Small Business Glossary: E
earnest money: A deposit provided by a buyer to a seller to bind a contract until final conditions are addressed and the sale is finalized.
earnings before interest and taxes (EBIT): The term used by financial managers and accountants for earnings before interest and income taxes, calculated by totaling revenue from all sales and subtracting the cost of goods sold and all operating expenses, but not including any deductions for income taxes or interest expense on debt, therefore providing a measure of operating earnings or operating profit.
earnings before interest, taxes, depreciation, and amortization (EBITDA): The term used by financial managers and accountants for earnings before interest, taxes, depreciation, and amortization have been subtracted. This calculation provides an important indication of operating cash flow for companies whose balance sheets reflect significant write offs for depreciation of capital assets or amortization of intangible assets.
earnings multiple; price to earnings; P:E ratio: The basis for stock valuation, equal to the share price divided by earnings per share.
earn-out: 1. An executive compensation approach that ties pay to the financial performance of the business. 2. An approach used in business sales to base a portion of proceeds on a defined percentage of future business net profits or earnings, often accompanied by a clause that the buyer must pay a minimum amount annually.
e-business: A business that conducts all activity electronically over the Internet. Often used interchangeably with the term e-commerce, which describes selling over the Internet, sometimes as the only means of conducting business transactions but often as an extension of a traditional bricks and mortar company.
e-commerce: Promoting and conducting sales online, using credit cards or PayPal for financial transactions and eliminating the need for physical interaction between the seller and buyer; a function of an e-business.
economic downturn: An extended decline or contraction of business activity, a condition which, when extended for more than a few months, may be officially declared by the National Bureau of Economic Research to be a recession.
elasticity of demand: The rate of change in consumer purchases of goods or products following price increases or decreases. Significant decreases in sales following increases in price indicate high elasticity, also called price sensitivity. Little to no change in sales volume following increases in price indicates low elasticity, known as inelasticity.
electronic funds transfer (ETF): The completion of paperless financial transactions from one bank account to another using computer-based systems.
electronic mailing list: A list of e-mail addresses categorized by target audience and used to distribute promotional or informational e-mails to those on the list.
elevator pitch: A quick, compelling statement that answers the question What do you do? or describes a person, product, service, project, or new business idea in a way that makes the listener want to know more. Named in the 1990s by high-tech entrepreneurs because they believed their ideas could be communicated in the time span of an elevator ride with a venture capitalist.
e-mail: Short for electronic mail, computer-to-computer messages sent and received by Internet users worldwide.
e-mail signature; a sig block; sig file: A closing block of type that can be automatically inserted at the end of e-mail messages to present the name of the sender, contact information including the sender’s Web site URL, and a brief message, which might include a title, business or personal slogan or tagline, or other statement the sender wants to consistently convey.
embezzlement; larceny: A form of fraud that involves the illegal use of funds by a person who controls those funds.
emoticon: A representation of a facial expression (such as a smile or frown) created by typing a sequence of characters in sending e-mail or text messages; :-( and :-) are emoticons.
employee: A person hired by a business to work for wages or salary.
employee assistance program: The part of an employee benefits program designed to help with problems that could adversely impact work performance, such as substance abuse, an unsafe work environment, emotional distress, healthcare issues, and financial or legal concerns. The program generally includes problem assessment, counseling, and referral services to address issues.
employee benefits; fringe benefits: perquisites; perks: Noncash compensation mandated by law or voluntarily provided by an employer to an employee in addition to salary or wages, including Social Security payments, unemployment compensation, worker’s compensation insurance, and such benefits as health insurance, life insurance, medical insurance, paid vacation days, and retirement contributions.
employee handbook: A manual provided by an employer to an employee containing the company’s basic operating guidelines, policies, and procedures along with an outline of employee benefits and the behavior requirements employees individually and collectively are asked to adhere to as a condition of employment.
employee leave: Paid or unpaid permitted absence from work for family emergency, sickness, personal time, vacation, or other reasons as outlined in a company’s employment policy.
Employee Retirement Income Security Act (ERISA): A U.S. federal law enacted in 1974 that governs most defined benefit and defined contribution plans including health insurance, 401(k), profit sharing, and other employee benefit and retirement programs.
employee stock ownership plan (ESOP): A tax-qualified, defined-contribution employee benefit plan through which employees accumulate shares of their employer’s business. Sometimes used by business owners to sell stock quickly or over time to employees and almost always intended to motivate employees by allowing them to personally benefit from business performance and value appreciation.
employer: The person or business that hires someone to work for wages or salary.
employment contract: An agreement between an employer and employee outlining the rights and responsibilities of each party and the terms and conditions of employment, including a description of the business relationship and the compensation that will be paid in exchange for the defined work to be performed.
end user; consumer: The person for whom a product or service is designed. This individual may or may not be the person who authorizes, orders, or purchases the item. In case of software purchases, called the user.
endorsement: 1. A document confirming modification to the provisions of an existing insurance policy; also called a rider. 2. Instructions written by the sender of bulk mail to inform the U.S. Postal Service of how undeliverable mail is to be handled. 3. A product or service recommendation provided by a prominent person or organization for inclusion in advertising and marketing materials. Similar to a testimonial but usually provided by well-known organizations or celebrities who are often compensated by the advertiser, who must follow Federal Trade Commission guidelines. 4. A formal approval. 5. A signature that validates a check or other document.
entity: In business, something that exists as a particular and discrete unit for legal purposes.
entity sale: Transfer of a legal business entity and all non-excluded assets and liabilities through the sale of corporate stock or interest in a limited liability company (LLC). Entity sales differ from asset sales, which transfer only defined assets and liabilities to a buyer who then forms a new business entity, leaving the seller with the original entity (which likely has no remaining value and is usually formally dissolved following legal and tax guidelines).
entrepreneur: An individual who starts, operates, and takes the risk for an innovative new business that the entrepreneur believes has the potential to generate high levels of wealth at a rapid rate.
equipment lease: Obtaining equipment to be used for a business purpose on a rental basis, either from a financial institution or a leasing company that owns the equipment. Items that are regularly leased include vehicles, aircraft, railroad cars, computer systems, medical equipment, and store fixtures.
equity: All the money and assets invested in a business by its owners.
escape clause: A provision in a contract that specifies the conditions and terms under which a party can withdraw from the agreement.
escrow account: Earnest money held by a neutral third party called an escrow agent until all the conditions of a purchase agreement are addressed.
estimate: To perform calculations that generally determine the time and resources required to perform a task or job in order to prepare a firm cost estimate or price quotation.
etailer: A retailer that sells goods exclusively online; the opposite of a physically sited business.
ethnic: Of a population subgroup that has a common cultural heritage or nationality, distinguished by customs, characteristics, language, and so on.
etiquette: The forms, manners, and ceremonies established by convention as acceptable or required in personal and professional relations.
evangelist: In business, an individual who strongly supports a business, product, or technology and proactively shares his or her support through talks, articles, blog posts, online ratings and reviews, comments, and other communications that share enthusiasm and influence the opinions of others.
event marketing: Developing and hosting an occasion or gathering as a means to promote a product or cause.
exclusions; exemption clauses: 1. In insurance, a loss or risk not covered by a policy. 2. In contracts, items or conditions that are expressly not included in a purchase, such as certain assets or liabilities.
executive summary: A brief, clearly stated, nontechnical overview of a business document’s key points, often included in reports that run more than ten pages to quickly convey key facts, findings, issues, and conclusions.
exempt employee: A salaried employee who is exempt from the provisions of the Fair Labor Standards Act (FLSA). This excludes the employee from collecting payment for overtime, either because of the employee’s salary level or the employee’s job description.
exit interview : A final formal meeting between and employer and a departing employee, often conducted by a human resources executive to obtain candid input from the employee about reasons for leaving and thoughts about the work environment, and how it might be improved.
exit route: A term used by business investors to describe how they plan to profit from and conclude involvement in a business-financing effort.
exit strategy: 1. The means by which an investor plans to conclude participation in a business-financing venture, whether through loan repayment or acquisition of the business through an outright sale or sale of stock to the public. 2) The long-term plan for a business founder to someday leave the business.
expenditure: The amount of money or resources spent by a business to meet a particular cost.
expense account : An account to which an employee may charge reimbursable travel, entertainment, and other expenses incurred while performing business-related duties.
expenses : 1. Costs incurred in the process of generating business income, which is deducted from revenues before income taxes are assessed. 2. Costs incurred by an employee on behalf of an employee that are refundable, or reimbursable, under pre-defined terms.
exposure: The number of times a consumer has the opportunity to see an advertisement.
extraordinary gains and losses: Unusual, nonrecurring profits or losses not likely to happen again in the near future, which are sometimes shown separately on statements so they can be easily backed out for viewing financial performance on a normalized or pro forma basis.
extrovert: A person who directs his or her interest to things outside him- or herself, and to other people; a person who is active and expressive.