Glossary of terms

Here are some terms that you may come across quite regularly in the business world. Next time your accountant or banker speaks to you in terms you don’t understand, use this jargon buster!


Debt Factoring

The sale of a business’ invoices to a third party. The third party is charged with processing the invoices, and the business lending the invoices is able to receive loans based on the expected payments on the invoices.

Debt restructuring

A situation that allows a financially troubled company or entity to alter the terms of debt agreements usually to convert a short term facility to long term one or replace with lower interest rate. Refinancing is a process of altering terms if not facing financial difficulty or cashflow problems.

Debt to Assets Ratio

The debt to assets ratio indicates the proportion of a company’s assets that are being financed with debt, rather than equity. The ratio is used to determine the financial risk of a business.

A ratio greater than 1 shows that a considerable proportion of assets are being funded with debt, while a low ratio indicates that the bulk of asset funding is coming from equity.

Debt to Equity Ratio

The debt-to-equity ratio shows the proportion of equity and debt a company is using to finance its assets and the extent to which shareholder’s equity can fulfill obligations to creditors in the event of a business decline.

A low debt-to-equity ratio indicates a lower amount of financing by debt via lenders versus funding through equity via shareholders.

A higher ratio indicates the company is getting more of their financing from borrowing which may pose a risk to the company if debt levels are too high.


A debtor is a person or enterprise that owes money to another party. The party to whom the money is owed might be a supplier, bank, or other lender who is referred to as the creditor.

Debtor Days

Debtor days is the average number of days required for a company to receive payment from its customers for invoices issued to them. A larger number of debtor days means that a business must invest more cash in its unpaid accounts receivable asset, while a smaller number implies that there is a smaller investment in accounts receivable, and that therefore more cash is being made available for other uses.


Failure to meet obligations as they fall due eg a borrower missing payments.

Deferred income

Also ‘deferred revenue’, is in accrual accounting, advance payment or money received for goods and services not yet delivered. This is recorded as a liability in the balance sheet until after delivery or performance when it is converted to revenue in the income statement.


The amount by which expenditure exceeds income in a given year


This is when the prices of goods and services in an economy are falling on average (usually below 0% i.e. negative inflation)


Decrease in the value of an asset (usually tangible) and the allocation of the depreciable amount over its useful life, due to wear and tear. (See amortisation)


An individual nominated by the shareholders of a Limited Liability Company to manage the affairs of the business, and may not be a shareholder or employee.


Payment made by a company, usually quarterly to shareholders as reward for their investment in the company. This is usually linked to its profits and is proportionate to the number of shares held.

Double-dip recession

A recession that experiences limited positive growth (or short-lived recovery) then dips back into recession.

Drawing Account

A drawing account is an accounting record maintained to track money withdrawn from a business by its owners. A drawing account is used primarily for businesses that are taxed as sole proprietorships or partnerships. Owner withdrawals from businesses that are taxed as separate entities must generally be accounted for as either compensation or dividends.


Money taken out of a business (sole trader or partnership) for personal use and is treated as a reduction of ownership interest.

Due Diligence

An investigation of a business or person or the audit of a potential investment. It refers to reasonable steps sometimes taken to satisfy a legal requirement especially before making a sale or a purchase, or prior to signing a contract.  This also applies to voluntary investigations such as where a potential acquirer evaluates a target company or its assets for an acquisition or investment, or in some cases, litigation.

Due Diligence report

A written report that presents the findings of the Due Diligence Investigation including the entity’s background and financial condition, business operations and contractual obligations and in some cases, recommended strategies.


Toxic debts

Debts with a low probability of being repaid.

Trade Creditors: (Accounts payable)

These are suppliers awaiting payment for goods or services supplied on credit

Trade Debtors: (Accounts receivable)

Those to whom a company has sold goods on credit and is awaiting future payment.

Trade Sale

A trade sale is the sale of a business, or part of the business, to another business.

Trade sales are a common form of exit for a company’s management and investors. The acquiring company often makes a strategic decision to purchase the company to acquire the underlying intellectual property owned by, or the market share captured by, the company it is purchasing.

Trial Balance (TB)

The total of all debit and credit balances at the end of an accounting period, showing general ledger accounts (which records all business transactions including assets, liabilities, capital, revenue and expenses) contained in the ledger of a business. The aim of the TB is to balance i.e. assets + expenses = liabilities + capital + income.


A series of planned activities/steps taken to reverse or regenerate a company’s poor performance e.g. turning around a loss making company to a profitable one.


The sales of a business or other form of revenue generated from business operations.



Electronic newsletters

Earnings Per Share

Earnings per share (EPS) is calculated as a company’s profit divided by the outstanding shares of its common stock. The resulting number serves as an indicator of a company’s profitability. It is common for a company to report EPS that is adjusted for extraordinary items and potential share dilution. The higher a company’s EPS, the more profitable it is considered.


An acronym for earnings (or profit) before interest payments, tax, depreciation and amortisation. It is an important indicator- preferred to the entity’s profits, used by lenders to measure the ability of a company’s cashflow to repay its debts.

Efficiency of employment

The actually time employees spend on core responsibilities compared to the time they are employed. This is found to be quite low taking into account meetings, training, sick days, office banter, tea breaks, plus other non core activities.

EFM Interims

A company owned by EFM that provides interim managers for projects and short term work


The value of a business after all liabilities are paid.  In a company, it refers to the value of all its shares. In property/ mortgage, it refers to the value the house less the outstanding debt.

ERP System

An ERP System (Enterprise Resource Planning) is a term applied to integrated software systems used to manage the internal and external resources of an organisation. These include the physical assets, financial resources, materials and human resources (or staff).

ERP system facilitates the flow of information between all business functions inside the organisation and links to outside stakeholders such as customer and supplier systems.

The key objective of implementing an ERP System is to bring together the disparate functions of the organisation into a single system environment and therefore make the operations run more efficiently.


The 17 countries that have adopted the Euro as their currency.


This is the process by which a business owner or venture capitalist plans to ‘cash out’ of an investment they have made in the past , selling off their stake in the company eg an IPO or being purchased by an interested party. An exit stategy is sometimes included in business plans to align end-game objectives with operational activities and to show that the business has thought about scenarios where things may not go according to plan, and there is a ‘Plan B’.

External reporting

Reporting financial information to those users with a legitimate claim to obtain it including shareholders, tax and regulatory authorities as well as the public, as opposed to internal reporting for the benefit of the company’s management team.

External users (of financial statements)

Also referred to as secondary users are users who have a valid interest but do not have access to daily company records including customers, shareholders,  investors, creditors and the authorities.


Federal reserve

The US central bank.


A broad term that describes the management of large amounts of money and other assets.

Finance Director

The top boss of financial matters in a company. This is the official finance overseer who presents financial reports and forecasts for future growth as well as helps to minimise risks to the business and manage cashflow.

Finance Manager: (Also known as Assistant Accountant)

Someone who performs certain accounting functions including bookkeeping, credit control, payroll and some elements of management and financial reporting

Finance Transformation

A strategic action plan in which a goal is created to  improve overall finance performance within an organisation. It includes a variety of tasks, from implementing new accounting software to shortening a budget cycle  to reducing overhead costs.

Financial accounting

External reporting in financial terms used by those outside an organisation (as opposed to management reporting). This is usually published in the form of annual accounts, and sometimes, more frequently.

Financial Control

Financial control may be construed as the analysis of a company’s actual results, approached from different perspectives at different times, compared to its short, medium and long-term objectives and business plans.

These analyses require control and adjustment processes to ensure that business plans are being followed and that they can be amended in the event of anomalies, irregularities or unforeseen changes.

Financial Controller

An accounting expert who supervises the quality of accounting and financial reporting of a business whilst also overseeing and monitoring internal controls and countersigning expenses.

Financial Forecasting

A prediction concerning future business conditions that are likely to affect a company or organisation.
Financial forecasting identifies trends in external and internal historical data, and projects those trends in order to provide decision-makers with information about what the financial status of the company is likely to be at some point in the future.

Financial Healthcheck

Assessment of a company’s financial situation to help identify areas that need further attention, discussion and improvement. But it is not all about the negatives, Healthchecks also help to identify opportunities to achieve better financial outcomes and develop solutions to improve performance. EFM’s financial healthcheck is targeted at companies. Take the heathcheck now.

Financial Leadership

The success or failure of an organisation is determined more by the Financial Leadership within an organization than its strict adherence to accounting rules and regulations.

Technical competency is a requirement, however Financial Leadership, in the ethical use of financial information that adds value, is what moves the organisation to be successful.

Financial Management

The effective and competent management of the finances of a business to achieve its financial objectives, mainly to be profitable.

Financial Modelling

Financial modeling is the process by which a firm constructs a financial representation of some, or all, aspects of the firm or given security.
The model is usually characterised by performing calculations and makes recommendations based on that information.

Financial Performance

Financial performance is a subjective measure of how well a firm can use assets from its primary mode of business and generate revenues. The term is also used as a general measure of a firm’s overall financial health over a given period. Analysts and investors use financial performance to compare similar firms across the same industry or to compare industries or sectors in aggregate.

Financial viability

To continue to produce a profit, pay debts as they fall due and continue to survive.

Fiscal policy

Refers to government finance i.e. the borrowing, spending and taxation activities. If a government is concerned that it is borrowing excessively, it can raise taxes and/or cut spending (austerity measures). However, if it is concerned that there might be a recession, it can cut taxes, raise borrowing and/or spending (fiscal stimulus)

Fixed asset

(Also known as Non Current Asset) used on a continuing basis in a business and usually referred to as PPE (Property, Plant and Equipment).

Fixed costs

Expenses not affected by the volume of output (goods & services) of output over a period of time.


A future estimate of performance using historical data and assumptions.

Foreign Exchange

Foreign Exchange, or forex, is the conversion of one country’s currency into another. In a free economy, a country’s currency is valued according to the laws of supply and demand. In other words, a currency’s value can be pegged to another country’s currency, such as the UK pound, or even to a basket of currencies.

A country’s currency value may also be set by the country’s government. However, most countries float their currencies freely against those of other countries, which keeps them in constant fluctuation.

FTSE 100

(Also blue chip companies) The ‘footsie’ is the share index of the 100 largest companies listed on the London Stock Exchange, and this index is revised quarterly.


Financial resource provided in order to finance e.g.  program, project or a new product launch usually by an organization or company


A futures contract allows a buyer or seller to purchase or sell an asset with delivery and payment occurring in the future. The buyer is ‘long’ because he expects the value will increase and the seller ‘short’ because he expects the value to decrease.


Variable Costs

A variable cost is a corporate expense that changes in proportion to production output. Variable costs increase or decrease depending on a company’s production volume; they rise as production increases and fall as production decreases. Examples of variable costs include the costs of raw materials and packaging.


The Value Added Tax, or VAT, in the European Union is a general, broadly based consumption tax assessed on the value added to goods and services.

It applies more or less to all goods and services that are bought and sold for use or consumption in the European Union.

VAT Reclaim

You can usually reclaim the VAT paid on goods and services purchased for use in your business. If a purchase is also for personal or private use, you can only reclaim the business proportion of the VAT.

You must keep records to support your claim and show how you arrived at the business proportion for a purchase. You must also have valid VAT invoices.

From 1 April 2019, most businesses will need to keep digital VAT records and use software to submit VAT Returns.

VAT Return

A VAT return is a form you file with HMRC, usually four times a year, to show how much VAT you are due to pay them. If you’re not registered for VAT, you won’t file VAT returns.

The VAT return shows the calculation of the amount of VAT due on sales minus the amount of VAT reclaimable on purchases. The result is the amount payable to HMRC.

If the amount reclaimable on purchases is more than the amount due on sales, HMRC will give you the difference back!

Venture Capital

Venture capital is a type of funding for a new or growing business. It usually comes from VC firms that specialise in building high risk financial portfolios. The venture capital firm gives funding to the startup company in exchange for equity in the startup.



A forum of the seven major industrialised economies in the world, consisting of the US, UK, France, Germany, Italy, Canada and Japan.


Acronym for Gross Domestic Product. A measure of county’s health valuing its economic activity in a year i.e. all the services and goods produced.


The ratio of owner’s equity to company’s debt.

Going concern basis

The assumption that a company will continue to operate indefinitely


The value before making any deductions.

Gross margin

Profit margin, calculated as Total Sales/ revenue minus cost of sales before deducting administration and selling expenses.



A wage is monetary compensation paid by an employer to an employee in exchange for work done. Payment may be calculated as a fixed amount for each task completed, or at an hourly or daily rate, or based on an easily measured quantity of work done. Wages are part of the expenses that are involved in running a business.

Working capital

Measures ability to cover short term financial obligations, and indicates how liquid a company. This is calculated as current assets minus current liabilities.


A reduction in the book value of an asset. Book value is the value of an asset as it appears on a balance sheet.



Part of debt restructuring, a decrease in the amount of debts of a business in financial difficulty, imposed on by lenders.

Hedge fund

A portfolio of investments which uses a range of advanced, sophisticated strategies to maximise returns including leveraging and derivatives trading.


Is an advanced investing strategy that reduces the risk of price fluctuations to the value of an asset.

Her Majesty’s Revenue and Customs (HMRC)

The UK government’s tax-collection  organisation (previously called ‘Inland Revenue’).  It has other non-tax responsibilities.


Incentive Planning

For an organisation to succeed, the business owner must attract and retain productive employees. Therefore, a business establishes competitive incentive plans to accomplish these objectives.

Incentive plans, which are known as performance incentive plans (PIPs), motivate employees to exceed expectations and grow the business. Such plans promote exceptional behavior during a specific period. In addition, they attract potential employees to an organisation and encourage company loyalty.

However, an incentive plan must contain obtainable goals. Otherwise, employee morale will fade, and the plan becomes ineffective.

Income statement: (Also Profit and Loss account)

This financial statement shows operating results for a specific period including revenues, expenses, and profit.


When a company legally comes into existence.


An increase in prices and also a fall in the purchasing value of money


The inability to pay debts or the lack of sufficient assets to cover debts

Insolvency practitioner

A person licensed to act on behalf on an insolvent individual, partnership or company.


not physical


Fee charged as a percentage by a lender for a loan. The annual rate is expressed as a percentage of the principal.

Interim reports

Financial statements issued in a period less than one year e.g. half-yearly or quarterly, and typically, not audited.

Internal reporting

Reporting financial information for the management of a business (internal users).


Stock held by a business

Inventory Valuation

Inventory valuation is the cost associated with an entity’s inventory at the end of a reporting period. It forms a key part of the cost of goods sold calculation, and can also be used as collateral for loans. This valuation appears as a current asset on the entity’s balance sheet. The inventory valuation is based on the costs incurred by the entity to acquire the inventory, convert it into a condition that makes it ready for sale, and have it transported into the proper place for sale. You are not allowed to add any administrative or selling costs to the cost of inventory.

Investment bank

A financial institution that works typically in higher finance to raise capital for large companies, wealthy individuals and the government


A person or entity that commits capital/ provides money in exchange for a share of ownership and with the expectation of a financial return.

Invoice discounting

Invoice discounting is an alternative solution to traditional types of business finance, which provides you with instant access to cash tied up in your outstanding invoices. An invoice discounting facility adapts with your business as it changes and grows, making it much more flexible than an overdraft or loan.

Invoice Factoring

Invoice Factoring is a financial transaction and a type of debtor finance. In an invoice factoring, a business sells its accounts receivable (invoice) to a third party (called a factor) at a discount. A company will sometimes factor its receivable assets to meet its present and immediate cash needs. It might also factor their invoices to mitigate credit risk.

You may also refer Factoring as accounts receivable factoring, invoice factoring, and sometimes erroneously accounts receivable financing. Accounts receivable financing is a form of asset-based lending (ABL) utilizing a company’s accounts receivable as collateral.


An initial public offering (IPO) is the first time that the stock of a private company is offered to the public. IPOs are often issued by smaller, younger companies seeking capital to expand, but they can also be done by large privately owned companies looking to become publicly traded. In an IPO, the issuer obtains the assistance of an underwriting firm, which helps determine what type of security to issue, the best offering price, the amount of shares to be issued and the time to bring it to market.



Year End

Year End also known as an accounting reference date is the completion of an accounting period. At this time, businesses need to carry out specific procedures to close their books.

In the UK, an accounting year does not necessarily correlate with the calendar year. For personal tax purposes the fiscal year is set by the government – starting April 6th and ending on April 5th the following calendar year. This tax year is the same for everyone in the UK, although the deadline for submitting Self Assessment tax returns might vary for certain individuals.

For limited companies, the financial year is set according to when the company was incorporated. In the UK, companies are given an accounting reference date (ARD) which refers to the last day in the month the company was incorporated. The ARD is the end of the financial year, and the new financial year starts the following day.


Joint and several liability

A situation in a partnership whereby liabilities are shared collectively, yet each partner is individually responsible for the whole of the partnership.

Joint Venture

A Joint Venture is a business arrangement in which two or more parties agree to pool their resources for the purpose of accomplishing a specific task.

This task can be a new project or any other business activity. In a Joint Venture, each of the participants is responsible for profits, losses, and costs associated with it.

However, the venture is its own entity, separate from the participants’ other business interests.

Junk bond

A high yield bond with a credit rating of BB or lower. Due to their higher risk of default, they offer a very high return to investors when used to raise capital .


Key Capital Expenditure

Key Capital Expenditure refers to funds that are used by a company for the purchase, improvement, or maintenance of long-term assets to improve the efficiency or capacity of the company.

Long-term assets are usually physical, fixed and non-consumable assets like property, equipment, or infrastructure that have a useful life of more than one accounting period.

Also known as CapEx or capital expenses, capital expenditures include the purchase of items such as new equipment, machinery, land, plant, buildings or warehouses, furniture and fixtures, business vehicles, software and intangible assets such as a patent or license.

Key Performance Indicators

KPIs are a set of quantifiable measures used to define goals and objectives in a business, measure performance and evaluate if these goals are achieved eg customer attrition, turnover, income from retained clients.


Lehman Brothers

Previously the 4th largest investment Bank in America which went bankrupt in 2008 and sparked off the most severe phase of the financial crisis.


This alternative form of gearing occurs when borrowed capital is used for an investment with the expectation that the resulting profits will be more than the interest payable. The more a business borrows over this, the more highly leveraged it is.


A financial obligation or debt, recorded on the right side of the balance sheet.


Acronym for London Inter Bank Offered Rate. The benchmark rate, calculated daily at which banks in London lend unsecured money to each other for the short-term.

Licensee: (Referred to as Associate)

Relating to the company EFM – A finance professional who is part of EFM and is authorised to trade using the EFM name.

Limited liability

This limits a partner or investor’s loss to the amount they have invested.


Bringing a business to an end and selling off assets for cash to repay debts. Tax authorities are usually paid first while shareholders are paid last.


The current assets of your business are its cash or assets such as stock, work in progress, or debts that can be turned into cash.

Liquidity Management

Liquidity management takes one of two forms based on the definition of liquidity.

One type of liquidity refers to the ability to trade an asset, such as a stock or bond, at its current price.

The other definition of liquidity applies to large organisations, such as financial institutions.

Banks are often evaluated on their liquidity, or their ability to meet cash and collateral obligations without incurring substantial losses.

In either case, liquidity management describes the effort of investors or managers to reduce liquidity risk exposure.



refers to a group within an entity responsible for running the company.

Management accounting

Reporting accounting information within a business specifically for management use (internal use).

Management Information

Management information (MI) is very important in analysing trends, helping you forecast the future and solving any problems you identify.

Firms should use it to monitor customer treatment, expectations and outcomes.


The difference between income and sales, also know as profit.

Marginal Analysis

Marginal Analysis is an examination of the additional benefits of an activity compared to the additional costs incurred by that same activity.

Companies use Marginal Analysis as a decision-making tool to help them maximise their potential profits.

Marginal refers to the focus on the cost or benefit of the next unit or individual, for example, the cost to produce one more widget or the profit earned by adding one more worker.


An MBO (management buyout) is a transaction where a company’s management team purchases the assets and operations of the business they manage.

A management buyout is appealing to professional managers because of the greater potential rewards and control from being owners of the business rather than employees.


A corporate situation that involves the combination of 2 separate companies into one entity. Existing shareholders retain a shared interest in the new entity.

Mergers and acquisitions (M&A)

Mergers and acquisitions (M&A) is a general term that refers to the consolidation of companies or assets. M&A can include a number of different transactions, such as mergers, acquisitions, consolidations, tender offers, purchase of assets and management acquisitions. In all cases, two companies are involved.

Minority Interest

The part of a subsidiary company’s share not owned by the parent company. This ownership interest is also referred to as non-controlling interest.

Monetary policy

The policies of the central bank targeted at controlling the supply of money.

Money Markets

Global market business that trades in short term instruments such as Commercial Paper and Bankers Acceptance.

Month-End Reports

At the close of each month, you need to complete a month-end report to keep your accounting statements updated. The month-end report adjusts your ledger for monthly transactions. This includes recording loan payments, reducing the value of business assets by their depreciation, writing off any bad debts and recording entries for prepaid expenses. The month-end report is also used to review the past month’s transactions and make sure everything has been properly recorded. If your accounts do not balance, the month-end report is a time to correct any accounting errors.



The process by which a government takes over the ownership of a private industry or assets, making it publicly owned.


The value after deductions.

Net Assets

Total Assets minus Total Liabilities

Net Profit Margin

Net profit margin is the percentage of revenue left after all expenses have been deducted from sales. The measurement reveals the amount of profit that a business can extract from its total sales. The net profit margin is intended to be a measure of the overall success of a business. A high net profit margin indicates that a business is pricing its products correctly and is exercising good cost control.

Net realisable value

The estimated amount a company expects to obtain from the sale of its stock. Calculated as proceeds of sale minus cost of sale


National Insurance Contributions – NIC’ Payments made by employees and employers into the United Kingdom’s National Insurance (NI). National insurance contributions initially funded programs for the ill and unemployed, and later on eventually paid for state pensions too.

Nominal Ledger

A nominal ledger is the main place where accounting transactions are recorded. It contains profit and loss, balance sheet and the nominal account – a complete set of accounting records.

Nominal value of a share

The face value of a share certificate

Non Executive Director (NXD/ NED)

Directors who are not employees of a company that provide creative contribution, guidance and support to management. Their responsibilities are around managing people, risks, strategy and performance.

Non-controlling interest

See Minority Interest.

Non-current Assets

Fixed Asset that is a long term liability for which value will not be realised within the trading year, such as Plant, Property and Equipment.

Non-current liabilities

Long term financial obligations/ liabilities not due to be paid within 12 months eg long term bank loans and long term leases.

Notes to the accounts

Additional information provided at the end of financial statements to provide further details on specific items in the financial statements.


Off-balance-sheet finance

Large capital expenditures that are kept off the balance sheet to keep debt to equity ratio low e.g. joint ventures and other financing activities.

Offer for sale

A public invitation to buy a company’s shares in the stockmarket.

Online 50

A fast and efficient online accounting system that provides access to Sage Accounts and Sage Payroll

Operating activities

Activities that directly affect cash inflows and cash outflows, as opposed to investing and financing activities, resulting in net income.


A contract that gives the buyer/ investor the right- but not the obligation,  to buy- or sell an in the future at an agreed time and price.

Ponzi scheme

Named after Charles Ponzi, a notorious Italian fraudster. This is an investment scheme (similar to a pyramid scheme) that pays returns to investors from their own money or from other investors instead of from any actual profits made.



The P11D is a statutory form required by HMRC from UK based employers detailing the cash equivalents of benefits and expenses that they have provided during the tax year to their directors, and employees earning at the rate of more than £8,500 per year.


A P60 is a form that shows how much taxable salary the employee was paid in the tax year and how much tax was deducted from their wages.

An employer must give a P60 to each of their employees at the end of the tax year.

If the employee has to file a Tax Return, they will include this information in a set of Employment pages on the Tax Return.

Employees who have left during the tax year will not receive a P60 from their employer, as the same information will be on their P45.


A pay-as-you-earn tax (PAYE) is a withholding tax on income payments to employees. Amounts withheld are treated as advance payments of income tax due. They are refundable to the extent they exceed tax as determined on tax returns.


Payroll is the total amount of wages paid by a company to its employees and other workers (freelancers and contractors).

Payroll processing is an important function for any business—no matter how small. It’s likely your company’s largest expense, and the most time-consuming HR work performed each month. Payroll can be processed weekly, biweekly, semi-monthly, or monthly, while the most common pay length period is every two weeks.

While the process varies from company to company, payroll is indisputably complicated. It requires an organised system, knowledge of current regulations and taxes, and careful planning.

Peer to Peer Lending

Peer to Peer Lending (P2P) enables individuals to obtain loans directly from other individuals, cutting out the financial institution as the middleman. Websites that facilitate peer to peer lending have greatly increased its adoption as an alternative method of financing. P2P lending is also known as social lending or crowd lending.


A retirement plan in which an employer makes a contribution into an account each month. The contributions are invested on behalf of an employee, who may begin to make withdrawals after retirement. Typically, pensions are tax-deferred, meaning that the employee does not pay taxes on the funds in the pension until he/she begins making withdrawals.

Preference shares

A type of shares which guarantees priority in dividend payment but does not give voting rights to shareholders. They also rank above ordinary shareholders in the event of bankruptcy.


Profit is the amount of revenue a business has after deducting all expenses.

Profit and loss account

An account prepared at the end of the accounting period presenting revenues, expenses, and profit, in order to show whether the business has made a profit or loss over the financial year.

Profit warning

A declaration by a listed company to investors to warn that the profit of the company will not be as high as it had expected.

Project Management

The application of unique knowledge, skills and techniques to execute a business activity that has a defined beginning, end, scope and resources with pre-determined goals in such a way that added value is attained.

Prospective Investor

A person thinking about the possibility of investing in a company.


A PAYE Settlement Agreement (PSA) allows you to make one annual payment to cover all the tax and National Insurance due on small or irregular taxable expenses or benefits for your employees.

If you get a PSA for these items you won’t need to:

  • Put them through your payroll to work out tax and National Insurance.
  •  Include them in your end-of-year P11D forms.
  • Pay Class 1A National Insurance on them at the end of the tax year (you pay Class 1B National Insurance as part of your PSA instead).
Public Limited Company

This is a publicly listed company, abbreviated to PLC, which has offered its shares to the public and has limited liability.

Purchase Ledger

The Purchase Ledger is your record of purchases and expenses, whether or not you have paid them and how much you still owe. On a Balance Sheet, the total unpaid bills will be usually called Trade Creditors or Accounts Payable. The Purchase Ledger has an Account for every Supplier.


Goods and services that have been bought.


Account Reconciliation

In accounting, reconciliation is the process of ensuring that two sets of records (usually the balances of two accounts) are in agreement. Reconciliation is used to ensure that the money leaving an account matches the actual money spent. This is done by making sure the balances match at the end of a particular accounting period.


An accountant is a professional who maintains, audits, and prepares financial records for an individual or business.

Accounts Receivable

Accounts receivable (AR) is the balance of money due to a firm for goods or services delivered or used but not yet paid for by customers. Accounts receivables are listed on the balance sheet as a current asset. AR is any amount of money owed by customers for purchases made on credit.

Acid test

The ratio of liquid assets to current liabilities. Indicates if a company has enough short-term assets to cover its immediate liabilities without selling any stock.

Administrative expenses

The cost of running a business.

Aged Debt Register

The aged debt report lists a detailed account of which customers (debtors) owe your company money, how much they owe your company, and when they are supposed to complete payment.

Amortisation method

A process used to pro-rate the cost of a specific type of asset (usually intangible fixed assets) to the asset’s life. (See depreciation)

Annual report

A document required by Law showing accounting information for Limited Liability Companies.

Articles of Association

A document that specifies the comparative rights of Limited liability Company Shareholders.

Associate (also known as Licensee)

Relating to the company EFM – A finance professional who is part of EFM and is authorised to trade using the EFM name.


An audit is the independent assessment of, and expression of opinion on, financial statements of a company.


Qualified audit opinion

A statement on an audit report that suggests that information provided was limited in scope, or/and not following GAAP accounting principles, thereby not showing a true and fair view in all areas.

Quantitative easing

A government monetary policy, whereby the Central Bank increases the supply of money by printing more, typically by purchasing government bonds or other assets, using the ‘newly printed’ money.



Bankers’ Automated Clearing System; a method of making payments direct to a creditor’s bank without using a cheque.

Balance Sheet

A statement of the financial position of a company showing its assets, liabilities and ownership interest.


A process by which a borrower who is unable to honour debts due, has its assets valued and in some cases sold off to settle those debts.

Base rate

The overnight interest rate that the Bank of England charges to banks for lending to them.


Also known as loan finance/ debt security or in very simple terms an IOU (commonly used as such in America).

Book value

The value of an asset as it appears on a balance sheet) of an asset


A bookkeeper performs the day-to-day accounting-related tasks of recording financial transactions. Bookkeeping is only a small part of the entire accounting function.


Budgeting is the process of creating a plan to spend your money. This spending plan is called a budget. Creating this spending plan allows you to determine in advance whether you will have enough money to do the things you need to do or would like to do.

If you don’t have enough money to do everything you would like to do, then you can use this planning process to prioritise your spending and focus your money on the things that are most important to you.

Business Advisor

Business Advisors work with a company very closely on their strategy and advise them on various aspects, especially on product development, marketing, and finances. These three dynamics are crucial to every business.

Business advisors are equipped with enough knowledge and trends of the agile market that will ultimately assist entrepreneurs in making an informed decision.

Business Continuity Planning

Business Continuity Planning is the process of creating systems of prevention and recovery to deal with potential threats to a company. In addition to prevention, the goal is to enable ongoing operations before and during execution of disaster recovery.

Business cycle

The period (normally 12 calendar months) during which the fluctuating activities of a business form a pattern (i.e. as peaks and troughs)

Business Growth

Business Growth is a stage where the business reaches the point for expansion and seeks additional options to generate more profit.

Business Growth is a function of the business life-cycle, industry growth trends, and the owners desire for equity value creation.

Business Mentoring

Business Mentoring is a relationship between you, as an entrepreneur, and someone with business experience who is willing to act as a guide.

The business mentor offers advice, guidance and support to help you run and improve your business.

It can involve face-to-face meetings or online discussions – or a combination of both – depending on which arrangement is best for both parties.

Business Modelling

A business model is a company’s plan for how it will generate revenues and make a profit. It explains what products or services the business plans to manufacture and market, and how it plans to do so, including what expenses it will incur.

Business Performance Analysis

Business Performance Analysis refers to a variety of techniques used to quantify the performance of a company over a given period of time. A performance analysis could be done on just about any area of a business, provided the correct key performance indicators are factored in the analysis.

Business plans

A formal statement of business goals, the strategies and how you intend to achieve those goals. It can serve various purposes from securing external funding to measuring success within a company.

Business Process Improvement

Business process improvement is a strategic planning methodology aimed at identifying the operations or employee skills that could be improved to encourage smoother procedures, more efficient workflow and overall business growth.


A buyout is the purchase of a company’s shares in which the acquiring party gains controlling interest of the targeted firm. A leveraged buyout (LBO) is accomplished by borrowed money or by issuing more stock. Buyout strategies are often seen as a fast way for a company to grow because it allows the acquiring firm to align itself with other companies that have a competitive advantage.



R&D Tax Credits

Research and development (R&D) tax credits are a government incentive designed to reward UK companies for investing in innovation. They are a valuable source of cash for businesses to invest in accelerating their R&D, hiring new staff and ultimately growing.


This is a change in the capital structure of a company that involves the injection of fresh equity and options include leveraged recapitalisation, leveraged buyout or nationalisation


A period of significant decline in economic activity (and GDP) whereby trade and industrial activity levels fall for more than 2 quarters (6 months).

Residual value

What a fixed asset would be worth after the end of its useful life e.g. a machine after 5 years or a car after 3 years.

Retained earnings

A portion of the net profit retained by a company to be reinvested, rather than being paid out to shareholders as dividends.

Retained profit

Profit left over after deducting dividends.


The yield generated from an investment usually expressed as a percentage of the investment amount.

Return on capital employed (ROCE)

tells a business the return (profit) it has made on available resources, and is calculated by dividing operating profit (before deducting interest and taxation) by share capital (plus reserves plus long-term loans).

Return on shareholders’ equity

This is a measure of a company’s profitability and is calculated by dividing shareholders profit by share capital plus reserves.

Return on total assets

indicates how effectively assets are being used to generate profit. It is calculated by dividing operating profit (before deducting interest and taxation) by total assets.

Revaluation reserve

 ‘Paper’ or unrealised profits (or losses) arising from the revaluation of an asset, showing the difference between the current and likely future value of an asset.


Income (money) which a company receives from its business activities, usually a sale.

Rights issue

Offer to existing shareholders the right to buy additional shares.

Risk Assessment

Risk assessment is a general term used across many industries to determine the likelihood of loss on an asset, loan, or investment.

Assessing risk is essential for determining how worthwhile an investment is and the best process(es) to mitigate risk.

It presents the upside reward compared to the risk profile. It also determines the rate of return necessary to make a particular investment succeed.


Real Time Information doesn’t change the way you calculate PAYE; it just means you’ll need to make more regular submissions. RTI was introduced in 2013.

Each time you pay your employees, you’ll need to submit PAYE information to HMRC, rather than just once a year at payroll year end.

Following concerns over the impact of RTI on small businesses, rules of reporting were temporarily relaxed.

But from October 2014 those relaxed rules were lifted and small businesses need to start reporting each time they pay their employees – not just on a monthly basis.

You’ll still need to process PAYE in the same way but you’ll need to submit the payroll information to HMRC on or before the day you pay each of your employees.


Called up share capital

When a company ‘calls upon’ its shareholders to make full payment on shares bought, the value of the issued shares which are not fully paid for is referred to as the called up share capital.


Finance provided to enable a company to acquire assets and sustain its business. For investors, it refers to their stock of wealth, and for companies, normally a source of financing.

Capital adequacy ratio

A measure of a financial strength and securities and indicates a bank’s ability to absorb losses.

Cash Book

A cash book is a financial journal that contains all cash receipts and disbursements, including bank deposits and withdrawals. Entries in the cash book are then posted into the general ledger.

Cash Management

Cash Management is the process of collecting and managing cash flows. Cash management can be important for both individuals and companies.

In business, it is a key component of a company’s financial stability. For individuals, cash is also essential for financial stability while also usually considered as part of a total wealth portfolio.

Cash Receipt

A cash receipt is recognised when an entity receives cash from any external source, such as a customer, an investor, or a bank. Typically, this cash is recognised when money is received from a customer to offset the accounts receivable balance generated when the sale transaction occurred.


This is usually an indication of a company’s financial strength and basically the movement of money in and out of a business over a given period. Cash inflows usually arise from financing, operations or investing, while cash outflows result from expenses or investments.

Cashflow projections

These are statements of cash expected to flow into and out of a business over a specified period of time.

Cashflow statement

This provides information about changes in a company’s financial position.

Chief Executive

Position assigned to the director in charge of the daily running of a business.


A collective investment scheme (CIS), which is sometimes referred to as a ‘pooled investment’, is a fund that several people contribute to. A fund manager will invest the pooled money in one or more types of asset, such as stocks, bonds or property.

There are many types of collective investment scheme available to investors. We regulate these schemes, including authorised UK schemes and ‘recognised’ schemes from other countries.

If a collective investment scheme is not authorised or recognised it is considered an unregulated collective investment scheme (UCIS). Unregulated collective investment schemes are not subject to the same restrictions in terms of their investment powers and how they are run.


Coaching will assist and guide the business owner in running a business by helping them clarify the vision of their business and how it fits in with their personal goals.

Business coaching is a process used to take a business from where it is now to where the business owner wants it to be.

Commercial Agreement

A Commercial Agreement is a legally binding contract between parties where both are required to do particular activities or refrain from doing something.

They can be found in a variety of business types, including industrial, corporate, and retail.

Commercial agreements can be verbal, in writing, or even implied in a formal or informal matter.

They can cover all aspects of business, including wages, leases, loans, hiring, and employee safety.

To breach a commercial agreement, one of the contracting parties fails to live up to their part of the agreement.

Commercial paper

Short-term unsecured promissory notes issued by companies, usually used for working capital as opposed to fixed assets such as buildings.

Companies Act

Legislation in the United Kingdom relating to company law, that controls the activities of Limited Liability Companies. Refers to the Companies Act1985 as modified by the Companies Act 1989.

Consolidated financial statements

These show a company’s performance as a group. They are statements that factor the holding company’s subsidiaries into its aggregated accounting figure, presenting information as a single reporting entity.

Contingent liabilities

These are liabilities that may or may not be incurred because they depend on the outcome of an event. These obligations are not recognised in the balance sheet because they depend upon some future event occurring.

Corporate Governance

Corporate Governance is the system of rules, practices, and processes by which a firm is directed and controlled.

Corporate governance essentially involves balancing the interests of a company’s many stakeholders, such as shareholders, senior management executives, customers, suppliers, financiers, the government, and the community.

Since corporate governance also provides the framework for attaining a company’s objectives, it encompasses practically every sphere of management, from action plans and internal controls to performance measurement and corporate disclosure.

Corporation tax

Tax to be paid by companies, based on the taxable profits for the period.

Cost Reduction

The process of looking for, finding and removing unwarranted expenses from a business to increase profits without having a negative impact on product quality. Many businesses engage in periodic cost reduction drives in order to make their company’s operation more efficient and to boost profits.

Cost Restructuring

Cost Restructuring is any and all costs and expenses of restructuring, consolidating or closing of any of the plants, facilities or offices of the Borrower or any of its Subsidiaries.

The costs of severance or other similar payments relating to the termination of employees at such plants, facilities or offices.

Credit (in bookkeeping)

An increase in liabilities, revenue or ownership interest or a decrease in assets shown as an entry in the credit column of a ledger account.

Credit (in business)

Credit period typically ranging from 30 to 60 days – however every contract is distinct.

Credit control

The process by which a company ensures customers pay promptly, and takes steps to minimize the risks of loss from bad debts.

Credit crunch

An economic situation whereby lenders simultaneously cut back on lending due to fears of borrowers inability to repay debts.

Credit note

A document given to a client to cancel the client’s debt to the company, usually because the client has overpaid, returned faulty products or received ineffective service.

Credit purchase

Is a transaction that describes when goods and services are purchased and the bill is to be settled on a future date.

Credit rating

Evaluation of the creditworthiness of a company, usually provided by a ratings agency from AAA which is the safest – D which is defaulted.

Credit sale

Purchases made by a client that do not require payment to be made at the time of purchase.


An entity/ party to whom money is owed

Current assets

Liquid assets i.e. assets in the form of cash or easily convertible to cash within the trading cycle ideally 12 months of balance sheet date.

Current liabilities

Debts or obligations due within one year- expected to be settled within 12 months of balance sheet date.

Current value

This is the value of an asset at the present time, taking into account changing prices, as opposed to its historical cost.

Customer Remittance

A remittance refers to money that is sent or transferred to another party. The term is derived from the word remit, which means to send back. Remittances can be sent via a wire transfer, electronic payment system, mail, draft, or check. Remittances can be used for any type of payment including invoices or other obligations.


Sales Forecast

Projection of achievable sales revenue, based on historical sales data, analysis of market surveys and trends, and salespersons’ estimates. Also called sales budget, it forms the basis of a business plan because the level of sales revenue affects practically every aspect of a business.

Sales invoice

A tool (document) that shows a client sums due in exchange for goods/services delivered.


A scale-up company is one that is showing strong, consistent growth – whether in terms of revenue or customer base. All enterprises with average annualised growth greater than 20% per annum, over a three year period, with at least 10 employees at the start of the observation.

Secured loan

This is a loan backed by assets (e.g. a car, property) belonging to the borrower to reduce the lender.

Selling a Business

Selling a business is often the culmination of years of work. It is not something that many managers or owners do more than once. You have to get it right first time. The right advice and thorough preparation are vital when you come to sell. Understanding the sales process will help you choose the right buyer, and negotiate the right deal.

Shadow banking

The FSB defined the shadow banking system as “the system of credit intermediation that involves entities and activities outside the regular banking system”. In essence, they provide services similar to banks but are not regulated like banks.


This is a unit of a company’s capital. A company divides its capital into these units (shares) which it offers for sale to raise capital.


Individuals or firms who own shares in a limited liability company, also referred to as owners of the company.

Shareholders’ funds

The sum of issued share capital, retained profit and reserves showing the total shareholders investment in a business.

Short-term finance

Loan or debt to a company due to be paid within one year.

Sounding Board Meetings

Sounding board meetings are typically group forums designed to elicit opinions about a particular matter. Some small business owners use these types of meetings to troubleshoot new product or marketing ideas, while others use them as problem-resolution platforms. Sounding board meetings can be very advantageous, as they can help a small business owner discover breakthrough ideas or solutions to ongoing problems, as well as move forward on new projects quickly. If you are planning to launch a new product or service, or you simply want to clear up misunderstandings that are plaguing the office, plan an effective, efficient sounding board meeting.


An economic situation whereby there is high inflation combined with stagnation- slow growth and high unemployment.


Anyone who might have an interest in a company including the public, clients, suppliers etc

Statutory Accounts

Statutory accounts are a legal requirement for Limited companies large or small. They have to be provided to the shareholders (members) – a requirement stipulated by the Companies Act, these accounts also have to be filed with Companies House for each accounting period.


Monetary/ fiscal policy aimed at driving growth and/or inflation. It may include an increase in spending, tax cuts, interest rate cuts, and quantitative easing

Stock Control

Stock Control is the practice of balancing the need to maintain inventory levels against its cost. The ideal outcome of stock control is a minimal investment in inventory, while still being able to fulfill customer orders in a timely manner.

Stock exchange (stock market.)

A market /exchange in which stocks and securities are bought and sold and which sets the rules for buyers and sellers.

Strategic Planning

Strategic Planning is an organisational management activity that is used to set priorities, focus energy and resources, strengthen operations, ensure that employees and other stakeholders are working toward common goals, establish agreement around intended outcomes/results, and assess and adjust the organisation’s direction in response to a changing environment.

It is a disciplined effort that produces fundamental decisions and actions that shape and guide what an organisation is, who it serves, what it does, and why it does it, with a focus on the future.

Strategy Implementation

Strategy Implementation refers to the execution of the plans and strategies, so as to accomplish the long-term goals of the organisation. It converts the opted strategy into the moves and actions of the organisation to achieve the objectives.

Strategy Implementation is the technique through which the firm develops, utilises and integrates its structure, culture, resources, people and control system to follow the strategies to have the edge over other competitors in the market.

Subsidiary company

A company that is owned and controlled by another entity referred to as the holding or parent company.

Succession Planning

Succession planning focuses on identifying and growing talent to fill business-critical positions in the future. In the face of skills shortages and a lack of confidence in leadership potential, succession planning has gained popularity, and is now carried out in both large and smaller organisations.

Disclaimer: Please note that this document is not to be used to make any legal or financial decision on its own. It only serves as a guide to reflect certain scenarios and definitions we are familiar with. The meaning of some terms may differ in other situations. Please seek additional advice before you act on these definitions. 

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