Glossary
Financial Glossary
Your Essential Guide to Financial & Tax Terms: A simplified, go-to reference for understanding the key terms, concepts, and compliance language used in accounting, VAT, tax consultancy, and business regulations. This glossary is designed to help entrepreneurs, business owners, and professionals navigate financial conversations with clarity and confidence.
Runway
In the context of a business or startup, runway refers to the amount of time that a company has before it runs out of cash or other resources and is unable to continue operating. Runway is typically measured in months and is calculated by dividing the company’s current cash and other liquid assets by its monthly burn rate, which is the amount of money that the company spends each month on expenses such as salaries, rent, and other operating costs. A company with a long runway has more time to achieve profitability or secure additional funding, while a company with a short runway may need to take immediate action to conserve cash or raise additional capital.
S Corporation (S Corp)
An S corporation, also known as an S corp, is a type of business entity that is recognized under United States federal income tax law. S corporations are similar to regular corporations, or C corporations, in that they offer their owners limited liability protection and the ability to issue shares of stock. However, unlike C corporations, S corporations are not subject to corporate income tax. Instead, the income and losses of an S corporation are passed through to its shareholders and taxed at the individual level. This means that the shareholders of an S corporation are responsible for paying taxes on their share of the company’s income, rather than the company itself. S corporations are typically small businesses with no more than 100 shareholders.
Sales Pipeline
A sales pipeline is a visual representation of the various stages of the sales process, from initial contact with a potential customer to the final sale. The sales pipeline typically includes stages such as prospecting, qualification, needs analysis, solution development, and closing. The sales pipeline allows sales teams to track the progress of each potential sale and identify any potential roadblocks or issues that may arise. By regularly reviewing the sales pipeline, sales teams can develop strategies to move potential customers through the various stages of the sales process more efficiently and effectively. A well-managed sales pipeline can help a company to maximize its sales efforts and generate more revenue.
Sales and Marketing Efficiency
Sales and marketing efficiency is a measure of the effectiveness of a company’s sales and marketing efforts in generating revenue. It is typically calculated by dividing the company’s total sales or revenue by the amount of money that it spends on sales and marketing efforts. This metric can be useful for companies to evaluate the efficiency of their sales and marketing activities, and to identify areas for improvement. A high level of sales and marketing efficiency indicates that a company is able to generate a significant amount of revenue from its sales and marketing efforts relative to the amount of money that it spends. This can be a sign of a strong and effective sales and marketing strategy.
Serviceable Available Market (SAM)
Serviceable available market (SAM) is a term used in business and marketing to refer to the portion of a market that is able and willing to purchase a company’s products or services. SAM is a useful metric for companies to consider when evaluating the potential success of a new product or service, as it helps them to understand the size of the market that they can realistically expect to capture. To calculate SAM, a company first determines the total addressable market (TAM), which is the total potential market for a product or service. The company then factors in additional considerations, such as the availability and accessibility of the product or service, competition from other companies, and the willingness of consumers to pay for the product or service, to arrive at an estimate of the SAM.
Serviceable Obtainable Market (SOM)
Serviceable obtainable market (SOM) is a term used in business and marketing to refer to the portion of a market that is both willing and able to purchase a company’s products or services. SOM is a useful metric for companies to consider when evaluating the potential success of a new product or service, as it helps them to understand the size of the market that they can realistically expect to capture. To calculate SOM, a company first determines the total addressable market (TAM), which is the total potential market for a product or service. The company then factors in additional considerations, such as the availability and accessibility of the product or service, competition from other companies, and the willingness of consumers to pay for the product or service, to arrive at an estimate of the SOM.
Simple Agreement for Future Equity (SAFE)
A simple agreement for future equity (SAFE) is a type of investment agreement that is commonly used in the startup ecosystem. A SAFE is a contract between an investor and a company that gives the investor the right to receive equity in the company at some point in the future, typically in connection with a future financing round. Unlike a traditional convertible note, which is a debt instrument that converts into equity at a future date, a SAFE is not a loan and does not accrue interest or have a maturity date. Instead, a SAFE is a simple and flexible way for a startup to raise capital from investors without having to issue shares of common stock upfront.
Sole proprietorship
A sole proprietorship is a type of business that is owned and operated by a single individual. It is the simplest and most common form of business structure, and is often used by small businesses or self-employed individuals. In a sole proprietorship, the individual owner has complete control over the business and is personally responsible for its debts and liabilities. The business and the owner are considered to be the same legal entity, and the owner reports the business’s profits and losses on their personal tax return.
Special Purpose Vehicle (SPV)
A special purpose vehicle (SPV) is a legal entity that is created for a specific purpose or project. SPVs are commonly used in the financial industry to isolate the assets and liabilities of a particular project or investment from the assets and liabilities of the parent company. This separation allows the parent company to reduce its risk and protect its balance sheet from the potential risks and liabilities associated with the project or investment. SPVs can take various forms, such as a corporation, limited partnership, or trust, and are often used in structured finance transactions, such as securitization, in which the assets of the SPV are used as collateral for a loan or other financial instrument.
Stock management
Stock management, also known as inventory management, is the process of overseeing the flow of goods in and out of a business’s inventory. It involves tracking the quantity, cost, and location of a company’s stock, as well as forecasting future demand and ordering new stock when needed. Stock management is an important function for a business because it helps the business to maintain the right level of stock to meet customer demand without overstocking or running out of stock. It can also help a business to control its costs by ensuring that stock is not wasted or lost due to spoilage or theft.
Tax deduction
A tax deduction is an expense that a taxpayer is allowed to subtract from their taxable income when calculating their tax liability. Tax deductions reduce a taxpayer’s taxable income, which in turn reduces the amount of tax that they owe. There are two main types of tax deductions: above-the-line deductions and below-the-line deductions. Above-the-line deductions are deductions that a taxpayer can claim regardless of whether they itemize their deductions or take the standard deduction. Examples of above-the-line deductions include certain business expenses and certain types of retirement contributions.
Trade creditors
Trade creditors are businesses or individuals that a company owes money to for goods or services that have been supplied on credit. Trade creditors are also known as accounts payable or trade payables. A trade creditor is typically a supplier or vendor who has provided the company with goods or services and is entitled to payment for those goods or services. The company is responsible for paying the trade creditor within a certain period of time, typically 30, 60, or 90 days, depending on the terms of the credit agreement.
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