Below you’ll find definitions on all things related to small business and entrepreneurship. And there are a lot of them! To help you find what you need, use the following alphabet to jump to the correct section.
Notice that some are red? That’s a good thing; it means there are no terms in that section that you need to know.
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Accounts Payable (AP)
— Debts owed; money an entrepreneur or business owner owes a supplier or vendor for their products or services
Accounts Receivable (AR) — A claim for payment; money a business owner has the rights to after they’ve provided a customer with certain goods and/or services.
Action Plan — A detailed strategy for handling a sudden challenge or meeting specific goals throughout the course of the year.
Asset Turnover — A financial ratio that’s used to help measure a company’s performance. The ratio includes the company’s sales divided by the total value of its assets; generally, the higher the ratio, the better the company’s performance.
Benefits (also called perks, fringe benefits)
— These are extra benefits provided by employers to their employees, or partners when certain objective are met.
Black — From a business perspective, black means that a business might break even between revenue being brought in and expenses being paid out. (Also see In the Black below)
Brand — A marketing identity used by business owners to make their company easily recognizable and attractive to consumers; facilitates marketing as well as loyalty among consumers.
Brand Equity — The estimated value and contribution to profitability a company receives from having a recognizable name, logo, and/or reputation, compared to other generic or competing companies.
Break-Even Point — A point where revenue levels and total expenses are both parallel to each other.
Business Plan — A business plan is a document that outlines a business’s long-term goals. This might include purchasing a new building in the next 10 years, or hiring 50 more employees within the next fives years.
— A non-liquid (or non-cash) property, tangible or intangible, held by a business. Generally not counted as inventory, these assets are often used by the business, rather than sold as part of routine operations. Company cars, office computers, or retail storefronts are all common types of capital assets.
Cash Flow — The amount of money that’s being transferred to and from a business as part of revenues and expenses. Often a measure of Liquidity (see below).
Collateral — Collateral is something that entrepreneurs and small business owners provides to lenders as a way to guarantee their repayment. So if a business owner takes out a loan for a new building, the loan agreement might state that their car and house can be used for collateral if they fail to make payments.
Collection Periods — Represents the average time taken for a business to collect their debt (also see Collection).
Competitive Analysis — The process of business owners determining their competitors’ strengths and weaknesses relative to their own. Generally part of a company’s marketing plan, as well as an assessment of risk and investment opportunity during financing.
Contractor — These are individuals/individual businesses hired to do a task that contributes to the overall completion/success of a project. Generally speaking, contractors are not regularly employed by the company running the project.
Cooperative (Co-Op) — A group of individuals working collectively to meet a common goal, and/or company needs.
Copyright — This is a legal document that grants business owners and entrepreneurs the rights to use and/or distribute products without to having to worry about competitors reproducing it.
Corporation — A group of individuals authorized by law to act as a single person.
Cost of Goods Sold (COGS) — Also called Cost of Sales; The direct expenses incurred by a company in developing, acquiring, and/or manufacturing products for retail, including materials and labor.
— The use of repayable funds to support the growth of the company; small business loans and other interest-bearing loans are common forms of debt financing, and create a certain amount of financial risk for the company in the form of new fixed costs.
Digital Nomad — A person working independent of location, usually while traveling. Often works remotely, or freelances.
Direct Marketing — The practice of advertising and attempting to sell products directly to consumers, without intermediary retailers or platforms. These products can be sold by internet, mail order, phone calls, or in person.
— Income; an estimate of a company’s profitability, alternatively derived from Gross profits, EBIT, or other analyses of income. Earnings can also be expressed as the profits per share of company stock.
Earning Before Interest and Taxes (EBIT) — Measures a company’s revenue that includes all expenses (except for interest and income tax expenses). Used as an alternative to Gross Profits (see below) as a measure of company performance and financial standing, often by potential investors.
Employee (Part/Full time) — An individual who works for a business under an employment contract (as opposed to a non-permanent labor contract — see Contractor).
Equity Financing — The method of business owners and entrepreneurs selling stocks or other shares of ownership to different investors in order to finance the growth of the company. Although it creates an obligation to shareholders (which may entail paying dividends from profits), it does not involve debt.
Expense — Refers to the total cost of something; the opposite of profit. This can include money spent on bills, marketing, stocks, taxes, payroll, and other operating costs.
Fatal 2% Rule
— A theory that if a new business can attain just 2% of the market share, it will be successful in the long run. On the other hand, failure to do so could result in the new business closing their doors for good.
Fiscal Year — A 12-month period used for accounting purposes and preparing a business’s financial documentation. Please note: the fiscal year does not always revolve around the calendar year.
Fixed Cost — Are expense that does not change over time, regardless of production and output. Some examples might include insurance, rent, or payments on loans. (Also see: Variable Cost)
Fixed Liabilities — Usually a type of payable debt (like mortgages, business loans, etc.) which carry a term that exceeds one year.
Future Value Calculator — A formula that used to estimate how the price of an asset or cash investment will change over time.
— Incentives that are designed to keep employees at a specific job over a long period of time. These cuffs are golden because they usually present themselves as attractive, and discourage employees from looking for alternative work elsewhere.
Golden Handshake — Usually involves a business owners making a large payment to a colleague or employee when they leave their job.
Gross Profit — The sum of a company’s earnings, not taking into consideration expenses; Profits excluding taxes and operating costs. (Also see Net Profit)
— A business plan that’s designed to extract cash from and/or eliminate investments in certain products, brands or ventures. Selling the business entirely is the ultimate form of harvesting. Generally any investment a business makes will have some form of harvesting strategy attached, dictating when, and under what circumstances, the investment will be liquidated.
— This is the term for a company that is losing earnings. Essentially, the company is losing more money than it is earning.
Income Statement — A financial document that used to report a company’s profits and losses over a specific time period; a disclosure of Net profit.
Intellectual Property (IP) — From a business point of view, intellectual property refers to ownership an entrepreneur has over a specific idea or creation.
Inventory — A full list of current assets on a company’s balance sheet. When small businesses check inventory, they count all the unsold products that are waiting to be sold.
Inventory Turnover — A process in which a company’s ratio shows the number of times a product was being sold or used.
— Someone who works occasionally. In some cases, this is due to the fact that the entrepreneur has another job that is their primary one.
— Engaging in a physical or mental activity that generally produces a product, good, or service.
Liabilities — A contract that legally holds a business responsible for damages, and lost or stolen items.
Limited Liability Company (LLC) — A structure that designed to protect members of a business from being liable for company debt.
Liquid — Assets held as cash, or easily convertible to cash; liquidity measures a company’s cash on hand or Cash flow. (Also see Capital Assets)
Long-Term Assets — In business terms, a long-term asset is an estate that’s not being used for cash profit within the first year.
Long-Term Interest Rates — The the value of government-issued bonds that gain maturity over a period of time, generally 10 years or more. Usually taken as an average of daily prices, rather than just the price at which the bonds were originally offered. Not the same as interest rates in other contexts (Also see Interest Rates)
Loyalty Program — A rewards system designed to help customers save on new products, or access other company-specific benefits in exchange for their continued patronage.
— How a business communicates with customers, other businesses, and the marketplace; the method of business owners promoting their product and/or services to consumers.
Market Density — This term refers to a specific number of potential clients that might be interested in company’s product or service.
Market Share — In this case, market share is a term used to represent a company’s earnings from their total sales.
Marketing Audit — The process of evaluating a company’s marketing assets, strategies, and opportunities for improvement; conducted periodically as well as at the outset and conclusion of any marketing initiative.
Mission Statement — A formal declaration that summarizes a company’s core values, and overall goals.
Net Cash Flow
— The net cash flow refers to the balance remaining once the company’s inflow and outflow has been deducted.
Net Profit — Measures a company’s profitability after expenses; commonly called the Bottom Line, as it expresses the overall financial performance of the company. (Also see Gross Profit)
Nonprofit — A corporation that conducts business for the sole purpose of benefiting the general public. These companies are also normally tax-exempt from the IRS.
Occupational Safety and Health Administration (OSHA)
— An agency of the United States Department of Labor office that focuses on making sure business owners are providing a safe and helpful work environment for their employees.
Outsourcing — Involves the process of purchasing an item and/or service from an external vendor. Small businesses usually rely on this method for contract work, though the term is often used interchangeably with Offshoring, or the outsourcing of labor to other countries.
— Refers to the number of times a client (or user) visits a company’s website.
Partnership — The process of two or more entities sharing ownership of a particular business and its assets, profits, or losses.
Patent — A legal document that grants a business and/or entrepreneur the right to market or sell their product to consumers; but only for a limited time.
Payroll — An inventory of everyone a company must pay (employees, contractors, and anyone else in a labor agreement with the company), as well as a record of what each person must be paid including salary, wages, and benefits.
Payroll Burden — Quantifies the real labor cost a company bears for each individual they have working for them. The documents include liability cost for the company, the hourly wage/salaries, as well as any voluntary benefits paid (health insurance, pensions, etc.).
— From a business perspective, this means that a business might not have enough revenue. Therefore, the company can’t afford to pay for certain expenses. (Also see In the Red above)
Remote Work — Performing the functions of a job, often from home, without the need to commute to a central place of employment, such as an office building.
Return on Investments (ROI) — Measures a business’s gains and/or losses generated by spending activities; a standard profitability ratio. The ratio calculates the value of the investment as a percentage of the original cost.
— The people or organizations who posses some quantity of equity ownership of a company, usually in the form of stock; depending on the ownership formula, shareholders may be entitled to voting rights, dividend payments, or certain degrees of influence in the company, or bear accountability for its management
Shares — Issued as a part of Equity Financing. Refers to a specific form of equity ownership in a company; stock prices refer to the price of an individual share unit.
Silo — A mind-set within a company and/or organization that does not wish to share information, goals, priorities, or metrics with one another. Therefore, each department is forced to operate independently within the corporation.
Sole Proprietorship — This is perhaps the most simplest method chosen when it comes to starting a business. The term refers to an individual business owner who would rather run their company by his/herself than share the responsibilities with someone else.
Stock — A generic term for equity ownership of a company
Stock Market — The public arena for exchanging financial equity investments.
Stock Turnover — A term commonly used to describe the number of times an inventory has been sold or used within a certain time period.
— An election made by a business owner or entrepreneur when they’re filing taxes. Individuals, for example, have the option to file single, married, and/or married but separate. Businesses on the other hand, can choose to file C (or S) corporation, limited partnership, or limited liability.
Trademark — In business terms, a trademark is a symbol or word used to represent a company’s image. The term can also be used to establish a company’s new product as well.
— Usually directly proportional to the (high or low) volume of units being produced by a company or small business; generally, they rise as production increase, and fall as production decreases. (Also see Fixed Cost)
Venture Capital — Also called VC, generally involves large investments (hundreds of thousands to millions of dollars) and carries significant risk, as the companies targeted for investment may be untested in the market or associated with a novel technology
Venture Capitalist — These are investors, both individuals and organizations, who finance newer or smaller businesses (with Venture Capital) before they are publicly traded, or before the target companies have access to other forms of equity.