Interestingly, when I asked Dictionary.com that question, I got two seemingly opposing definitions:
- the language, esp. the vocabulary, peculiar to a particular trade, profession, or group, and
- unintelligible or meaningless talk or writing; gibberish.
Strangely enough, both of these definitions of business jargon are right!
Virtually all trades, professions, or groups have their own particular phrases or acronyms (business jargon) that they use to describe what they do. The most common phrases are so well known within the group that they often forget that the meaning they attach to the phrase or acronyms are like a foreign language to anyone from outside their group. Sometimes they are even astonished to find out that the person they are talking to, has no idea what they are saying!
In the world of business and business management, there are an infinite number of phrases and acronyms in common use by business consultants, accounting professionals, business advisors, etc., that are often poorly communicated and difficult for anyone outside the ‘club’ to understand.
The terms I have included on this page are listed below in alphabetical order.
Accounts Payable
Accounts Payable are the amounts owed by the business to suppliers for goods and services purchased on a credit account. Typically, these accounts must be paid in 30 – 90 days from the date of purchase. Also termed Creditors.
Accounts Receivable
Accounts Receivable are the amounts owed to the business by customers for goods and services sold to them on a credit account. Typically, these payment on these accounts is received within 30 -90 days from the date of purchase. Also termed Debtors.
Accrual Accounting
Accrual accounting is an accounting method that recognises transactions at the time the commitment is made, rather than when cash is exchanged. For example, a sale made to an account customer is recognised when the sale is agreed to, rather than when the cash is received. This accounting method also recognises non-cash transactions such as depreciation on assets.
Activity-Based Costing
Activity-Based Costing is a methodology that measures the cost and performance of cost objects, activities and resources. Cost objects consume activities, and activities consume resources.
Resource costs are assigned to activities based on their use of those resources, and activity costs are reassigned to cost objects (outputs) based on the cost objects’ proportional use of those activities.
Activity-based costing incorporates causal relationships between cost objects and activities and between activities and resources.
Balance Sheet
The Balance Sheet is a statement of the business’s financial position on a given date. It provides details of the business assets, liabilities and equity.
Book Value (Assets)
The book value of an asset is the net value recorded in the Balance Sheet. The net value is the purchase price plus any establishment costs less accumulated profit written off to the Profit and Loss Statement.
Bottom Line
The bottom line is business jargon for the net profit or loss reported in the Profit and Loss Statement. This is an example of business jargon that has a literal meaning as the net profit or loss is literally the last or bottom line of the report.
Break-Even Point
The break-even point is the level of output (products produced) where the total costs of production equals the total revenue from the sale of the products, i.e., you make no profit or loss on the sale of the product but ‘break even’.
Business Angels
Business Angels are individuals who invest their time and money in new entrepreneurs. The arrangement typically includes the investor providing mentoring to the new business owner.
Business Jargon
Refer to the definition of business jargon in the opening paragraph!
Business or Organisation Mission
The Mission Statement is a statement that answers the question “What is the business and what is it trying to accomplish for our customers?” The Mission Statement broadly outlines the business’s activities and structure.
Business Process
A business process is a collection of coordinated tasks or activities undertaken to produce a specified output or outcome. A business process has defined inputs and outputs and often span organizational or functional boundaries.
Business Process Management
Business Process Management is exactly what it claims to be. It is the active management of your business processes and involves investigating, documenting and analysing your processes, which enables you to look for efficiencies or improvements, reducing your costs and increasing the value of your outputs or products.
– C –
Cash Accounting
Cash accounting is an accounting method that only recognises cash transactions when they occur. For example, a sale on credit is not recognised until the account is settled and the cash is received by the business. Non-cash transactions are not recognised with this accounting method.
Cash Flow
Cash flow is the net amount of cash receipts and payments for a specified period. A Cash Flow Statement is a statement of the cash flows in and out of the business.
CEO
CEO is an acronym that stands for Chief Executive Officer, which is a title often given to the highest-ranking officer in a company.
Contribution Margin
The contribution margin is the difference between the sales revenue and variable costs. Basically, it is the amount per sale that is available to cover the fixed costs of the business.
Cost of Goods Sold (CoGS)
The cost of goods sold is the direct costs of producing the product that a company has sold and includes items like the materials and labour that were used to produce the goods.
Credit
A credit is an accounting entry that decreases the value of an asset, increases the value of a liability or increases revenue in a double-entry bookkeeping system. (Opposite to a debit).
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Debit
A debit is an accounting entry that increases the value of an asset, decreases the value of a liability or increases expenses in a double-entry bookkeeping system. (Opposite to a credit).
Depreciation
Long-term or fixed assets all have a ‘useful’ life. Over the useful life, the asset loses value. Depreciation is a non-cash transaction that recognises the loss of value in the annual profit/loss calculations of the business.
Direct Cost
Direct costs are the costs that can be traced directly to the production of a product or service. Examples of this type of cost would be production labor, raw materials, machine running costs etc.
– E –
Equity
Equity is the difference between the assets and liabilities of the business and represents the owner’s investment in the business. Equity is reported in the Balance Sheet.
– F –
Financial Analysis
Financial analysis involves the evaluation of the financial performance of the business using a number of different ratios.
Fixed Costs
Fixed costs are those costs that remain unchanged despite changes to the level of production.
– G –
Gross Margin
The gross margin is the difference between sales and the cost of goods sold.
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– I –
Income Statement
The Income Statement is also called a Profit and Loss Statement and reports on the trading activity, in terms of revenue and expenditure. The difference between revenue and expenditure is the net profit or loss for the period.
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Just In Time (JIT)
Just-in-Time is an inventory management system that reduces costs by only receiving incoming materials as they are required. In large manufacturing organizations this often involves at least daily deliveries from suppliers, if not multiple deliveries every day.
– K –
Kaizen or Continuous Improvement
Kaizen, or continuous improvement as it is termed in the West, has been defined as “a company-wide process of focused and continuous incremental innovation”. Kaizen is based on a belief in people’s inherent desire for quality and worth, and should involve everyone in the Organisation from top managers to workers on the shop floor.
Being process-oriented, lasting improvements can only be achieved if innovations are combined with an ongoing effort to maintain and improve standard performance levels.
Important note:
To improve your processes, you first need to know what they are! Continuous improvement requires you to review, document, standardise, and then improve.
– L –
Loss Leader
This example of business jargon refers to goods or services that the producer is prepared to sell at an abnormally low price or at a loss, to attract buyers into his store in the hope that they will also buy his other goods or services.
– M –
– N –
NPV or Net Present Value
Net present value is business Jargon for the difference between the present value of cash flows and the present value of cash outflows. In other words, it allows you to work out how much the net cost or benefit of an investment is by comparing the purchase price against the future cash inflows in today’s money.
If the NPV is positive, the project or investment is likely to be acceptable. If it is negative, the project or investment should be rejected.
– O –
Outsourcing
Outsourcing is business jargon describing a situation where a company outsources one or more of their business functions to another organisation. For example, a business may ‘outsource’ its payroll function to a specialised payroll service.
Overhead
An overhead is any cost that cannot be directly traced to a product or service. Examples of overhead costs might be office and management salaries, administration costs, marketing costs, etc. Overhead costs are also referred to as indirect costs.
– P –
– Q –
– R –
Retained Earnings
Retained earnings is business jargon for the accumulated profits that are retained by the business, and reported as equity in the Balance Sheet.
– S –
Start Up Concept
Start Up Concept is business jargon that means the underlying idea for a new business. The who, what, where and how of the business. It provides information on the purpose and objectives of the business, what the target market is and the growth potential.
Strategic Objectives
Strategic Objectives are the targets that the management establishes to strengthen the overall business position and to improve competitive viability.
Strategic Planning
Strategic Planning is the process of defining and setting the future direction and purpose of the business.
Strategic Vision
The strategic vision is a view of the business’s future direction. It is the guiding concept for what the business will become.
SWOT Analysis
SWOT Analysis is a method used to evaluate the internal and external environment of a business and to generate objectives to maintain or grow the business. The acronym SWOT stands for Strengths, Weaknesses, Opportunities, and Threats.
Sunk Costs
Sunk costs refer to the prior investment in an asset that is unlikely to be recovered, and as such should not be considered when evaluating any future investment options.
– T –
– U –
Value Added/Non-value Added Analysis
Assessing the relative value of activities according to how they contribute to customer value or to meeting an organisation’s needs.
Value Chain Analysis
Value Chain Analysis is a method used to identify potential sources of economic or competitive advantage by integrating the organisation’s internal core competencies with its external environment in order to achieve optimal resource allocation.
Variable Cost
Variable costs are those costs that increase or decrease as production levels increase or decrease. Examples of this type of cost would be raw materials and direct labour costs.
– W –
Write Down or Write Off
These two business jargon terms refer to the process of revaluing assets down to reflect ‘true’ or realisable costs.
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