Business Definitions – C

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 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.

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.

cannibalization – The undesirable tradeoff 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.

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.

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.

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.

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.

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).

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.

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.

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 Sheet.

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).

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

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.

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.

channels of distribution – The system where customers are provided access to an organization’s products or services.

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%.

co-branding – The pairing of two manufacture’s brand names on a single product or service.

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.

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.

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)

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.

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.

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.

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.

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.

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

completed store transactions – A conversion value measuring the number of purchases made on the website.

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

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.

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.

core marketing strategy – A statement that communicates the predominant reason to buy to a specific target market.

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.

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.

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.

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.

current assets – The same as short-term assets.

current debt – Short-term debt, short-term liabilities.

current liabilities – Short-term debt, short-term liabilities.