When starting out building a business, it's important to have an understanding not only of the concepts involved in entrepreneurship but also the vocabulary that may be new to you. These terms will help you delve deeper into what it takes to run your own business and better understand how to properly manage its operations.
Accounting: The process of writing down and keeping long-term records of all money that comes in or goes out from a business
Accounting Period: The time period that pertains to a certain group of accounting figures. This time period can be a week, a month, a quarter, a fiscal year, or a calendar year.
Accounts Payable: Money owed to other businesses for products or services that is typically paid out within a short time frame
Accounts Receivable: Money that is owed to the company by customers
Accrual-Based Accounting: A type of accounting typically used in large businesses in which revenues and expenses are recorded as they occur and not as they are paid. Smaller businesses typically use cash-based accounting, in which transactions are recorded as they are paid and received.
Acquisition: The process of one business purchasing part or all of another business's assets. It can result in the end of one or both businesses, or both businesses can remain intact.
Actuary: An essential employee of many businesses who analyzes the risk and other costs associated with a business
Affiliate Marketing: Selling a product on behalf of another company in return for a commission
Annual Equivalent Rate (AER): The rate of interest gained or lost on an investment
Asset: Any resource that has value that is owned by a business
Balance Sheet: A list of a business's assets and debts that shows the total current value of the company
Benchmarking: Gauging the success of a business by comparing it to the strongest competitor
Break-Even Point: When a business earns enough money to cover its expenses
C Corporation: A type of business structure that creates a distinct entity for tax and liability purposes, separating the owner's personal finances from the company's dealings
Central Driving Forces Model: A model that analyzes the founders, opportunities, and resources of a business in order to identify strengths and weaknesses in a business plan
Equity: If a business was dissolved, equity is the amount of money that would be returned to the shareholders or single owner after all assets were sold.
Expenses: All costs associated with a business
Fatal 2% Rule: If a company is able to gain 2% or more of the market for its product, it is likely to be successful.
Fixed Cost: An expense that remains constant regardless of the performance of the business
Gross Margin: After a company pays the costs associated with the direct sale of goods or services, the money remaining is the gross margin.
Harvesting: Selling off a product, line of products, or entire business in order to move on to another venture
Limited Liability Company: An LLC is a type of business structure that shields the owners from liability for the company's debts
Liquid Asset: Cash or other assets that can be easily converted to cash
Net Cash Flow: The total money gained or lost over a certain period of time
Opportunity Analysis: Looking into things like supply and demand, competitors' existing products, and market trends to identify the best development and marketing strategies
Overhead: All costs indirectly involved with running a business
Profit Margin: After your expenses are paid, this represents how much money is left.
Return on Investment : The gain or loss from an investment relative to the cost of that investment
Revenue: Total income from a product or service
Target Market: Those most likely to buy a product or service
Variable Cost: An expense that changes depending on the amount of a good or service produced
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