business terms

direct marketing

Any method of distribution that gives the customer access to an organization's products and services without intermediaries; also, any communication from the producer that communicates with a target market to generate a revenue producing response.

competitive analysis

Assessing and analyzing the comparative strengths and weaknesses of competitors; may include their current and potential product and service development and marketing strategies.

Everett Rogers

Author who studied and published work on the diffusion of innovation.

corridor Principal

The principal where an entrepreneurial venture may find that it has significantly changed it's focus from the initial concept of the venture as it has continually responded and adapted to it's market and the desire to optimize profitability potential.

evaluating ideas and opportunities

The process of considering ideas versus opportunities, and then screening those opportunities using objective criteria as well as personal criteria.

equity financing

The sales of some portion of ownership in a venture to gain additional capital for start-up.

current assets

The same as short-term assets.

Compound Average Growth Rate (CAGR)

The standard formula is: (last number/first number)^(1/periods)-1 For more detailed examples, CAGR is explained in the Market Analysis chapter of the online book Hurdle: the Book on Business Planning and in the Market Forecast section of the online book On Target: the Book on Marketing Plans.

competitive advantage

The strategic development where customers will choose a firm's product or service over its competitors based on significantly more favorable perceptions or offerings.

debt and equity

The sum of liabilities and capital. This should always be equal to total assets.

channels of distribution

The system where customers are provided access to an organization's products or services.

cannibalization

The undesirable trade off where sales of a new product or service decrease sales from existing products or services and minimize or detract from the total revenue contribution of the organization.

business plan

The written document that details a proposed or existing venture. It seeks to capture the vision, current status, expected needs, defined markets, and projected results of the business. A business plan "tells the entrepreneur's story" by describing the purpose, basis, reason and future of the venture.

capital input

This could also be called investment, or new investment. It is new money being invested in the business, not as loans or repayment of loans, but as money invested in ownership. This is also money at risk. It will grow in value if the business prospers, and decline in value if the business declines. This is closely related to the concept of paid-in capital, on the Balance Sheet table. Paid-in capital is the amount of money actually invested in the business as money, checks written by investors. Paid-in capital increases only when there is new investment. It is different from retained earnings. Liveplan sets the initial amount of Paid-in Capital as an input into either the Start-up table (for start-up companies) or the Past Performance table (for ongoing companies.) After either of those initial entries, only New Investment Received (called "capital input" in earlier versions), in the Cash Flow table, increases Paid-in Capital. An entry as New Investment Received will increase your cash, and will also increase the total amount of paid-in capital. The amounts planned should be typed into the New Investment Received row of the Cash Flow table, and they will automatically increase Paid-in Capital in the Balance Sheet table.

Accumulated Depreciation

Total accumulated depreciation reduces the formal accounting value (called book value) of assets. Each month's accumulated balance is the same as last month's balance plus this month's depreciation. Business Plan Pro shows accumulated depreciation in the Balance Sheet.

Accounts Receivable (AR)

short-term amounts due from buyers to a seller on credit.

credit

the ability of a customer to obtain goods or services before payment, based on the trust that payment will be made in the future

accounting

the action or process of keeping financial accounts

Accounts Payable(AP)

money owed by a company to its creditors

brand extension strategy

The practice of using a current brand name to enter a new or different product class.

broker

An intermediary that serves as a go-between for the buyer or seller.

Community Interest Company (CIC)

(U.K.): A CIC is a new type of limited company in the United Kingdom, designed for social enterprises that want to use their profits and assets for the public good. CICs will be easy to set up, with all the flexibility and certainty of the company form, but with some special features to ensure they are working for the benefit of the community. This is achieved by a "community interest test" and "asset lock", which ensure that the CIC is established for community purposes and the assets and profits are dedicated to these purposes. Registration of a company as a CIC has to be approved by the Regulator who also has a continuing monitoring and enforcement role.

Features, Advantages and Benefits Analysis (FAB)

A FAB analysis explores the features, advantages, and benefits of a product or service offering. Marketing plans need to understand these concepts in order to develop effective marketing programs. People often confuse features and benefits. For example, in an automobile, air bags are a the feature that produce the benefit of greater safety. Advantages fall in between, features become advantages that offer benefits to the end user.

benchmark

A benchmark is a standard or guideline used to compare some aspect of a business to some objective or external standard measure. For example, when a banker compares a business' profitability to standard financial ratios for that type of business, the process is sometimes referred to as "benchmarking." Liveplan creates a chart that it calls "Business Benchmarks," which it uses to compare five standard business measures (sales, gross margin, net profits, collection days, and inventory turnover) as they change over time. In this case the benchmark is the business itself, so it compares past results to planned future results.

business mission

A brief description of an organization's purpose with reference to its customers, products or services, markets, philosophy, and technology.

cash flow budget

A budget that provides an overview of cash inflows and outflows during a specified period of time. This is often called the cash flow, or the cash budget. Just as cash flow is one of the most critical elements of business, the cash flow projection or table is one of the most critical elements of a business plan.

Agent

A business entity that negotiates, purchases, and/or sells, but does not take title to the goods.

directory

A computer term related to the operating system on IBM and compatible computers. Disk storage space is divided into directories.

completed store transactions

A conversion value measuring the number of purchases made on the website.

exclusive distribution

A distribution strategy whereby a producer sells its products or services in only one retail outlet in a specific geographical area.

direct mail marketing

A form of direct marketing that involves sending information through a mail process, physical or electronic, to potential customers.

brand

A name, term, sign, symbol, design, or a combination of all used to uniquely identify a producer's goods and services and differentiate them from competitors.

concentrated target marketing

A process that occurs when a single target market segment is pursued.

differentiated target marketing

A process that occurs when an organization simultaneously pursues several different market segments, usually with a different strategy for each.

Advertising Opportunity

A product or service may generate additional revenue through advertising if there is benefit from creating additional awareness, communicating differentiating attributes, hidden qualities or benefits. Optimizing the opportunity may involve leveraging strong emotional buying motives and potential benefits.

diversification

A product-market strategy that involves the development or acquisition of offerings new to the organization and/or the introduction of those offerings to the target markets not previously served by the organization.

direct cost of sales

A shortcut for cost of goods sold: traditionally, the costs of materials and production of the goods a business sells, or the costs of fulfilling a service for a service business.

channel conflicts

A situation where one or more channel members believe another channel member is engaged in behavior that is preventing it from achieving its goals. Channel conflict most often relates to pricing issues.

core marketing strategy

A statement that communicates the predominant reason to buy to a specific target market.

Adaptive Firm

An organization that is able to respond to and address changes in their market, their environment, and/or their industry to better position themselves for survival and profitability.

distinctive competency

An organization's strengths or qualities including skills, technologies, or resources that distinguish it from competitors to provide superior and unique customer value and, hopefully, is difficult to imitate.

break-even analysis

A technique commonly used to assess expected profitability of a company or a single product. The process determines at what point revenues equal expenditures based on fixed and variable. Breakeven is usually expressed in terms of the number of units sold or in total revenue. The break-even analysis is a standard financial analysis that measures general risk for a company by showing the sales level needed to cover both fixed and variable costs. That level of sales is called the break-even point, which can be stated as either unit sales volume or sales as dollar (or other currency) sales. The break-even analysis uses three assumptions to determine a break-even point: fixed costs, variable costs, and unit price. Fixed costs and variable costs are both included in this glossary, and unit price is the average revenue per unit of sales. The formula for break-even point in sales amount is: =fixed costs/(1-(Unit Variable Cost/Unit Price)) The break-even analysis is often confused with payback period (also in this glossary), because many people interpret breaking even as paying back the initial investment. However, this is not what the break-even analysis actually does. Despite the common and more general use of the term "break even," the financial analysis has an exact definition as explained above. One important disadvantage of the break-even analysis is that it requires estimating a single per-unit variable cost, and a single per-unit price or revenue, for the entire business. That is a hard concept to estimate in a normal business that has a collection of products or services to sell. Another problem that comes up with break-even is its preference for talking about sales and variable cost of sales in units. Many businesses, especially service businesses, don't think of sales in unit, but rather as sales in money. In those cases, the break-even analysis should think of the dollar as the unit, and state variable costs per unit as variable costs per dollar of sales.

experience curve

A visual representation, often based on a function of time, from exposure to a process that offers greater information and results in enhanced efficiency and operations advantage.

click-through rate

A way of measuring the success of an online advertising campaign. A CTR is obtained by dividing the number of users who clicked on an ad on a Web page by the number of times the ad was delivered (impressions). For example, if your banner ad was delivered 100 times (impressions delivered) and 1 person clicked on it (clicks recorded), then the resulting CTR would be 1%.

earnings

Also called income or profits, earnings are the famous "bottom line": sales less costs of sales and expenses.

depreciation

An accounting and tax concept used to estimate the loss of value of assets over time. For example, cars depreciate with use.

cash basis

An accounting system that doesnt use the standard accrual accounting. It records only cash receipts and cash spending, without assuming sales on credit (Sales made on account; shipments against invoices to be paid later) or Accounts payable (Bills to be paid as part of the normal course of business).

buy-sell agreement

An agreement designed to address situations in which one or more of the entrepreneurs wants to sell their interest in the venture.

differentiation

An approach to create a competitive advantage based on obtaining a significant value difference that customers will appreciate and be willing to pay for, and which ideally will increase their loyalty as a result.

commission percent

An assumed percentage used to calculate commissions expense as the product of commission percent multiplied by sales, gross margin, or related sales items.

central driving forces model

An entrepreneurial based model that considers the positives and negatives of three areas of the venture; founder(s), opportunities, and resources. The model then evaluates these areas regarding the "fits and gaps" that indicate correlating strengths or weaknesses for the venture. The CDF model also considers industry and market information in the overall analysis.

equity

Business ownership; capital. Equity can be calculated as the difference between assets and liabilities.

collection days

Collection days is supposed to represent the average number of days business waits, on average, between delivering an invoice and receiving payment. The formula for calculating collection days is: =(Accounts_receivable_balance*360)/(Sales_on_credit*12) See Collection period, below.

Adventure Capital

Capital needed in the earliest stages of the venture's creation before the product or service is available to be provided. (As mentioned in Entrepreneurship for the '90′s by Baty.)

cash

Cash normally means bills and coins, as in paying in cash. However, the term is used in a business plan to represent the bank balance, or checking account balance. Liveplan builds its financial analysis around cash and cash flow used in this second sense, as the balance of the checking account in the bank, plus other liquid securities used to bolster the checking account.

contribution

Contribution can have different meanings in different context. When contribution is applied to a product or product line, it means the difference between total sales revenue and total variable costs, or, on a per-unit basis, the difference between unit selling and the unit variable cost and may be expressed in percentage terms (contribution margin) or dollar terms (contribution per unit). Contribution is also frequently expressed as contribution margin for a whole company or across a group or product line, in which case it can be taken as gross margin less sales and marketing expenses. For example, Marketing Plan Pro produce a table named that shows sales, cost of sales, gross margin, sales and marketing expenses, and contribution margin. The contribution is gross margin less sales and marketing expenses.

contribution margin

Contribution can have different meanings in different context. When contribution is applied to a product or product line, it means the difference between total sales revenue and total variable costs, or, on a per-unit basis, the difference between unit selling and the unit variable cost and may be expressed in percentage terms (contribution margin) or dollar terms (contribution per unit). Contribution is also frequently expressed as contribution margin for a whole company or across a group or product line, in which case it can be taken as gross margin less sales and marketing expenses. For example, Marketing Plan Pro produces a table named Contribution Margin that shows sales, cost of sales, gross margin, sales and marketing expenses, and contribution margin. The contribution is gross margin less sales and marketing expenses.

C Corporation (C Corp)

Corporations are either the standard C corporation or the small business S corporation. The C corporation is the classic legal entity of the vast majority of successful companies in the United States. Most lawyers would agree that the C corporation is the structure that provides the best shielding from personal liability for owners, and provides the best non-tax benefits to owers. This is a separate legal entity, different from its owners, which pays its own taxes. Most lawyers would also probably agree that for a company that has ambitions of raising major investment capital and eventually going public, the C corporation is the standard form of legal entity. The S corporation is used for family companies and smaller ownership groups. The clearest distinction from C is that the S corporation's profits or losses go straight through to the S corporation's owners, without being taxed separately first. In practical terms, this means that the owners of the corporation can take their profits home without first paying the corporation's separate tax on profits, so those profits are taxed once for the S owner, and twice for the C owner. In practical terms the C corporation doesn't send its profits home to its owners as much as the S corporation does, because it usually has different goals and objectives. It often wants to grow and go public, or it already is public. In most states an S corporation is owned by a limited number (25 is a common maximum) of private owners, and corporations can't hold stock in S corporations, just individuals. Corporations can switch from C to S and back again, but not often. The IRS has strict rules for when and how those switches are made. You'll almost always want to have your CPA and in some cases your attorney guide you through the legal requirements for switching.

corporation

Corporations are either the standard C corporation or the small business S corporation. The C corporation is the classic legal entity of the vast majority of successful companies in the United States. Most lawyers would agree that the C corporation is the structure that provides the best shielding from personal liability for owners, and provides the best non-tax benefits to owers. This is a separate legal entity, different from its owners, which pays its own taxes. Most lawyers would also probably agree that for a company that has ambitions of raising major investment capital and eventually going public, the C corporation is the standard form of legal entity. The S corporation is used for family companies and smaller ownership groups. The clearest distinction from C is that the S corporation's profits or losses go straight through to the S corporation's owners, without being taxed separately first. In practical terms, this means that the owners of the corporation can take their profits home without first paying the corporation's separate tax on profits, so those profits are taxed once for the S owner, and twice for the C owner. In practical terms the C corporation doesn't send its profits home to its owners as much as the S corporation does, because it usually has different goals and objectives. It often wants to grow and go public, or it already is public. In most states an S corporation is owned by a limited number (25 is a common maximum) of private owners, and corporations can't hold stock in S corporations, just invidivuals. Corporations can switch from C to S and back again, but not often. The IRS has strict rules for when and how those switches are made. You'll almost always want to have your CPA and in some cases your attorney guide you through the legal requirements for switching.

Doing Business As (DBA)

DBA stands for "Doing Business As," which is a company name, also commonly called a "Fictitious business name." When a sole proprietor operates a company using any name except his or her own given name, then the DBA or ficticious business name registration establishes the legal ownership to satisfy banks, local authorities, and customers. So when you start the Acme Restaurant, unless you are named Acme, you need your DBA to open a bank account in that name, pay employees, and do business. You can usually obtain this registration through the county government, and the cost is no more than a small registration fee plus a required newspaper ad, for a total of less than $100 in most states.

Earnings Before Interest Taxes Depreciation and Amortization (EBITDA)

Earnings Before Interest, Taxes, Depreciation and Amortization: equal to the Gross Margin (The difference between total sales revenue and total direct cost of sales) minus Total Operating Expenses (Tax-deductible expenses incurred in conducting normal business operations, such as wages and salaries, rent, etc.) , plus any Depreciation (The loss of value of assets over time) and amortization. This is similar to Earnings Before Interest and Taxes (EBIT). The difference between the two is that EBIT subtracts all expenses, including depreciation, as an expense, and EBITDA subtracts all expenses except depreciation and amortization.

(EBIT)

Earnings before interest and taxes.

Entrepreneur In Heat (EIH)

Entrepreneur in Heat describes an entrepreneur that continues to develop new products and services beyond what the venture can support and inadvertently may diminish the focus and effectiveness of the activities supporting the venture's primary revenue streams.

back end (websites)

Front end and back end describe program interfaces relative to the user. The front end, here, is the appearance of your website. It is the graphic design and HTML portion — some people call this the user interface or UI. In contrast, the portion of the application you or your developers work with is the back-end. The back end handles the dynamic parts of the site, such as a newsletter, an administration page, a registration database, a contact page or more complicated Web applications. Your back end interfaces with your UI and makes your website work.

brand recognition

Positions customer's relative perceptions of one brand to other competitive alternatives.

commission

In business, a commission is the compensation paid to the person or entity based on the sale of a product; commonly calculated on a percentage basis. The most frequent commission formula is gross margin multiplied by the commissions percentage. To handle commissions with Liveplan, use the spreadsheet programming capabilities to make one row of operating expenses depend on sales, or gross margin.

current debt

Short-term debt, short-term liabilities.

current liabilities

Short-term debt, short-term liabilities.

capital assets

Long-term assets, also known as Plant and Equipment, or fixed assets. These terms are interchangeable. Assets are generally divided into short-term and long-term assets, the distinction depending on how long they last. Usually the difference between short term and long term is a matter of accounting and financial policy. Five years is probably the most frequent division point, meaning that assets that depreciate over more than five years are long-term assets. Ten years and three years are also common. Liveplan sets a starting value for capital assets in either the Start-up or the Past Performance table, depending of course on the nature of the company, whether it is start-up or ongoing. In the start-up table, the capital assets are called "." In the Past Performance table, they are labeled "Capital Assets." As the plan unfolds into months and year, depreciation decreases the net value of capital assets, and capital expenditure increases total assets. Depreciation appears in the Profit and Loss table, because it is an expense. Capital expenditure appears in the Cash Flow table, because it isn't an expense. Amounts typed into the Capital Expenditure row of the cash flow will increase the Capital Assets total in the Balance Sheet Table.

cash spending

Money a business spends when it pays obligations immediately instead of letting them wait for a few days first.

dividends

Money distributed to the owners of a business as profits.

cash flow statement

One of the three main financial statements (along with Income Statement and Balance Sheet), the Cash Flow shows actual cash inflows and outflows of the business over a specified period of time. The Cash Flow Statement reconciles the Income Statement (Profit and Loss) with the Balance

early adopters

One type of adopter in Everett Rogers' diffusion of innovations framework that describes buyers that follow "innovators" rather than be the first to purchase.

early majority

One type of adopter in Everett Rogers' diffusion of innovations framework that describes those interested in new technology that wait to purchase until these innovations are proven to perform to the expected standard.

Assets

Property that a business owns, including cash and receivables, inventory, etc. Assets are any possessions that have value in an exchange. The more formal definition is the entire property of a person, association, corporation, or estate applicable or subject to the payment of debts. What most people understand as business assets are cash and investments, accounts receivable, inventory, office equipment, plant and equipment, etc. Assets can be long-term or short-term, and the distinction between these two categories might be whether they last three years, five years, 10 years, or whatever; normally the accountants decide for each company and what's important is consistency. The government also has a say in defining assets, because it has to do with tax treatment; when you buy a piece of equipment, if you call that purchase an expense then you can deduct it from taxable income. If you call it an asset you can't deduct it, but you can list it on your financial statement among the assets. The tax code controls how businesses decide to categorize spendings into assets or expenses.

burden rate

Refers to personnel burden, the sum of employer costs over and above salaries (including employer taxes, benefits, etc.). Business Plan Pro uses an assumed burden rate to calculate these extra personnel costs. The rate assumption is in the general assumptions table, as a percentage. Business Plan Pro applies this percentage to the straight wages and salaries. For example, if wages and salaries amount to $10,000 and the burden rate is 15%, then the personnel burden is $1,500, which is 15% of $10,000. The personnel burden is an operating expense, so it belongs with other expenses in the Profit and Loss table. It is also a personnel cost, so it also shows in the Personnel Plan table.

Asset Turnover

Sales divided by total assets. Important for comparison over time and to other companies of the same industry. This is a standard business ratio.

cash sales

Sales made in cash, or with credit cards, or by check. The opposite of sales on credit (Sales made on account; shipments against invoices to be paid later).

Acid Test

Short-term assets minus accounts receivable and inventory, divided by short-term liabilities. This is a test of a company's ability to meet its immediate cash requirements. It is one of the more common business ratios used by financial analysts.

entrepreneur

Someone who starts a new business venture; someone who recognizes and pursues opportunities others may not see as clearly, and finds the resources necessary to accomplish his or her goals.

capital expenditure

Spending on capital assets (also called plant and equipment, or fixed assets, or long-term assets). Liveplan tracks capital expenditure in the Cash Flow table, because purchasing or selling assets affects cash flow, and the Balance Sheet table, but doesn't affect profit or loss. A positive amount typed into the Capital Expenditure row in the Cash Flow table will result in an increase in Capital Assetes in the Balance Sheet, and a negative amount will result in a decrease in Capital Assets.

Accrual-Based Accounting

Standard business accounting, which assumes there will be Accounts payable (Bills to be paid as part of the normal course of business) and/or sales on credit (Sales made on account; shipments against invoices to be paid later) , as opposed to Cash-Basis only. For example, most businesses have regular bills such as rent, utilities, and often inventory purchase which are not paid for at the exact moment of purchase, but are invoiced. Most businesses will also not be able to collect on all of their sales immediately in cash, but must bill the purchaser or wait for payment on at least some percentage of their sales (the exact percentage varies by industry).

competitive entry wedges

Strategic competitive advantages and justification for entering an established market or activity that provides recognizable and known value. The four competitive entry wedges include: 1) New product or service 2) Parallel Competition 3) Franchise Entry 4) Twists

conversion rate

The percentage of unique website visitors who take a desired action upon visiting the website. The desired action may be submitting a sales lead, making a purchase, viewing a key page of the site, downloading a file, or some other measurable action.

brand equity

The added value a brand name identity brings to a product or service beyond the functional benefits provided.

collection period (days)

The average number of days that pass between delivering an invoice and receiving the money. The formula is: =(Accounts_receivable_balance*360)/(Sales_on_credit*12)

economies of scale

The benefit that larger production volumes allow fixed costs to be spread over more units lowering the average unit costs and offering a competitive price and margin advantage. Producing in large volume often generates economies of scale. The per-unit cost of something goes down with volume because vendors charge less per unit for larger orders, and often production techniques and facilities cost less per unit as volume increases. Fixed costs are spread over larger volume.

cash flow

The cash flow in a business plan is the change in the cash balance. For example, the cash flow for a month would be a positive $10,000 if the balance was $10,000 at the beginning of the month and $20,000 at the end of the month. It is important to distinguish cash flow, which is the change in the balance, from cash or cash balance, which is the resulting ending balance. More formally, cash flow is an assessment and understanding of cash coming into and flowing out of the venture in specific periods of time. This can be based on projections or actual cash flow.

cross elasticity of demand

The change in the quantity demanded of one product or service impacting the change in demand for another product or service.

bundling

The practice of marketing two or more product or service items in a single package with one price.

dual distribution

The practice of simultaneously distributing products or services through two or more marketing channels that may or may not compete for similar buyers.

Cost of Goods Sold (COGS)

The cost of goods sold is traditionally the costs of materials and production of the goods a business sells. For a manufacturing company this is materials, labor, and factory overhead. For a retail shop it would be what it pays to buy the goods that it sells to its customers. For service businesses, that don't sell goods, the same concept is normally called "cost of sales," which shouldn't be confused with "sales and marketing expenses." The cost of sales in this case is directly analogous to cost of goods sold. For a consulting company, for example, the cost of sales would be the compensation paid to the consultants plus costs of research, photocopying, and production of reports and presentations. In standard accounting, costs of sales or costs of goods sold are subtracted from sales to calculate gross margin. These costs are distinguished from operating expenses, because gross profit is gross margin less operating expenses. Costs are not expenses.

cost of sales

The costs associated with producing the sales. In a standard manufacturing or distribution company, this is about the same as the cost of the goods sold. In a services company, this is more likely to be personnel costs for people delivering the service, or subcontracting costs. This term is commonly used interchangeably with "cost of goods sold," particularly when it is for a manufacturing, retail, distribution, or other product-based company. In these cases it is traditionally the costs of materials and production of the goods a business sells. For a manufacturing company this is materials, labor, and factory overhead. For a retail shop it would be what it pays to buy the goods that it sells to its customers. For service businesses, that don't sell goods, the same concept is normally called "cost of sales," which shouldn't be confused with "sales and marketing expenses." The cost of sales in this case is directly analogous to cost of goods sold. For a consulting company, for example, the cost of sales would be the compensation paid to the consultants plus costs of research, photocopying, and production of reports and presentations. In standard accounting, costs of sales or costs of goods sold are subtracted from sales to calculate gross margin. These costs are distinguished from operating expenses, because gross profit is gross margin less operating expenses. Costs are not expenses.

effective tax rate

The effective tax rate is a comparison of final tax payments compared to actual profits. Usually the effective tax rate is somewhat less than the nominal tax rate because of deductions, credits, etc.

Acquisition Costs

The incremental costs involved in obtaining a new customer.

break-even point

The output of the standard break-even analysis. The unit sales volumes or actual sales amounts that a company needs to equal its running expense rate and not lose or make money in a given month. The formula for break-even point in units is: The formula for break-even point in sales amount is: =Regular running costs/(1-(Unit Variable Cost/Unit Price)) This should not be confused with the recovering initial investment through the regular operation of a business. That concept, often confused with break-even, is called the payback period. see break-even analysis for more background.

co-branding

The pairing of two manufacture's brand names on a single product or service.

expense

Websters calls it "a spending or consuming; disbursement, expenditure. What's important about expenses for the purpose of business accounting is that expenses are deductible against taxable income. Common expenses are rent, salaries, advertising, travel, etc. Questions arise because some businesses have trouble distinguishing between expenses and purchase of assets, especially with development expenses. When your business purchases office equipment, if you call that an expense then you can deduct that amount from taxable income, so it reduces taxes.

effective demand

When prospective buyers have the willingness and ability to purchase an organization's offerings.

creditors

a person or company to whom money is owed