5.12.5: Key Terms

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absolute capacity: highest volume of units that a machine can produce within a specified time period

baselining: internal comparison of actual outcomes with expected outcomes

benchmarking: comparing one’s own company’s performance with an industry average, a leader within the industry, or a market segment

business accelerator: organization formed by an alliance of business professionals who assist entrepreneurs in their startup or early stage businesses in exchange for an equity investment in the entrepreneur’s company

business incubator: organization formed by a consortium of established professionals or organizations assisting startup or early stage businesses that provides office space, financial support, technical support, or advisors whose specialized skills in management and marketing complement the technical talents of the entrepreneur

capital expense: major purchase of a functional asset that is expected to last longer than three years or that still has financial value after being fully depreciated

capital improvements: major repairs or improvements that add to the life of an asset by improving its longevity, increasing its value or productivity, or extending its usefulness

cash flow: money collected by the business through revenue and funding versus money disbursed by the business through expenses

closed group: formal, structured group of individuals who have a strict process or specific criteria that applicants must meet before being accepted as members

creditworthiness: lender’s assessment of how reliable a company is in repaying a debt

debt service: repayment of a loan, including principal and interest

down time: time when production is not occurring due to repair, restocking inventory, or unscheduled work

ergonomics: study of how work is performed

flat organization: organizational structure where owners, executives, or key decision makers interact directly with staff at all levels, with very few if any mid-level managers

hybrid group: group of individuals who have a loose and flexible set of criteria for membership and function within a very broad set of guidelines; certain criteria may be required of regular members, but guests are frequently accepted with no long-term commitment expected

inventory management: business operations that include managing the quantity of inventory units in stock, scheduling and cataloguing replacement inventory, organizing shelf location for unit storage, paying for inventory received, and processing, fulfilling, packaging, and shipping customer orders

line of credit (LOC): agreement between a bank and a depositor in which the bank makes available a maximum amount of money the depositor can borrow at any time during the term of the loan; the borrower pays a fee during the term, whether or not there is an outstanding balance, and also pays interest when there is a balance on the loan

liquidity: measure of a company’s ability to cover its immediate and short-term (i.e., due within one year) debts and obligations

nepotism: hiring family and close friends because of personal relationships rather than for their skill sets

networking: process of establishing and maintaining bilateral relationship with other people to exchange information, ideas, products or services, and money

North American Industry Classification System (NAICS): standard used by US federal agencies to collect, analyze, and report statistical information about businesses

open group: informal, loosely organized group of individuals who have no formal process for joining or leaving the group, and who focus on a specific activity or social cause

operational capacity: number of units that can reasonably be expected to be produced within a specified time period

operational expenses: expenses associated with daily, ongoing activities of the business, such as inventory, office supplies, wages, insurance, and utilities

operational reserve: difference in unit capacity between absolute capacity and operational capacity

outsourcing: hiring an outside company or third party to perform a specific task, job, or process, or to manufacture goods

pro forma: financial statement that shows how much and where monies will be collected and spent in the early stages of business creation

production time: amount of time that a machine is actually producing products that are to be sold; also called up time

self-performing: when employees do most of the work in a business

total cost of ownership: comprehensive cost of owning large capital items, including initial direct costs, operating direct costs, and indirect costs

trade association: group of companies or employees of companies in a specific industry, business structure, or social cause