Today we'll be looking at some commonly used terms in the small business world. Having an understanding of what these terms mean and why they matter will be a massive benefit to you as you begin your business.
SEO stands for Search Engine Optimization, which is the practice of increasing the quantity and quality of traffic to your website through organic search engine results.
Marketing refers to the set of planned activities designed to positively influence the perceptions and purchasing choices of individuals and organizations.
Marketing encompasses sales, advertising, a website, a blog, and more. An easy way to think about marketing is that it is whatever a company is doing to try and get people to think about, look at, or ultimately purchase their product or service.
Advertising is one component of the overall marketing process. Advertising is the element of marketing that involves directly getting the word out about your business, product, or service to those you want to reach most.
Advertising is everywhere; it's the Goodyear Blimp, the tv commercial, and the signage on your local grocery store carts.
A startup is a company typically in the early stages of its development. These entrepreneurial ventures generally are started by one or more founders who focus on capitalizing upon a perceived market demand by developing a viable product, service, or platform.
Startups are usually aiming to take over a current market, or make a tremendous impact in a space, rather than insert themselves into the market. Startups typically aren't profitable at first, and require funding.
Return on investment, or ROI, is used in a couple of different fields. In marketing, it is used to determine how much money you are getting back for every dollar you spend.
Simply put, to be profitable, you want to be seeing a return on your investments.
Capital is a term for financial assets, such as funds held in deposit accounts and funds obtained from particular financing sources. The four major types of capital include debt, equity, trading, and working capital.
A limited liability company (LLC) is a corporate structure in the United States whereby the owners are not personally liable for the company's debts or liabilities.
The simplest business structure is the sole proprietorship. Your business is a sole proprietorship if you don't create a separate legal entity for it. You can have a sole proprietorship whether you operate it in your name, or under a trade name. If it isn't your name, then you register a company name as a "fictitious business name," also called a DBA (Doing Business As).
Filing your business as a sole proprietorship may leave you financially vulnerable if your company goes downhill or you get into legal trouble. However, it has minimal tax reporting requirements and is a more straightforward business organization.
Liability insurance provides the insured party with protection against claims resulting from injuries and damage to people or property. Liability insurance policies cover both legal costs and any payouts for which the insured party would be responsible if found legally liable.
Equity is business ownership—capital. Equity can be calculated as the difference between assets and liabilities.
Assets are property that a business owns, including cash and receivables, inventory, and so on. In short, assets are any possessions that have value in an exchange. The more formal definition is the entire property of a person, association, corporation, or estate applicable or subject to the payment of debts. Assets are most commonly referred to as cash and investments, accounts receivable, inventory, office equipment, plant and equipment, and any other physical property that has value.
Accounts receivables are debts owed to your company, usually from sales on credit. Accounts receivable is a business asset, the sum of the money owed to you by customers who haven't paid.
Liabilities are debts that your company owes or money that must be paid. Usually, debt on terms of less than five years are called short-term liabilities, and debt for longer than five years is called long-term liabilities.
Revenue is the income generated from normal business operations and includes discounts and deductions for returned merchandise. It is the top line or gross income figure from which costs are subtracted to determine net income.
Profit is an accounting concept, usually the bottom line of the income statement, which is also called profit or loss statement. Start with sales, subtract all costs of sales, and all expenses, and that produces profit before tax. Subtract tax to get net profit.
The profit of a company after operating expenses and all other charges, including taxes, interest, and depreciation, have been deducted from total revenue. Also called net earnings or net income.
A net loss is when expenses exceed the income or total revenue produced for a given period. It is sometimes called a net operating loss (NOL).
Profit margin is one of the commonly used profitability ratios to gauge the degree to which a company or a business activity makes money. It represents what percentage of sales has turned into profits.
The cash flow in a business plan is the change in the cash balance.
For example, the cash flow for a month would be a positive $10,000 if the balance was $10,000 at the beginning of the month and $20,000 at the end of the month. It is essential to distinguish cash flow, which is the change in the balance, from cash or cash balance, which is the resulting ending balance.
Business-to-business (B2B), is a form of transaction between businesses, such as one involving a manufacturer and wholesaler, or a wholesaler and a retailer.
The term business-to-consumer (B2C) refers to the process of selling products and services directly between a business and consumers who are the end-users of its products or services. Most companies that sell directly to consumers can be referred to as B2C companies.
The balance sheet is a snapshot of your company's assets, liabilities, and owner's equity at a specific point in time. It shows what a company owns (assets), what it owes (liabilities), and how much owners and shareholders have invested (equity).
The Break-even point is the output of the standard break-even analysis. The unit sales volumes or actual sales amount that a company needs to equal its running expense rate and not lose or make money in a given month.
Essentially, the point at which revenue = expenses.
Bundling is the practice of marketing two or more product or service items in a single package with one price.
The burn rate typically describes the rate at which a company is spending its venture capital to finance overhead before generating positive cash flow from operations. It is a measure of negative cash flow.
In business, a commission is the compensation paid to the person or entity based on the sale of a product, commonly calculated on a percentage basis.
Innovators are the first percentage of people to try out a new technology or product. They are the first in line at the store and often have up to date information on the latest trends.
Early adopters are a descriptor of buyers that follow "innovators" rather than be the first to purchase. They are usually younger, financially well off, while not necessarily willing to take as much of a risk as "innovators."
An early majority is a descriptor of those interested in new technology that wait to purchase until these innovations are proven to perform to the expected standard.
The late majority will follow after a majority of the population has already adopted the product. The Late Majority usually has skepticism when it comes to change.
Laggards are the slowest to adopt new products or try new things. They are often adverse to change and are usually older.
Economies of scale refer to the benefit that larger production volumes allow fixed costs to be spread over more units, lowering the average unit costs and offering a competitive price and margin advantage.
Producing in large volumes often generates economies of scale. The per-unit cost of something goes down with amount because vendors charge less per unit for larger orders, and often production techniques and facilities cost less per unit as volume increases. Fixed costs are spread over a larger volume.
Effective demand is when prospective buyers have the willingness and ability to purchase an organization's offerings.
The experience curve is a visual representation, often based on a function of time. Starting with the first exposure to something, to being well adapted with enhanced efficiency and operations advantages.
The fiscal year is a standard accounting practice that allows the accounting year to begin in any month. Fiscal years are numbered according to the year in which they end. For example, a fiscal year ending in February of 2020 is Fiscal 2020, even though most of the year takes place in 2019.
Fixed costs are costs that remain constant no matter how many goods or services are produced and sold. For example, the price of a business's rent is going to stay "fixed" throughout the lease.
In practice, fixed costs are considered the "running costs." These are static expenses that do not fluctuate with output volume and become progressively smaller per unit of output as volume increases.
The term guerrilla marketing comes from Conrad Levinson's book Guerrilla Marketing, which refers to marketing via events and media coverage rather than paid advertisements.
An example of guerrilla marketing can be running around town with fliers with the hopes of creating a buzz rather than paying for a commercial. Guerrilla marketing is popular when marketing budgets are minimal.
An impression occurs each time a potential customer sees an advertisement. For example, in online marketing, an impression happens when an ad such as a banner ad loads on a user's screen. This is the case whether they are seeing it for the first time, returning to a page, or when the ad cycles through dynamically.
Inventory refers to goods in stock, either finished products or materials to be used to manufacture goods.
The customer life cycle is a term used to describe the progression of steps a customer goes through when considering, purchasing, using, and maintaining loyalty to a product or service.
The term audit usually refers to a financial statement audit. A financial audit is an objective examination and evaluation of the financial statements of an organization to make sure that the financial records are a fair and accurate representation of the transactions they claim to represent.
Net cash flow is the projected change in cash position, an increase or decrease in cash balance.
Outsourcing is an act of purchasing an item or a service from an outside vendor. Outsourcing is usually done to save money to increase profit margins for a product or service.
PEST is a popular framework for situation analysis, looking at political, economic, and social trends. Analyzing these factors can help generate marketing or product ideas.
A portfolio, in business terms, is the complete array of an organization's offerings, including all products and services.
A sales forecast is the level of sales a single organization expects to achieve based on a chosen marketing strategy and an assumed competitive environment.
A SWOT analysis is a formal framework for identifying and framing organizational growth opportunities. SWOT is an acronym for an organization's internal strengths and weaknesses and external opportunities and threats.
A target market is a defined segment of the population that is the strategic focus of a business or a marketing plan. Usually, the members of this segment possess common characteristics and a relatively high propensity to purchase a particular product or service. Because of this, the member of this segment represents significant potential for sales volume and frequency. The target market is defined in terms of geographic, demographic, and psychographic characteristics.
Valuation is what a business is worth on the open market. For example, "this company's valuation is $10 million." This would mean that a company is valued at $10 million, or would have a $10 million price tag for potential buyers. The term is used most often for discussions of sale or purchase of a company; its valuation is the price of a share times the number of shares outstanding, and the cost of a share is the total valuation divided by the number of shares outstanding.
Venture capitalists are thought of in two ways. First, some people think of any wealthy individual who invests in young companies as a venture capitalist. Second, within the more informed investors, analysts, and entrepreneurs, a venture capitalist is a manager of a mainstream venture capital fund.
An angel investor is a high net worth individual who provides financial backing for small startups or entrepreneurs, typically in exchange for ownership equity in the company. Often, angel investors are found among an entrepreneur's family and friends. The funds that angel investors provide may be a one-time investment to help the business get off the ground or an ongoing injection to support and carry the company through its difficult early stages.