtops are usually very special purpose machines designed to be "accessories" to a more standard desktop computer. A common use for a palmtop is to be a salesman's reference (with latest information about the company's product line, customer information and so on) and allow limited information entry.

Partnership: A Partnership is an unincorporated business that has more than one owner.

Patent: An exclusive right granted for 17 years by the federal government to manufacture and sell an invention. Patents can cover all sorts of inventions, from physical devices to chemical processes, and even software algorithms. The only restrictions are that the invention be novel and not obvious to current practitioners of the art. Perpetual motion machines are specifically disallowed from getting a patent.

Petty Cash Fund: A small amount of cash kept on hand used for making miscellaneous payments.

Prepaid Expenses: Amounts paid in advance to a creditor or vendor for goods or services. Insurance premiums are a good example. Prepaid Expenses are a current asset because you paid for goods or services you have not yet received.

Present Value of $1: The value today of $1 to be received or paid at some future date given a specified interest rate. (Also, according to Dennis Miller, a bottle of water and 20 minutes of long distance call.)

Printer: A device for printing results from your computer on paper or other "hard" media. While there are many kinds of printers, most these days fall into two groups. Inkjet printers use a technique to "spray" the ink onto your paper. Practically all inkjet printers these days can print in color, and can print from 2 to 12 pages per minute. Laser printers use a combination of copier technology tied with a laser to essentially "copy" the image onto the paper. While color laser printers are available, they are expensive. Laser printers can print from 15 to 50 pages per minute. Some printers (usually laser printers) are capable of being tied directly to a network.

Processor: The "engine" of your computer. If you're getting a Mac, you generally don't get a choice - you'll get a PowerPC (these days identified with a letter/number pair, like G3). If you're buying a Windows machine, you can choose from Intel, AMD, Cyrix, or other processors. I've named the current top 3 vendors - Cyrix processors (MxII) are usually in "low-end" (inexpensive) machines, while Intel (Celeron, Pentium-II and Pentium-III) and AMD (K6-2, K6-III, and Athlon) cover the map. Unless you have a strong preference, allow your consultant to help you choose the processor.

Processor Speed: How fast the "engine" runs. While faster is usually better, keep in mind that you will pay more for faster processors. Speed is specified in Megahertz (millions of cycles per second), and current processors are running in the 300 to 600 Megahertz range. Unless you desperately need it, avoid the very fastest processors; they are expensive and sometimes unstable. Also avoid the very slowest processors, unless you know that your computer can be upgraded to a faster processor if you should so desire.

Profitability: A company's ability to generate revenues in excess of the costs incurred in producing those revenues.

Profit and Loss Statement: Also known as an Income Statement, or P & L. This statement shows your revenues and expenses for a specific period of time.

Proprietorship: A business owned by one person.

Prospectus: A prospectus is prepared by an entity that wishes to issue securities to investors. Included in the prospectus are financial statements, disclosures (e.g. lawsuit), business plans, overview of corporate operations, and information regarding officers. A "red herring" is a preliminary prospectus that has not been finalized.

Public Companies: Corporations whose stock is publicly traded.

Qualified Opinion: An opinion issued when an auditor determines his audit has been limited in scope or the entity has not followed GAAP. (Has nothing to do with the qualifications of the auditor.)

RAM: (Random Access Memory) The "conscious memory" of the computer. This is the memory the computer uses while it is running any program. This is specified in Megabytes (millions of characters), and 32 Megabytes should be considered a minimum for any computer. High-end computers intended for serious engineering problems (mechanical design, custom integrated circuit design) or large database handlers may need thousands of megabytes (Gigabytes) to meet performance goals. RAM is also measured in speed, usually either in Megahertz or Nanoseconds; let your consultant choose the appropriate speed of RAM for your computer.

Reconciliation: A determination of the items necessary to bring the balances of two or more related accounts or statements into agreement. (Kinda like you and your SO.)

Recovery Period: (Usually about two weeks for the flu.) The time period designated by Congress for depreciating business assets. Can also be thought of as the "life" of an asset (but is usually shorter).

Retained Earnings: Profits of the business that have not been paid out to the owners as of the balance sheet date. The earnings have been "retained" for use in the business. Retained Earnings is an account in the equity section of the balance sheet.

Return: A key consideration in the investment decision. It is the reward for investing. The investor must compare the expected return for a given investment with the risk involved.

Return on Investment: ROI. A measure of operating performance and efficiency in using assets computed by dividing net income by average total assets.

Revenues: Increases in a company's resources from the sale of goods or services.

S-Corporations: Formerly known as Subchapter S Corporations. A corporation recognized as a regular corporation under state law but is granted special status for federal income tax purposes.

Salvage or Residual Value: Estimated value (or actual price) of an asset at the end of its useful life after disposal costs.

Shareholders or Stockholders: Individuals or organizations that own shares of stock of a corporation.

Solvency: A company's long-run ability to meet all financial obligations.

Sole Proprietorship: A business owned by one person. (A business owned by a fish?)

Sticky: A website that can keep a visitor on it by providing a lot of useful, interesting or entertaining content. It's usually measured in how much time the average viewer spends on the site in a month.

Tape Drive: A device to read and write data on magnetic tape. Currently there are several types of tape drives that can store from 10 Gigabytes (billions of characters) to 3.2 Terabytes (trillions of characters). Tape drives are commonly used to backup the hard disk and for transporting data to other computers.

Trade credit: Credit one firm grants to another firm for the purchase of goods or services.

Transactions: Exchange of goods or services between businesses or individuals. Can also be other events having an economic impact on a business.

Trial Balance: A listing of all account balances that provides a test of whether total debits equals total credits.

Unearned Revenue: Money received by a business before it is earned. It is a liability to your company until it is earned. (Money from a robbery?)

Useful Life: The life that an asset is expected to be useful to the company.

Value: The worth of something. Usually defined more precisely as to what particular value of the item being determined, such as "Fair Market Value."

Video Card: A device for the digital signals your computer "thinks" in to signals compatible with your monitor (see Video Monitor). Currently, bigger better faster video cards are dedicated to three dimensional (3D) pictures. If you are buying a computer for normal business use, buy the lowest end video card you can - the 3D stuff won't help you a bit. The exception to this might be if you are buying the computer for mechanical drawing or video processing (for TV, for example). In these cases, check the software you are going to buy to see if a particular video card can help. Quite often, a video card can be an inexpensive way to make vast improvements to certain programs' performance.

Video Monitor: A fancy name for the TV-like screen that you use to view your programs. The Apple iMac comes with the monitor built in. Most computers, though, require a separate monitor. Monitors are measured across the diagonal of the screen, and the most commons sizes are 13, 14, 15, 17, 19 and 21 inch monitors. As you might expect, the larger the screen, the more it costs. Avoid the 13 and 14 inch monitors unless you are extremely strapped for space. 15 inch monitors are common, but I find that I get headaches if I use one for too often. 17 inch monitors are a good size for most uses. 19 inch and 21 inch monitors are better for engineering use where lots of small details on the screen are important.

Video Processor: See Video Card.

Working Capital: Current Assets minus Current Liabilities. Some business owners like to think of assets being a use of working capital, and liabilities and capital contributions as being a source of working capital.

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Yield: The return on investment that an investor receives from dividends or interest expressed as a percentage of the current market price of the security (or if already owned, price paid)..

Z-Score: A z-score is a total arrived at by combining several normal business ratios. The weight given each ratio produces a score which is said to indicate the health of a business. A z-score below 1.5 usually means that the company is close to bankruptcy. (The final score in a French soccer game: Zee score vaz trois a un!)

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