Inventor’s Glossary

Account Executive: A representative of an agency who is the liason between the agency and the client.

Accounts Receivable: Money owed to a company by a customer for products or services provided on credit. This is treated as a current asset on a balance sheet.

Active Corp of Executives (ACE): A free program, sponsored by the SBA, which matches active business executives with appropriate business owners seeking advice on how to operate their business.

Advertising: Non-personal communication of information regarding a product, service, idea, or organization, designed to increase its sales, support, or approval.

Agent: An individual or firm authorized to act on behalf of another.

Amortization: The gradual elimination of a liability, such as a mortgage, in regular payments over a specified period of time. Such payments must be sufficient to cover both principal and interest.

Angel Investor: An individual who provides capital to startup companies. The individual is often affluent or has a personal stake in the success of the venture. Such investments are characterized by high levels of risk and a potentially large return on investment.

Arbitration: A process in which a disagreement between two or more parties is resolved by impartial individuals, called arbitrators, in order to avoid costly and lengthy litigation.

Attorney: A person legally appointed by another to act as his or her agent in the transaction of business, specifically one qualified and licensed to act for plaintiffs and defendants in legal proceedings.

Asset: Anything of economic value.  Examples are cash, securities, accounts receivable, inventory, office equipment, real estate, vehicles, and other property.

Assumptions: A statement that is assumed to be true or taken for granted; a supposition.

Balance Sheet: A financial state ment form that summarizes a company’s assets, liabilities, and equity, at a specific point in time.  A balance sheet follows the formula: Assets = Liabilities + Equity.

Boiler Plate: Standardized detailed text used repeatedly as in legal documents, contracts, and licensing agreements.

Bootstrapping: Building a business out of nothing, with minimal outside capital.

Bootstrapping: Building a business out of nothing, with minimal outside capital.

Break-even Point: A level of sales at which all fixed and variable costs are paid, but there is not yet any profit.

Broadcast Media: Electronic media including radio, television, and cable TV; A medium which disseminates via telecommunications.

Business Plan: A document prepared by a company’s management outlining the future plans of the company, usually designed as a management tool or to attract capital investment.

Cash on Delivery (COD): A transaction in which goods are paid for, in full, at the time they are received by the buyer.

Capital: The assets of an individual or business, usually in the form of cash available to generate investment income.

Cash Flow: A measure of a company’s financial health. Equals cash receipts minus cash payments over a specified period of time, usually one month or one year.

Cash Flow Projection: A financial statement form used to estimate the flow of cash through a business for a specified period of time in the future, usually one month or one year.

Cash Flow Statement: A financial statement form that docuements the flow of cash throught a business for a specified period of time in the past, usually one month or one year.

Collateral: Assets pledged by a borrower as security for a loan, which are subject to seizure in the event of default; also called security.

Commission: A fee charged by a broker or agent for facilitating a transaction, such as the buying or selling of good or services; usually a flat rate or a percent of sale.

Competitive Advantage: A condition which allows a company to operate in a more efficient or effective manner than other competitors, which results in benefits for that company.

Competitive Analysis: A written comparison of a company’s competitors, usually based on a set of standardized criteria.

Confidentiality Agreement: An agreement intended to protect trade secrets or other information from  being disseminated or misused by those who have knowledge of them.

Consignment: When goods are delivered to another company with the understanding that payment for the goods is only made once the goods are sold.

Consumer Sovereignty: A philosophy that states “the consumer is king.” It is therefore the responsibility of the entrepreneur to meet the demands of the consumer in order to survive in business.

Co-op Advertising: The sharing of advertising costs, typically between the manufacturer and the distributor or retailer of a product, or between two different companies.

Copyright: The legal right granted to an author, composer, playwright, publisher, or distributor to exclusive publication, production, sale, or distribution of a literary, musical, dramatic, or artistic work.

Copyright Search: A search of recorded copyrights, typically to reduce the chance of violating an existing copyright.

Corporation: A form of business characterized by; separate legal standing from its owners, issuance of shares of stock, and limited liability of its owners. There are also managemnet and tax implications. A corporation can be either a standard type C corporation, or a sub-chapter S corporation which does not pay taxes, but passes all profit and loss on to the shareholders.

Cost of Goods Sold (COGS): The actual cost of the product sold, not including any over head expenses; this figure reflects only the cost of obtaining raw materials and producing finished goods that  are sold.

Creative Brief: A document containing all of the crucial information about a marketing campaign distilled down to one or two pages. This document becomes the core document for the campaign. It defines the project, enables the project plan to be developed, and becomes the main point of reference  during the development process.

Current Asset: An asset that can be readily transfered into cash. A balance sheet item which equals the sum of cash and cash equivalents, accounts receivable, inventory, marketable securities, prepaid expenses, and other assets that are easily converted to cash in less than one year.

Current Liabilities: A liability that is expected to be paid in full within one year. A balance sheet item which equals the sum of all money owed by a company that is due within one year.

Debt Financing: Financing a business by borrowing money you must pay back at a later date, usually with interest.

Demographics: Socioeconomic groups, characterized by age, income, sex, education, occupation, etc., that comprise a market niche.

Depreciation: A measure of the devaluation of assets as a result of the passing of time.

Design Patent: Design patents protect any new and non-obvious ornamental shape or design. Unlike utility patents, design patents protect only the appearance of an article to the extent that it is decorative and not essential to the function of the article.

Differentiation: A strategic marketing concept based on creating unique product differences which set a product apart from it’s competitors in order to satisfy consumer demand.

Direct Mail: The advertising medium that includes all forms of advertising sent direct to prospects through the U.S. Postal service or private mail services.

Disclosure Document: The Disclosure Document Program is a service provided by the USPTO to provide inventors with evidence of an invention’s conception date.

Discount Schedule: A document which shows a company the discount they will receive off of the suggested retail price, based on the quantity they purchase.

Distributor: A company that buys products in large quantities and sells them to a greater number of smaller customers for resale.

Distribution Channels: The network of firms and individuals that take title to a product, or assist in taking title to a product as it moves from the producer to the final consumer.

Drop Shipping: The shipping of merchandise from a manufacturer or supplier directly to a retail store’s customer, to minimize inventory, shipping costs, and administrative costs.

Due-diligence: The process of investigation, performed by investors, into the details of a potential investment, such as an examination of operations and management and the verification of material  facts.

End User: The final consumer of a product. The person, company, or organization who purchases a product with the intent to use it rather than to resell it.

Entrepreneur: An individual who starts his/her own business. One who assumes the risk and responsibility inherent in starting a new business.

Equity: The value of a business if all assets were sold and all liabilities were paid. Total assets minus total liabilities.

Equity Financing: Sale of a portion of the ownership in your business. This money does not need to be paid back, but you must share a portion of your profits in the future.

Feasible: Capable of being accomplished or brought about; possible: doable.

Federal Comunication Commission (FCC): The Federal regulatory body with jurisdiction over radio, television, telephone, and telegraph industries.

F.O.B.  (Free On Board): A shipping term which indicates that the supplier pays the shipping costs (and usually also the insurance costs) from the point of departure to a specified destination, at which  point the buyer takes responsibility.

Final Consumer: The final consumer of a product. The person, company, or organization who purchases a product with the intent to use it rather than to resell it.

Financial Statement: A written report which describes the financial health of a company. This includes a cash flow statement,  income statement and a balance sheet. Financial statements are usually completed on a quarterly and annual basis.

Fixed Asset: An asset that can not be readily transfered into cash.  A long-term, tangible asset, such as equipment, which is for business use and not expected to be sold or converted to cash within the year.

Fixed Costs: A cost that does not change with variations in production or sales levels, such as rent, property tax, insurance, or interest expense.

Frequency (and Reach): A measure of how many times a particular potential customer receives your message; a measure of the intensity of a media schedule; frequency describes the number of times an  advertising message reaches the same person or household.

Greatest Strength: The primary reason a customer will chose your product over your competitors.

Gross Margin [See Gross Profit Gross Profit]:  Profit realized after the product has been paid for, but before over head expenses have  been accounted for. Calculated as sales minus all costs directly related to those sales. These costs can  include manufacturing expenses, raw materials, labor, and other expenses incurred in the manufacture of the product.

Income Statement: A financial state ment form that measures profitability. An accounting of sales, cost of goods sold, overhead expenses, and net profit over a given period of time; also called a “Profit and Loss Statement.”

Income Statement Projection: A financial state ment form that estimates future profit ability [see income  statement].

Innovation: The creation of new products and/or services.

Intellectual Property: Exclusive rights to or ownership of, ideas, processes, or other products resulting from intelligent thought processes; usually patents, trademarks, copy rights, or trade secrets.

Interest: The fee charged by a lender to a borrower for the use of borrowed money, usually expressed as an annual percentage of the principal.

Interference: When two or more patent applications are filed by different inventors claiming the same patentable invention. About one percent of the patent applications filed become involved  in interference proceedings. This is when your invention journal and your USPTO disclosure document become of great value.

Internet: A computer-based worldwide communication network.

ISO 9000: International Standardization Organization. The world’s largest standards developer.  A non-governmental organization established in 1946, consisting of a network of 156 countries’ national standards institutes with one member representing each country. The organization is managed by a  general secretariate in Geneva, Switzerland.

Invention Journal: A bound journal kept by an inventor that tracks the progress of an invention. Inventor’s journals become extremely important if it becomes necessary to defend your patent in court.

Liability: Anything that is owed. An obligation that legally binds an individual or company to settle a debt. Current liabilities are debts payable within one year, while long-term, liabilities are debts payable  over a longer period.

Library of Congress: A federal library that registers and protects all copyrighted material, including advertising; it is the largest library in the world with over 130 million items on 530 miles of  bookshelves.

License: Permission to engage in a certain activity, granted by the appropriate authority.

Licensee: The person or company gaining rights to an intellectual property under a licensing  agreement.

Licensing: The granting of permission to use intellectual property rights, such as trademarks, patents, or technology, under defined conditions.

Licensor: The person or company who grants use of intellectual property under a licensing agreement.

Loan: An arrangement in which a lender gives money or property to a borrower, and the borrower agrees to return the property or repay the money, usually along with interest, at a future time.

Long-Term Asset: On a balance sheet, the value of a company’s property, equipment and other capital assets expected to be useable for more than one year.

Long-Term Liability: The portion of money owed that is due after one year.

Manufacturer’s Representative: A company or person who represents a manufacturer to its customers. Manufacturer’s reps often sell products directly to retailers, thus by-passing distributors.

Margin [See “Profit” Market Niche]: A focused, homogeneous, targetable portion of a market.

Market Penetration: A measure of the extent to which a product is recognized and purchased by customers in a particular market.

Market Research: Gathering and studying data relating to consumer preferences, purchasing power, and information about the market including: its size, composition, structure, etc.

Market Segmentation: The division of a market into homogenious groups based on demographics, psychographics, geographics, and other measures.

Market Share: The percentage of total industry sales within a specific market that is made up by a particular company’s sales.

Marketing: Marketing includes everything a company does to acquire customers and maintain a relationship with them. This includes all activities aimed at: finding out who customers are and what they want, developing products to satisfy those customers’needs and desires, and getting the product into the customers’ posession.

Marketing Campaign: A strategy including all of the marketing activities designed to bring about a specific result.

Markup: The difference between the cost and the selling price, computed as a percentage; the amount added to a product’s cost when calculating a selling price, especially an amount that takes into account overhead and profit.

Master Distributor: A distributor which distributes all of a company’s goods to all distribution points, including other distributors.

Media: The means of communication, including radio, television, newspapers, magazines, internet, and direct mail that reach or influence people.

Minimum: In a licenseing agreement, a minimum amount of money a licensor will receive from a licensee regardless of how successful or unsuccessful the product is.

Mission Statement: A mission statement is a clear and succinct representation of  company’s purpose for existence. It should cover the company’s ethical position, public image, target market, products and  services, and the objectives for the future including expectations of growth and profitability.

National Institute of Standards and Technology (NIS): A government agency (formerly the National Bureau of Standards) within the U.S. Department of Commerce charged with establishing federal policies regarding domestic standards that underpin U.S. commerce.

Negative Cash Flow: An undesirable condition where a business’s cash needs exceed its cash intake.

Net Margin [See “Net Profit]”: also called net profit margin.

Net Profit: Profit realized after the product expenses (COGS) and the overhead expenses have been accounted for. Some times called “Net Margin.”

North American Free Trade Agreement (NAFTA): An agreement that removes tariffs and other barriers to trade between the United States, Canada, and Mexico.

OEM: Original Equipment Manufacturer

Office of Independent Inventors: A program provided by the U.S. Patent and Trademark office to help meet the unique educational needs of  the independent inventor.

Partnership: A situation where two or more parties enter into a legal relationship to conduct business for profit.

Patent: The right to exclude others from making, using, or selling an invention or products for a specified number of years.

Patent Maintenance Fees: Fees charged by the U.S.P.T.O. to maintain your utility patent in effect. Fees are charged at 3.5, 7.5, and 11.5 year intervals.

Patent Pending: A state of having applied for a patent that has not yet been granted or denied; allows  the use of the mark “patent pending.”

Patent Search: A search through granted patents that will help determine whether a particular  invention is novel and non-obvious, and therefore, whether it may qualify for a patent.

Positive Cash Flow: A desirable (virtually necessary) condition where there is more money coming into a business than is going out.

Press Release: An announcement of an event, performance, or other newsworthy item that is sent to the press for publication.

Product Liability Laws: Laws making manufacturers and suppliers responsible for damages resulting from appropriate use of their goods and services, and obligating them to compensate users for injuries resulting from those goods.

Plant Patent: Plant patents protect new and non-obvious species of plants. They are available to those who invent or discover and asexually reproduce any distinct and new variety of plant.

Prototype: A model of an invention designed to show what it does and how it works.

Provisional Patent: A provisional application for patent is a temporary application that offers a  quick and less expensive way to officially file an invention disclosure with the U.S. patent office. It generally provides an internationally recognized priority date and allows the term “patent pending” to be used. Although a provisional patent grants one no protection and will not mature into a standard patent, they are helpful for preserving international patent rights, securing an early filing date.

Primary Market Research: The collection of market research data that has never been collected before such as conducting a survey.

Prior Art: Intellectual properties, particularly patents, that have already been granted.

Profit: The positive gain from an investment or business operation after subtracting all expenses.

Profit & Loss Statement: A financial state ment form that measures profitability; an accounting of sales, cost of goods sold, overhead expenses, and net profit over a given period of time; also called an “Income Statement.”

Prototype: The original model of an invention on which a final version is based or formed.

Psychographics: Socioeconomic measures, characterized by attitudes, beliefs, tastes, etc., that comprise a market niche; used to segment markets.

Public Domain: A product or publiction that is not protected by any intellectual property and therefore can be used, made, or sold by anyone.

Public Offering: A solicitation for participation in an investment opportunity. Interstate public offerings are supervised by the Securities and Exchange Commission.

Public Relations (PR): The art of managing communication between an organization and the public to build, manage and sustain a positive image.

Public Service Announcement (PSA): A free announcement made by a radio or television station  to inform the public about an event, product, service, concern or cause that is of service to the public. PSAs are aired because it is good publicity for the station, and because they were once required to do so by the Federal Communications Commission (FCC) as a condition of their broadcast license.  PSAs are usually cut to fit into standard commercial time slots of 10, 30 or 60 seconds.

Publicity: The act, process, or occupation of disseminating information to gain public interest. The  condition of becoming public through extensive mention in the news media or by word of mouth or other means of communication.

Reach: A measure of how many different people or households are exposed to a message at least once  during a specified period of time.

Repeat Sales: A noteable landmark in new product development when a final consumer purchases your product and returns to purchase it again.

Repositioning: Giving an existing product a new position in customers’ minds and so expanding or otherwise altering its potential market.

Return on Investment (ROI): A measure of a company’s profitability; reveals how effectively the firm uses its capital to generate profit; the higher the ROI, the better.

Retail: The sale of commodities or goods in small quantities to the final consumer.

Royalty: Payment to an owner for the use of property, especially patents, copyrighted works, franchises, or natural resources. A share in the proceeds paid to an inventor for the right to use his or  her invention.

Secondary Market Research: Searching data that has already been collected for specific market information, usually done in libraries or online.

Seed Capital: Capital, or money used to start a business.

Service Corp of Retired Executives (SCORE): A free SBA program which matches retired business executives with appropriate business owners seeking advice on how to operate their business more effectively.

Shark: An investor who is willing to invest in speculative ventures, but may require a return-on investment, or an ownership position which is perceived as excessive.

Small Business: A designation set up by the SBA that consists of firms meeting specific requirements including that the firm have fewer than 400 employees.

Small Business Administration (SBA): An agency of the U.S. government created to assist small business owners and managers.

Small Business Development Center (SBDC): An SBA program designed to provide management assistance to current and prospective small business owners.

Small Business (SBIR): A program which provides qualified small business concerns with the opportunity to propose innovative ideas that meet the specific research and development needs of the federal government.

Small Business Investment Company (SBIC): Licensed, private firms that provide business financing and are regulated and partially funded by the SBA.

Small Business Technology Transfer Program: A federal program administered by the SBA which awards funding to small businesses that are in partnership with a non-profit research institution such as a university.

Sole Proprietorship: A form of business ownership where there is only one owner who is solely responsible for the liability and management of a business.

Specialization: Focusing a company’s resources on a narrower segment of the market.

Standard Industrial Classification (SIC): A system established by the federal government to categorize businesses by type of industrial activity.

Sub-Chapter S Corporation: A corporation with a limited number of shareholders that is treated as a partnership for tax purposes. The Corporation pays no taxes and all profit and loss is passed directly on to the shareholders.

Sub-contract: Contracting with another company or individual to provide a portion of a service your company provides, such as assembly, accounting, advertising, or personnel management.

Supply and Demand: A law of economics stating that in a free market, if the supply of a product stays the same and the demand for it increases, the price will tend to rise.  If the demand decreases below the available supply, then the price will decrease.

Sweat  Equity: Equity in a company earned by working as opposed to investing.

Target Market: The specific market segment toward which all marketing activities for a product will be directed; a marketing technique that targets a group of customers with specific characteristics.

Thomas Register: A list of American manufacturers that is available in many libraries and online at

Trade Association: Individuals and companies in a specific business or industry organized to promote common interests.

Trademark: Any name, symbol, figure, letter, word, or mark used by a business to distinguish their products from others; to make clear, in the mind of the consumer, the source of the goods.

Trade Journal: A publication covering the concerns of a specific industry or type of business.

Trade Secret: A formula, process, device, or item of information used by a business that has economic value because it is not generally known or easily discovered by observation or examination and for which reasonable efforts to maintain secrecy have been made; a type of intellectual property.

Trade Show: An event at which the goods and services of a particular industry are exhibited, demonstrated, and sold.

Treble Damages: A statute which allows any monetary damages an inventor is awarded as a result of “willful infringement” of their patent to be tripled by the court.

Utility Patent: A patent for a new, useful, and unobvious process, machine, manufacture, or composition of matter that provides utility. Most patents are utility patents.

U.S. Customs Service: The agency of the U.S. government responsible to see that goods imported into the U.S. do not violate intellectual property rights.

Variable Costs: A cost that changes in proportion to a change in a company’s activity or business. An example of a variable cost is the fuel for an airline. This cost changes with the number of flights and the length of the trips.

Venture Capital: Money made available for investment in innovative enterprises or research, especially in high technology, in which both the risk of loss and the potential for profit may be considerable. Also called risk capital.

Wholesale: The sale of goods, usually in large quantities, to retailers or other wholesalers for resale.