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LABOR

Human effort expended in return for pay or wages. Generally, labor refers to factory production as opposed to office work. Also the general classification of BLUE COLLAR workers.

LABOR CONTRACT

An agreement between the suppliers and employers of LABOR; most often between a UNION and a COMPANY.

LABOR COST

Expenditures made by personnel employed in the firm including both direct labor and indirect labor. As opposed to MATERIAL COST.

LABOR-INTENSIVE

Work that requires a large number of workers, or where labor costs are much more significant than material costs or capital costs. As opposed to CAPITAL INTENSIVE, whereby a large amount of machinery or inventory is controlled by a few workers.

LABOR POOL

The collective group of workers with the skills needed to perform the desired work.

LABOR SURPLUS AREA

Locations designated by a government as having high unemployment, usually on a county-by-county basis. Often the government will encourage business start-up in “labor surplus areas” in order to reduce the amount of unemployment.

LABOR UNION

An organization of workers with common skills established to protect the welfare, interests and rights of its members, primarily by collective bargaining.

LAG

To follow; to be sluggish; as opposed to LEAD.

LAG TIME

The period of time from the start of work (or production) to the completion of the work. See also LEAD TIME.

LAID OFF

An employee who is discharged from employment because the employer does not have enough work to pay the employee. As opposed to an employee who is FIRED for poor performance or an infraction of company rules. See also FIRED.

LAN

See LOCAL AREA NETWORK.

LAND

The surface of the earth including all natural things thereon, such as trees, water, minerals under the surface and air rights above the surface. The term REAL PROPERTY includes the land plus other artificial things attached to the land, such as buildings.

LANDLORD

The LESSOR of real estate; a person or company that rents land and buildings to another. See LEASE.

LAST-IN, FIRST-OUT (LIFO)

A method of accounting for INVENTORY that assumes the last item purchased is the first item put into production and thus ties the COST OF GOODS SOLD to the cost of most recent purchases. In contrast to the FIRST-IN, FIRST-OUT method. In a period of rising prices, LIFO results in a higher cost of goods sold, a lower profit, lower taxable income and less inventory value on the BALANCE SHEET.

LATE CHARGE

Same as LATE PAYMENT PENALTY.

LATE PAYMENT

To remit money (to pay) on a date after the specified date when payment is due.

LATE PAYMENT PENALTY

An additional charge for paying after a date; a SERVICE CHARGE.

LAUNCH

Introducing a new product to market, including advertising, promotion and distribution; sometimes also includes some amount of product design and manufacture.

LAUNDERING

Processing illegal money through accounts of an apparently legitimate business to make the money appear legal. Often associated with drugs or other crime.

LAW

The rules of conduct established and enforced by authority, legislation or custom of a given community, state or other group; any one of such rules. The branch of knowledge dealing with such rules; jurisprudence.

LAWFUL INTEREST

The maximum interest rate permitted by law, with any amount above the rate being usurious. It is different from the LEGAL RATE OF INTEREST. See INTEREST, USURY.

LAW OF DEMAND

The economic theory that the lower the price of a good, the greater will be the desire for purchasing that good and, conversely, the higher the price, the smaller will be the desire to purchase. See DEMAND.

LAW OF DIMINISHING RETURNS

In business, as more units are produced, the cost or the benefit (profit) from each additional unit becomes smaller. This characteristic also applies in many other situations, i.e., the benefit decreases as more things occur.

LAW OF SUPPLY

The economic theory that suppliers will provide larger quantities of a good at higher prices than they will at lower prices. See SUPPLY.

LAWSUIT

An action to secure justice between private parties at law or in equity; a case before a civil court.

LAWYER

A person who has been trained in the law, has passed an examination and is licensed by a state to practice law, a person who advises others in matters of the law or represents them in lawsuits. See LAW; ATTORNEY.

LAYOFF

A situation where an employer discharges one or more employees for lack of work (LAID-OFF), not because of employee poor performance or an infraction of company rules.

LEAD

In business, information from a business associate advantageous to your business, such as a potential new customer. Sometimes called a business lead. Generally, to be ahead of others; to be in the forefront; the opposite of LAG.

LEAD TIME

The interval of time before an activity can begin; the duration of time from ordering a product to the time when the product is received; can also apply to the duration of time from idea to salable product or other similar situation.

LEARNING CURVE

The observed phenomenon of a continuing decrease in the time required to perform an operation (or a series of operations) with each successive repetition. When described in a mathematical relationship (the learning curve), the cost to produce later units is less than the cost to produce earlier units because of worker proficiency, better work station layout, redesign with fewer parts and similar factors. The time to perform a task decreases with practice and knowledge gained.

LEASE

A contract granting use of property (real estate, equipment or other fixed asset) for a specified period for a payment. The owner of the property is called the LESSOR; the user is called the LESSEE; and the payment is called RENT. For a legally valid lease, the lessor grants the right of possession to the lessee, but retains the right to retake possession at the end of the lease term. Also used as a verb to use (to LEASE) the property.

LEASE FINANCING

Renting equipment as opposed to purchase or the purchase of equipment by one company for the sole purpose of leasing the equipment to a second company.

LEASEHOLD IMPROVEMENTS

Improvements to rented property that are made and paid for by the lessee but become the property of the LESSOR at the expiration of the lease term. These improvements include remodeling for efficiency or appearance.

LEASE-PURCHASE AGREEMENT

A lease of real estate or equipment whereby part of the lease cost may be applied to purchase of the property at a later date. LEDGER In accounting, the book of final entry, in which a record is kept of money and all other transactions affecting the financial status of the business. The ledger accounts are established to categorize the transactions according to classifications established by the business. The entries in the ledger are called DEBITS and CREDITS. Periodically, summaries of the ledger are accumulated into FINANCIAL STATEMENTS of the company.

LEDGER ACCOUNT

An ACCOUNT in the LEDGER of a business; a classification of a specific category of transactions of the business.

LEGAL

Pertaining to the LAW; any action that is acceptable under the law.

LEGAL COUNSEL

A LAWYER.

LEGAL ENTITY

A person or organization that has the legal standing to enter into a contract and may be sued for failure to perform. Usually refers to a corporation that is an artificial person in the eyes of the law.

LEGAL MATTER

Any subject requiring justice under the LAW.

LEGAL RATE OF INTEREST

The rate of interest prescribed by state law that will prevail in the absence of any agreement establishing the rate on an instrument. The USURY limit is referred to as the lawful interest. It is different from LAWFUL INTEREST.

LEGAL STRUCTURE

The types or methods of business organization. Three main types are: SOLE PROPRIETORSHIP, PARTNERSHIP and CORPORATION, although other types of legal structures also exist. Several factors should be considered in selecting the proper legal structure, including ease of starting the business; complexity of operating the business; financial liability of the owner(s); opportunities for growth; federal, state and local tax laws; factors peculiar to a particular business. See also SOLE PROPRIETORSHIP; PARTNERSHIP; CORPORATION.

LEGAL TECHNICALITY

A precise point of the LAW; usually requiring interpretation by a LAWYER; sometime requires a court decision for precise and accurate definition.

LEND

In business, the process whereby the owner of money allows use of the money by another person or business in exchange for paymentof a fee, called INTEREST.

LENDER

In business, an individual or firm that allows use of its money by a BORROWER with the expectation of being repaid; usually with INTEREST and in a specified time; a CREDITOR.

LENDING

The process of making a loan.

LESSEE

The person who takes possession of leased property, also called RENTER. In real estate leases, this person is called the TENANT. See LEASE.

LESSOR

The owner; the person who owns real property that is used by another under the terms of a lease. In real estate leases, this person is called the LANDLORD. SEE LEASE.

LETTER OF CREDIT

An agreement or commitment by a bank for a business customer wherein the bank will honor drafts or other demands for payment from third parties upon compliance with the conditions specified in the letter of credit. A guarantee of payment upon proof of completion of the terms and conditions of the agreement. In international trade, a common and trusted method of payment between banks for exports.

LETTER OF INTENT

Any document that expresses a desire to take, or not to take, an action. Sometimes the commitment of one party who issues the letter of intent, contingent on actions by another party. After satisfactory negotiations have been completed on a merger of two companies, a letter of intent is signed by both companies that forms a preliminary agreement on the merger. Also, an expression of willingness to invest, develop or purchase without incurring any firm legal obligation to do so.

LEVERAGE

The impact of borrowed funds on investment return; the employment of a smaller investment to generate a larger rate of return through borrowing. High leverage means the owner has made a small investment and the lender has made a large loan.

LEVERAGED BUYOUT

The purchase of a company by using a small investment and a large loan. The new owner would gain control with a small amount of invested capital because he or she is able to secure a large loan for the balance of the amount needed.

LEVY

To assess; to seize or collect. To levy a tax is to assess the property value and set a rate for taxation. To levy an execution is to seize the property of a person legally in order to satisfy an obligation.

LIABILITIES

The sum, accumulation or list of each LIABILITY. The total of all amounts OWED.

LIABILITY

The amount owed to another by a business or an individual. Characteristics: 1) represents a transfer of assets or services at a specified or determinable date; 2) the firm or individual has little or no discretion to avoid the transfer; 3) the event causing the obligation has already occurred. Liabilities are often divided into classes: short-term that are due to be paid in less than one year, and long-term that are due to be paid over a period of more than one year. In accounting, liabilities are listed on the right hand side of a balance sheet statement showing the debts of the business owed to others. As opposed to things owned (ASSETS) or EQUITY by the owner. In law and insurance, the legal responsibility for an act; the obligation to make good any loss or damage that occurs in a given situation.

LIABILITY CLAIM

A request by an insurance POLICY HOLDER for reimbursement from the INSURER following a loss; an INSURANCE CLAIM. See INSURANCE CLAIM.

LIABILITY INSURANCE

Financial protection from a loss resulting from the legal responsibility for an act; the obligation to make good any loss or damage that occurs in a given situation; financial compensation for such a loss.

LICENSE

A certificate issued under law by a governmental body authorizing an individual or company to do a specific thing; the document for such authorization. Between two businesses, a contractual agreement whereby one business provides a product, technology or knowledge for a fee to another company. In international trade, a contractual agreement between a foreign government and a company whereby the company provides a product, technology or knowledge for a fee paid by the foreign government.

LICENSEE

The person or business who holds a valid LICENSE; the one to whom a license is issued. The person or business that holds proprietary rights to a product, technology or knowledge authorized by the owner.

LICENSING

A business practice involving a contractual agreement between two companies whereby one business provides a product, technology or knowledge in exchange for a fee from the other company. The process of issuing a LICENSE by a government body.

LIEN

A creditor’s claim against property; a loan with COLLATERAL property as security for assurance of repayment. When the loan is repaid, the lien is removed. If the money is not repaid, the creditor can seize the collateral property to satisfy the lien. Most often, a lien is placed on real estate for wages or materials expended by contractors and were not paid.

LIENEE

Same as borrower. See BORROWER; LIEN.

LIENOR

Same as creditor; lender. See CREDITOR; LENDER; LIEN.

LIEN WAIVER

A document signed by a contractor or supplier giving up the right to attach the property by a LIEN.

LIFE CYCLE

The term applied to the entire period from business start-up to closeout. The term can similarly be applied to a single product or industry. Also referred to as womb to tomb.

LIFO

See LAST-IN, FIRST-OUT.

LIMITED

See LIMITED COMPANY; abbreviated Ltd.

LIMITED COMPANY

A form of business most common in Britain, comparable to incorporation in the United States wherein the liability of each shareholder is restricted to the amount of the actual investment in the business. Limited company is abbreviated Ltd.

LIMITED LIABILITY COMPANY (LLC)

A type of CORPORATION that is owned by a limited number of shareholders in a small business. Although laws differ among the states, characteristics usually include: a board of directors is not required, transfer of shares is restricted and shares are usually evidenced only by notation on the register instead of certificates.

LIMITED PARTNER

An investor in a LIMITED PARTNERSHIP who has limited liability, is not involved in the day-to-day operation and usually cannot lose more than his or her capital contribution (share of the ownership). See LIMITED PARTNERSHIP.

LIMITED PARTNERSHIP

An organization consisting of a GENERAL PARTNER and one or more LIMITED PARTNERS. The general partner may have little or no investment, organizes the partnership, manages the day-to-day operation, controls the operation and collects a management fee, income and capital gains. The limited partner(s) bear the largest share of the invested capital and receive income, capital gains and tax benefits. The limited partner(s) cannot participate in control of the business. See PARTNERSHIP.

LIMITED POWER OF ATTORNEY

A POWER OF ATTORNEY that bestows specific powers of the signer to another person.

LINE

The primary or most important product of a company, as the main line of products. In larger businesses, people employed in the primary function of the business, as opposed to STAFF.

LINE OF CREDIT

A moral commitment by a bank to make loans to a particular borrower (usually a company). The borrower is allowed to borrow at any time up to a specified limit. A line of credit is not a legal commitment, yet the maximum amount, the fee, the interest rate and time period are specified. As opposed to a contractual LOAN commitment. Also called BANK LINE. LIQUID An abundance of cash or cash equivalents; easily converted to cash or cash equivalents. See LIQUIDITY.

LIQUID ASSET

All cash and any security easily convertible into cash. On a balance sheet, liquid assets are the CURRENT ASSETS, including marketable securities and accounts receivable. As opposed to ILLIQUID assets.

LIQUIDATE

To remove a debt by repaying it. To convert into cash. In a case such as bankruptcy, it may be necessary to sell material assets to obtain cash to pay the amount due.

LIQUIDITY

The amount of cash and cash equivalents in a business compared to the amount of debt; a term that describes the SOLVENCY of a business-its ability to repay debts with available cash. Also the ability to sell assets of a business that can produce cash or cash equivalents, often with significant loss of true value. Listed stocks and bonds are more LIQUID than real estate because sale for cash is more easily obtained. Having a good amount of liquidity produces a good credit rating and allows a business to take advantage of market opportunities. One test of liquidity measures the immediate debt paying ability; i.e., the ability to pay CURRENT LIABILITIES with QUICK ASSETS called the QUICK RATIO. If current assets cannot be converted into cash to meet current liabilities, the business is said to be ILLIQUID. See LIQUID.

LISTED SECURITY

Any security (stock or bond) that is actively traded on one of the regulated market exchanges. The most popular stock exchange is the New York Stock Exchange. A stock traded there would be a listed security.

LLC

See LIMITED LIABILITY COMPANY.

LOAN

Money owed to another person or business, such as a bank. In business, a transaction wherein the owner of a property allows another party to use the property. The user customarily promises to return the property after a specified period. Use can be free or conditional on payment of money or barter. See also DEBT. LOAN AGREEMENT A document that states limitations and authorized actions as long as money is owed to (usually) a bank. A loan agreement may place restrictions on the owner’s salary, dividends, amount of other debt, working capital limits, sales, the number of additional personnel or other factors.

LOAN APPLICATION

A form to be completed by a potential borrower. When the form has been completed with all the information about the potential borrower it is submitted to a financial institution for consideration of a loan.

LOAN COMMITMENT

A written document issued by a lender who agrees to make a loan while the entire loan package is being completed.

LOAN CORRESPONDENT

One who negotiates loans for lenders. The correspondent often services the loan and acts as the collection agent for the lender.

LOAN GUARANTEE

A pledge by a second person with substantial personal wealth to repay a loan by the first person if the first person fails to repay.

LOAN PACKAGE

A loan application; the collection of documents, information and data used by a bank for consideration in making a loan. The data include information submitted by the potential borrower plus data from other sources substantiating the credibility of the borrower.

LOAN PAYMENT

To disburse an incremental amount of money for the partial satisfaction of a debt, usually according to a schedule.

LOAN REPAYMENT

Total satisfaction of a debt; payment in full. In business, the property loaned is most often MONEY. In a money loan, the BORROWER (user of the property) promises to repay the money to the LENDER (owner of the property) under specified conditions, i.e., for a specified period of time or at intervals over a period of time and with INTEREST. The documentation of the promise is called a PROMISSORY NOTE when the property is money.

LOAN SUBMISSION

A loan application that is delivered to a lender with all the information and documents necessary for consideration by the lender.

LOAN-TO-VALUE RATIO

In mortgage financing, the amount of loan a lender will make as a percentage of the appraised (market) value.

LOCAL

In general, the area immediately surrounding the topic of discussion. In government, any body lower than a state, such as a city, county, community, village or town. As opposed to FEDERAL or STATE government. In business, a business that is small and usually only has a few locations in a confined geographical area.

LOCAL AREA NETWORK (LAN)

Interconnections of telephone and computer equipment within an office to increase communication speed.

LOCAL DEVELOPMENT CORPORATION

An organization of companies and local governments, within a confined geographical area, that is designed to improve the economy of the area, and that usually provides financing capabilities to member businesses.

LOCATION ANALYSIS

A study of the various business environments to determine the best site for establishment of a business.

LOCATION-LOCATION-LOCATION

A commonly used phrase that emphasizes the importance of the location (site) of a business; the site is the most important environment that attracts customers to a business or could discourage them.

LOCK BOX

An efficient CASH MANAGEMENT system whereby the customer mails payment to a post office box, the bank picks up the payments and deposits them to the firm’s account and informs the firm of the deposits made, thus reducing COLLECTION FLOAT. Often a lock box arrangement can be set up in a distant city to collect immediately interest on payments. Surplus funds are later transferred to the firm’s home bank. Also, any post office box where mail is stored until collected. LOCK BOX SYSTEM See LOCK BOX.

LOCKED IN

Any situation, usually favorable to the proponent, that is assured of occurrence; guaranteed.

LOGO

A specific design representation for a product or a company; an insignia.

LONG-RANGE

A term used in business planning for a period of time greater than three years. Setting goals and identifying objectives for a long-range period; to provide the basis for actions in the SHORT RANGE.

LONG-RANGE PLAN

A BUSINESS PLAN covering a period greater than three years, such as a ten-year business plan. See BUSINESS PLAN.

LONG-TERM

In business, the definition of long-term is different for different uses. As examples: For assets and loans on a balance sheet, long-term is one year or more; securities owned more than one year (sometimes six months) are defined as a LONG-TERM CAPITAL GAIN for taxing purposes; three years or more is long-term in planning; and a long-term bond has a maturity of ten years or more. Bankers usually define long-term as ten years or more; INTERMEDIATE-TERM is more than one year but less than ten years; and SHORT-TERM is one year or less. See SHORT-TERM; INTERMEDIATE-TERM.

LONG-TERM ASSETS

Things owned by a business (ASSETS) with an expected life of a year or more. See FIXED ASSETS.

LONG-TERM CAPITAL GAIN

A CAPITAL GAIN resulting from holding an asset for a period greater than one year. See CAPITAL GAIN.

LONG-TERM CONTRACT

A CONTRACT to perform work for another that represents work over an extended period of time.

LONG-TERM DEBT

A liability due in a year or more, such as a mortgage, note or bond, as shown on a balance sheet. Interest and partial principal may be repaid in periodic payments, such as a mortgage. Or interest may be paid periodically over the term of the loan, as a bond, with the principal amount paid at maturity.

LONG-TERM FINANCING

Money borrowed for a period of more than one year; borrowed money (a loan) that is repayable over a period of more than one year is classified as long-term liabilities on a balance sheet. Also, all equity in a business is long-term financing.

LONG-TERM GAIN

See LONG-TERM CAPITAL GAIN.

LONG-TERM LIABILITIES

See LONG-TERM DEBT.

LONG-TERM LOAN

See LONG-TERM DEBT.

LONG-TERM LOSS

Property sold for less than the acquisition price after being held for a period of one year or more.

LOOPHOLE

Areas of the tax code or a contract not specifically clear allowing interpretation by either party to that party’s advantage.

LOSS

In an accounting situation, a negative value resulting when expenses are deducted from income of a business as shown on an INCOME STATEMENT. In an investment transaction, the amount by which the ending CAPITAL is smaller than the beginning CAPITAL (invested amount), a loss of CAPITAL. The opposite of a PROFIT. In insurance, the amount reimbursed (before any deductible) by an insurer resulting from a financial risk covered (indemnified) under an INSURANCE POLICY, such as damage, injury or death.

LOSS LEADER

Any article that a store sells cheaply or below cost in order to attract customers.

LOT

A quantity economical to produce or to purchase; a parcel of land suitable for improvement by construction of a building.

LOWBALL

Setting the early price in an arrangement at a low amount to secure business with the intent later to raise the price.

LOWBALLING

Setting the early price in an arrangement at a low amount to secure business with the intent later to raise the price.

LOWER OF COST OR MARKET

A conservative accounting convention whereby valuation is at the lowest amount, i.e., not over-valued.

 

All definitions were taken from www.small-business-dictionary.org.