Definition

An entrepreneur is an individual who takes on the initiative and risk to start, develop, and manage a new business.

What is an entrepreneur?

Entrepreneurs are characterised by their innovative ideas, ability to identify opportunities in the market, and willingness to take calculated risks to bring their vision to life. They play a key role in economic development by creating new businesses, generating employment opportunities, and contributing to overall innovation and growth.

Entrepreneurship involves a degree of risk, as individuals invest their time, money, and effort into a startup with an uncertain outcome. Successful entrepreneurs are often calculated risk-takers, carefully assessing potential challenges and rewards.

The business landscape is dynamic, and entrepreneurs must be adaptable to changes in market conditions, technology, and consumer preferences. Successful entrepreneurs are quick to adapt their strategies and business models as needed.

Entrepreneurs need effective leadership skills to guide their teams and inspire confidence. They must make strategic decisions, manage resources efficiently, and create a positive and productive work environment.

Entrepreneurs often leverage their networks to gain support, resources, and partnerships. Building relationships with other professionals, investors, and mentors can be crucial for the success of their startups.

In addition, some entrepreneurs are motivated by a desire to make a positive impact on society. Social entrepreneurship involves addressing social or environmental challenges through business solutions.

Successful entrepreneurs are lifelong learners. They stay informed about industry trends, market changes, and emerging technologies, continually seeking knowledge to grow their business.

Example of entrepreneur

Meet Sarah, an entrepreneur with a passion for sustainable living. Recognising the growing demand for eco-friendly products, she starts her own business called “GreenLife Essentials.” Sarah creates a line of biodegradable household products, from cleaning supplies to reusable packaging. Through innovative marketing strategies and a commitment to environmental responsibility, she successfully builds a loyal customer base and expands her business. Sarah’s entrepreneurial spirit, coupled with her dedication to making a positive impact, turns GreenLife Essentials into a thriving venture that contributes to both the economy and the planet.

Definition

A discount mortgage is a type of mortgage where the interest rate is set at a certain percentage below the lender’s standard variable rate (SVR) for a specified period.

What is discount mortgage?

The discount is usually expressed as a percentage, and the discount rate determines the actual interest rate charged on the mortgage for the period. For example, if the SVR is 5% and the discount is 1%, the borrower would pay an interest rate of 4%.

The discount period is a fixed timeframe during which the borrower enjoys the discounted interest rate. This period can vary, typically lasting for a few years, such as two, three, or five years.

Once the discount period expires, the mortgage interest rate typically goes back to the lender’s SVR. At this point, the borrower will pay the standard variable rate unless they choose to switch to a different mortgage deal. Since the interest rate is linked to the lender’s SVR, it can vary. If the SVR increases, the borrower’s mortgage payments may rise after the discount period ends.

Some discount mortgages may offer flexibility, allowing borrowers to make overpayments or pay off the mortgage early without incurring significant penalties.

Example of discount mortgage

Let’s say a lender has a standard variable rate (SVR) of 5%, and they offer a discount mortgage with a 1% discount for the first two years. In this case, the borrower would pay an interest rate of 4% during the initial discount period.

For instance, if a borrower has a loan amount of R20,000, the interest payable for the first two years would be calculated as follows:

Year 1: Loan amount x Discounted interest rate = R200,000 x 4% = R8,000

Year 2: Loan amount x Discounted interest rate = R200,000 x 4% = R8,000

After the initial two-year period, the mortgage would typically revert to the lender’s standard variable rate

Definition

Cost per click (CPC) is a digital advertising metric that represents the amount an advertiser pays each time a user clicks on their online advertisement.

What is cost per click?

It is a common pricing model used in online advertising campaigns, particularly in pay-per-click (PPC) advertising, where advertisers only pay for actual clicks on their ads rather than for the display or impressions.

Key features and aspects of cost per click include:

1. Auction-based systems: Advertisers bid on keywords or placements, and the ad platform determines the ad’s placement based on the bid amount and other factors. The advertiser with the highest bid typically gets a higher ad placement.
2. Bid strategies: Advertisers set a maximum bid amount they are willing to pay for a click. The actual cost per click can be lower than the maximum bid, as the ad platform aims to deliver value to users and encourages competitive bidding.
3. Quality score: Ad platforms often factor in the quality of the ad and the relevance of the landing page to determine the ad’s position and cost per click. A higher-quality ad and landing page experience may result in a lower CPC.
4. Targeting options: Advertisers can use various targeting options to refine their audience and reach specific demographics, locations, or user behaviours. This allows for more precise control over where ads are displayed and who sees them.
5. Conversion tracking: Advertisers often implement conversion tracking to measure the effectiveness of their campaigns. By tracking conversions resulting from ad clicks, advertisers can assess the return on investment of their CPC campaigns.
6. Budget control: Advertisers can set daily or campaign budgets to control overall spending. Once the budget is used, the ads may stop showing until the budget is adjusted.
7. Social media advertising: CPC is also prevalent in social media advertising platforms like Facebook, Instagram, and Twitter. Advertisers can define their target audience and bid for clicks on their ads within the social media environment.

CPC can vary based on factors such as the competitiveness of keywords, industry, geographic location, and the time of day. Some clicks may cost more than others, depending on the demand for the target audience and keywords.

Example of cost per click

ABC Company is running an online advertising campaign to promote its new product. They decide to  pay for each click on their ad. ABC sets a maximum CPC bid of R1.

During the campaign, the ad appears in search results when users type in relevant keywords. If a user clicks on ABC Company’s ad, the advertiser incurs a cost. For instance, if 100 users click on the ad, the total cost would be calculated based on the CPC bid:

$\text{Total cost}=\text{Number of clicks}\times \text{CPC bid}$

So, if there were 100 clicks at a CPC bid of R1:

Total cost = 100 x R1 = R100

In this example, the cost per click is R1. ABC Company pays the search engine a total of R100 for the 100 clicks received during the advertising campaign.

Definition

Copyright is a legal concept that grants exclusive rights to the creators of original works, allowing them to control the use and distribution of their creations.

What is copyright?

It is a form of intellectual property protection that safeguards the rights of creators in relation to their work. Copyright protection is automatic upon the creation of a qualifying work and provides the creator with the right to determine how their work is used, reproduced, and distributed.

Copyright grants the creator or copyright owner exclusive rights to:

• Reproduce the work
• Distribute copies of the work
• Perform the work publicly (in the case of literary, musical, and dramatic works)
• Display the work publicly (in the case of visual arts and certain other works)
• Create derivative works based on the original work

The duration of copyright protection varies depending on the jurisdiction and the type of work. In many countries, copyright protection lasts for the life of the author plus a certain number of years. For works created by or for corporations, the duration may be based on the date of creation or publication.

While copyright protection is automatic upon the creation of a work, some jurisdictions allow creators to register their works with a government office. Registration can provide additional benefits, such as evidence of ownership and the ability to pursue legal remedies more easily in case of violation.

Copyright owners have the right to take legal action against individuals or organisations that violate their exclusive rights. This may involve seeking damages, injunctive relief, or other legal remedies to address unauthorised use or reproduction of their works.

Example of copyright

Imagine that an author writes a novel. The author automatically holds the copyright to the work as soon as it is created. This means that the author has the exclusive right to reproduce, distribute, and display the novel.

Now, if someone else, like a publishing company or another author, wants to use or reproduce the novel they would typically need permission from the author. This permission might come in the form of a license, where the author grants specific rights for a defined purpose and duration. Without permission, reproducing or distributing the novel without consent would likely be a copyright violation.

Definition

A checking account is a financial account held at a bank or credit union that is designed for everyday transactions and easy access to funds.

What is a checking account?

A checking account allows account holders to deposit money, make withdrawals, write checks, and conduct various electronic transactions. It serves as a central hub for managing day-to-day financial activities.

Deposits and withdrawals:

1. Deposits: Account holders can deposit money into their checking accounts through various methods, such as cash, checks, direct deposits, or electronic transfers.
2. Withdrawals: Funds can be withdrawn from a checking account using methods such as checks, ATM withdrawals, electronic transfers, or debit card transactions.

Checking accounts typically include a checkbook, allowing account holders to write checks as a form of payment. Checks are written to specific payees and can be used for various transactions, including bill payments and purchases. Furthermore, many checking accounts come with a debit card, which can be used to make purchases, withdraw cash from ATMs, and conduct point-of-sale transactions. Debit card transactions are directly linked to the checking account balance.

Some checking accounts offer overdraft protection, a service that helps prevent transactions from being declined if the account balance is insufficient. Overdraft protection may involve linking the checking account to a savings account or a line of credit.

While checking accounts traditionally do not offer high-interest rates compared to savings accounts or other investment options, some financial institutions provide interest-bearing checking accounts that offer modest interest on the account balance.

Checking accounts often incorporate security features to protect against unauthorised transactions. Account holders are typically protected by fraud monitoring, and many banks offer zero-liability policies for unauthorised transactions.

Example of checking account

John Doe opens a checking account at ABC Bank to manage his day-to-day financial transactions.

1. Initial deposit:
   • To activate the checking account, John makes an initial deposit of N$500. This amount is the opening balance in his checking account.
2. Direct deposit:
   • John sets up direct deposit with his employer, so his monthly salary of N$2,500 is directly credited to his checking account.
3. ATM withdrawals:
   • John occasionally withdraws cash from ATMs using his debit card when needed. The withdrawn amount is deducted from his checking account balance.
4. Online banking:
   • John uses online banking to check his account balance, review transactions, and transfer funds between his checking and savings accounts.
5. Overdraft protection:
   • To avoid overdrafts, John opts for overdraft protection linked to his savings account. If his checking account balance falls below a certain threshold, funds are automatically transferred from his savings account to cover the shortfall.

Definition

Capital expenses, often referred to as capital expenditures, represent significant financial investments made by a business or an organisation to buy, upgrade, or extend the life of long-term assets.

What is capital expenses?

These assets typically have a long useful life and contribute to the company’s ability to generate revenue or improve its operational efficiency. 

Capital expenses are capitalised on the balance sheet, meaning their costs are spread over the useful life of the asset rather than expensed in the period of purchase. Businesses carefully evaluate and plan capital projects as these investments have long-term implications for the company’s financial health and operational capabilities.

Businesses incorporate capital expenses into their budgeting and strategic planning processes. Accurate forecasting and financial planning are important to make sure the availability of funds for capital projects without negatively impacting day-to-day operations.

Example of capital expenses

YZ Manufacturing Inc. is a company that specialises in producing precision machinery. The existing manufacturing equipment at XYZ Manufacturing is becoming outdated, impacting efficiency and product quality. To maintain competitiveness, the company decides to invest in new, state-of-the-art machinery.

1. Purchase of new machinery:
   • XYZ Manufacturing identifies a cutting-edge CNC (Computer Numerical Control) machine that will significantly improve production processes. The cost of the CNC machine is N$500,000.
2. Installation and training:
   • In addition to the cost of the machine, XYZ incurs additional expenses for the installation of the CNC machine and training for the employees who will operate it. These costs are part of the total capital expenditure.
3. Accounting treatment:
   • In XYZ Manufacturing’s financial statements, the N$500,000 spent on the CNC machine and associated installation and training costs are classified as capital expenses. These expenditures are not fully expensed in the year of purchase but are capitalised on the balance sheet.
4. Depreciation:
   • Instead of deducting the entire N$500,000 from the company’s income in the year of purchase, XYZ Manufacturing will depreciate the value of the CNC machine over its useful life. This spreads the expense over multiple accounting periods, reflecting the ongoing benefit derived from the asset.

Definition

A buy-to-let mortgage is a financial product designed for individuals or investors who wish to purchase residential property for the specific purpose of renting it out to tenants.

What is a buy-to-let mortgage?

Unlike a standard residential mortgage, a buy-to-let mortgage is tailored to the unique characteristics of rental property investment.

The primary purpose of a buy-to-let mortgage is to finance a property with the intention of generating rental income. Borrowers typically seek to build a property portfolio or earn a return on their investment.

Lenders evaluate buy-to-let mortgage applications based on the potential rental income of the property, the borrower’s financial situation, and their ability to manage the investment. The borrower’s personal income may be considered, but the emphasis is often on the property’s income-generating potential.

Buy-to-let mortgages often require a higher deposit or down payment compared to residential mortgages. The loan amount is typically expressed as a percentage of the property’s value.

Interest rates on buy-to-let mortgages can vary, and they may be higher than those for residential mortgages. The rates may be fixed or variable, and the choice depends on the borrower’s preference and risk tolerance.

Like any investment, buy-to-let carries risks, including varies in property values, economic conditions, and changes in rental demand. Investors should carefully consider these factors and conduct due diligence before entering the buy-to-let market.

Example of buy-to-let mortgage

Sarah, an investor interested in real estate. She identifies a residential property in a popular neighbourhood with high rental demand.

1. Property purchase:
   • Sarah decides to purchase the property as an investment to generate rental income. The property’s purchase price is N$200,000.
2. Buy-to-let mortgage application:
   • Instead of a traditional residential mortgage, Sarah applies for a buy-to-let mortgage from a financial institution. The lender assesses her eligibility based on her financial situation and the potential rental income.
3. Loan Approval:
   • The lender approves Sarah’s buy-to-let mortgage. They agree on a loan amount of N$150,000 at an interest rate of 5%, with a loan term of 25 years.
4. Rental income:
   • Sarah finds tenants for the property, and they agree to a monthly rent of N$1,000. The rental income helps cover the mortgage repayments.
5. Mortgage repayments:
   • Sarah makes monthly mortgage repayments to the lender, including both principal and interest. The monthly repayment amount is determined by the terms of the buy-to-let mortgage.

Definition

A business cycle refers to the recurring pattern of expansion and contraction in economic activity that occurs over time.

What is a business cycle?

The business cycle is a natural feature of market economies, driven by a combination of various factors, including changes in consumer spending, investment, government policies, and external economic conditions.

Phases of the business cycle:

1. Expansion: This phase is marked by increasing economic activity, rising production, employment, and consumer spending. Businesses experience growth, and optimism prevails in the economy.
2. Peak: The peak is the highest point of economic activity during an expansion. It represents the climax of growth, and it is often characterised by high employment rates and robust economic indicators.
3. Recession: Following the peak, the economy enters a recession phase, marked by declining economic activity. This phase is characterised by falling production, rising unemployment, and a decrease in consumer spending.
4. Trough: The trough is the lowest point of economic activity during a recession. It represents the bottom of the cycle, and economic indicators are at their lowest. Unemployment is typically high during this phase.

Business cycles vary in terms of duration, intensity, and the factors influencing them. Some cycles are short-lived, while others can extend over several years. 

Businesses often experience the effects of the business cycle through changes in consumer demand, access to credit, and overall economic conditions. During expansions, businesses may thrive, while recessions can pose challenges such as reduced sales and financial pressures.

Example of business cycle

1. Expansion (Boom):
   • Imagine a scenario where the economy of the fictional country of Prospera is experiencing robust growth. GDP is increasing, businesses are expanding, and employment is rising. Consumer spending is high, and investors are optimistic about the future.
2. Peak:
   • The economy reaches a peak when it’s operating at its maximum capacity. Prospera’s economy is at its strongest, with high levels of production and low unemployment. However, signs of potential overheating may emerge, such as inflationary pressures or asset bubbles.
3. Contraction (Recession):
   • After the peak, the economy enters a contraction phase. In Prospera, demand starts to slow, businesses may cut back on production, and unemployment may rise. Consumer and business confidence may decline, leading to reduced spending and investment.
4. Trough:
   • The trough represents the lowest point of the business cycle. In Prospera, economic activity has bottomed out. Businesses may be operating below capacity, unemployment is high, and consumer confidence is at its lowest. However, this phase also sets the stage for recovery.
5. Recovery:
   • The economy begins to recover as conditions improve. In Prospera, policymakers may implement measures to stimulate economic activity, such as lowering interest rates or implementing fiscal stimulus. Businesses regain confidence, production increases, and unemployment starts to decline.

Definition

A benchmark is a reference point or standard used for comparison and evaluation, serving as a measure against which the performance, quality, or characteristics of something else can be assessed. Benchmarks are widely employed across various fields, including finance, business, technology, and performance measurement, to assess the relative success or effectiveness of a company or process.

What is a benchmark?

In finance, a benchmark is often used to assess the performance of investment portfolios, funds, or financial instruments. Benchmarks are frequently established based on industry norms or recognised best practices. This allows organisations to align their performance with industry standards and identify areas for improvement.

Types of benchmarks:

1. Market benchmarks: Reflect overall market performance.
2. Competitive benchmarks: Involve comparing performance against direct competitors in a specific industry.
3. Operational benchmarks: Focus on processes and efficiency within an organisation.
4. Financial benchmarks: Include metrics like interest rates or inflation rates that influence financial decisions.

Benchmarks play a key role in continuous improvement efforts. Organisations use benchmarking results to set performance goals, track progress, and make informed decisions to improve efficiency and effectiveness.

While benchmarks are valuable for comparison, it’s essential to recognise their limitations. Differences in context, goals, and methodologies can impact the validity of comparisons. Additionally, benchmarks may not capture all relevant factors influencing performance.

Example of benchmark

Imagine XYZ Retail, a company operating in the clothing retail industry.

1. Benchmark selection:
   • XYZ Retail wants to assess its profitability compared to industry standards. They choose the industry average profit margin as their benchmark.
   • Let’s say the average profit margin for the clothing retail industry is 10%.
2. XYZ Retail’s profit margin:
   • XYZ Retail reviews its financial statements and calculates its own profit margin, which is the ratio of net profit to total revenue.
   • If XYZ Retail’s profit margin is 12%, it indicates that the company is performing better than the industry average in terms of converting sales into profits.
3. Interpretation:
   • Outperforming the benchmark suggests that XYZ Retail is more efficient in managing costs and generating profits compared to the industry norm.

Definition

A base rate, in the context of finance and banking, refers to a benchmark interest rate that serves as a reference point for determining the interest rates on various financial products.

What is a base rate?

Central banks or monetary authorities typically set the base rate as a tool to influence economic conditions, particularly to control inflation.

The base rate is often set by a country’s central bank. Central banks use the base rate as a monetary policy tool to regulate borrowing costs and money supply in the economy. The interest rates on loans and other financial products are commonly linked to the base rate. When the base rate changes, financial institutions adjust their interest rates accordingly. For example, a rise in the base rate may lead to higher borrowing costs for consumers and businesses.

The base rate also affects interest rates on savings accounts and other interest-bearing deposits. When the base rate increases, savers may see higher returns on their deposits, while a decrease in the base rate could result in lower interest earnings.

Changes in the base rate are often seen as indicators of the central bank’s stance on monetary policy. A higher base rate may indicate a desire to lower inflationary pressures, while a lower base rate is typically employed to stimulate economic activity and lending. Central banks periodically review and adjust the base rate based on economic conditions, inflation targets, and other relevant factors. These adjustments are communicated to the public and financial institutions.

Example of base rate

A commercial bank, XYZ Bank, decides to offer a loan to a customer. It may determine the interest rate for the loan by adding a margin to the central bank’s base rate. Suppose XYZ Bank adds a margin of 2% to the base rate.

• XYZ Bank’s lending rate = Central bank base rate + margin
• XYZ Bank’s lending rate = 3% = 2% = 5%

Therefore, XYZ Bank offers the loan to the customer with an interest rate of 5%, where 3% represents the central bank’s base rate, and 2% is the bank’s margin.

Definition

Accounts receivable refers to the outstanding amounts that a business is yet to collect from its customers or clients for goods sold or services provided on credit. It represents the short-term financial obligations owed to the company.

What is accounts receivable

When a business extends credit to customers, it essentially allows them to defer payment for a later date, creating an accounts receivable.

Some key points about accounts receivable include:

1. Credit transactions: Accounts receivable arise from credit transactions where a company provides goods or services to customers with an agreement for deferred payment. 
2. Recorded as asset: In financial statements, accounts receivable are recorded as assets on the balance sheet. They represent a claim that the company has on the payment from its customers. 
3. Terms and conditions: The terms and conditions for payment, including the credit period and any interest or discounts, are usually specified in the sales agreement or invoice. 
4. Working capital impact: Accounts receivable impact a company’s working capital. While they are assets, a high level of receivables may indicate potential liquidity issues.
5. Monitoring and collections: Businesses closely monitor their accounts receivable to ensure timely collection. This involves tracking overdue payments, sending reminders or statements to customers, and implementing collection strategies if necessary.
6. Bad debt provision: Recognising that not all accounts receivable may be collected, companies often establish a provision for bad debts. This is an estimate of the portion of receivables that may not be collected due to customer defaults.
7. Financial analysis: Analysts and investors may assess a company’s accounts receivable revenue ratio to evaluate how quickly it is collecting outstanding payments. A high revenue ratio is generally favourable, indicating effective credit management.

Example of accounts receivable

1. Service Provided on Credit:
   • On March 1st, ABC Services provides consulting services to a client, XYZ Corporation, and invoices them for N$8,000. The payment terms are net 30 days, meaning XYZ Corporation has 30 days to pay the invoice.

   The accounting entry for this transaction is:

   $\text{Accounts receivable}(Asset)=\; N\$8,000$

   $\text{Service revenue}(Revenue)=\; N\$8,000$

   This entry reflects an increase in the accounts receivable asset, representing the amount owed by the client, and an increase in service revenue.

2. Payment within Credit Terms:
   • On March 25th, within the credit period, XYZ Corporation makes a payment of N$8,000 to ABC Services.

   The accounting entry for the payment is:

   $\text{Cash}(Asset)=\; N\$8,000$

   $\text{Accounts receivable}(Asset)=\; N\$0$

   This entry reduces the accounts receivable and increases the cash asset to reflect the payment received.

In this example, accounts receivable initially represents the amount owed to ABC Services by its client for services rendered. The asset is later reduced when the payment is received within the specified credit period.

Definition

An accounting period, also referred to as a fiscal period or financial period, is a defined span of time during which a business records its financial transactions and prepares financial statements.

What is an accounting period?

This period serves as the basis for reporting the organisation’s financial performance and position. The duration of an accounting period can vary and is typically chosen based on the specific needs and practices of the business. Common periods include a month, a quarter, or a year.

The primary reason for establishing an accounting period is to systematically organise financial data, enabling accurate and meaningful presentation of a business’s economic activities. Financial statements, such as the income statement, balance sheet, and cash flow statement, are generated at the conclusion of each accounting period. These statements offer a consolidated view of revenue, expenses, assets, liabilities, and cash flows during the specified timeframe.

Beyond financial reporting, accounting periods play an important role in budgeting and planning. Businesses align their budgets with specific periods to monitor and evaluate performance against predetermined expectations. For tax reporting, it’s usually necessary to follow a specific accounting period that lines up with the fiscal year.

Example of accounting period

Let’s consider a short example of a monthly accounting period for a small business, XYZ Services:

• During January, XYZ Services provides consulting services and invoices clients for N$10,000.
• Incurs monthly operating expenses, including rent and utilities, totaling N$5,000.

At the end of January, the financial summary for reporting purposes is:

Revenue = N$10,000

Expenses = N$5,000

This represents a snapshot of XYZ Services’ financial position for the specific month of January. The company will repeat this process each month.