For those who actively follow me, you know that I am a proud member of the Cadet Instructors Cadre (CIC) Branch of the Canadian Forces. One thing that is often commented on is the fact that we absolutely love acronyms- so much so that it sounds like its own language when heard!
It’s the same for the business & startup worlds, as many terms taking on multiple or different terms than every day lingo. A lot of business people and entrepreneurs are so adjusted and comfortable with the different vernacular (“businessese” as I like to call it) that they will slip into the new language with ease. As a result, they might not notice that you’ve got a question mark over your head & are trying to understand. Worse yet, it might hurt your reputation with that person if they feel that you can’t keep up or if they feel that not being able to speak the language equates to not being ready for entrepreneurship.
Fear not! I know how intimidating it can be figuring out unfamiliar terms (or familiar terms with new meanings) without asking the person or misinterpreting the meaning and using it incorrectly. Here are some of the most common terms/phrases entrepreneurs will hear over the course of their career and what they really mean!
- Accounting Period: the period for which a business will prepare internal and external accounts for generating financial statements. For internal accounts, it will normally cover monthly and quarterly and for external accounts, it will cover 12 months.
- Accounts Payable (A/P): Outstanding money owed to suppliers (a.k.a. creditors). On a balance sheet, they are listed as a current liability as they need to be paid off within 1 year.
- Accounts Receivable (A/R): Sales that are made by customers but not yet paid for. Customers will pay for products purchased or services rendered within a set future timeframe. A/R’s are considered Current Assets because of their high liquidity (ability to be converted into cash).
- Acquisition: When controlling interest of a company is purchased by either a person, joint venture or another company. Controlling interest is generally viewed as having control of either 50%+1 or 51% of the company (depending on the agreement).
- Advertising: An activity that promotes the products and/or services that you have to offer. It is a subsect of a business’ marketing strategy.
- Angel Investor: Generally, a seasoned entrepreneur or professional that provides support to new or promising businesses while only being in a passive role with the company (a.k.a. a silent partner). In this case, support means starting or growth capital, advice, mentorship and/or connections.
- Assets: What the business either owns, benefits from, or uses to generate income. Examples: Cash, equipment, inventory, land, building(s), and goodwill.
- Balance Sheet: A financial statement that is a snapshot of the business’ assets, how it paid for them, its liabilities (what it owes), and the amount leftover after paying off the liabilities (owner’s equity). It is based on the fundamental accounting equation of assets = liabilities + owner’s equity (A=L+OE). Subheadings include: current assets, fixed assets, current liabilities, and long-term liabilities.
- Bottom Line: A business’ net income or net loss after tax is deducted.
- Business name: The title under which a sole proprietor or partnership conducts its operations. For a corporation, it is its legal identity.
- Business Plan: A blueprint for how the business will operate, including policies and strategies. It details what the financial and operational goals are for the business for the near future and how it intends to reach those goals. Business plans need to be flexible to adapt as the business changes (new customer segments, new competitors, etc.). These also often include the past, current and projected financial performance of the business (including a balance sheet, income statement and cash flow statement), which is used to demonstrate to investors how their contribution will impact the business.
- Capital: The money invested into a business either by the owner(s) themselves or outside investors to generate income.
- Cash Flow Statement: A statement of either the actual or anticipated inflow and outflow of cash for a business over the course of a fixed accounting period (i.e. month, quarter, year). Generally focused on answering two questions: where the money either came from or will come from and where it either went or will go. It is used to assess the amount of cash coming in/going out, the timing of the inflow/outflow and the predictability of the in-cash inflow/outflow. It is an essential statement for creating budgets and conducting business planning.
- Client Retention: How you keep your customers returning and making repeat purchases.
- Corporation: A legal entity that is separate from its owners and owned wholly by shareholders (people who share in its profits and losses). It has three characteristics that set it apart from the other types of business: it has a legal existence (like a person) and can buy, sell, own, enter into contracts and face legal ramifications (i.e. lawsuits and fines); there is limited liability for its shareholders, in that the shareholders are only responsible for the amount that they have invested into the corporation; it is not bound by human lifespans or capabilities, as its ownership can be transferred to others through the sale or gifting of shares.
- Customer Acquisition Cost: the amount of money used to attract/retain clients. It is also used to measure the amount of value that each customer brings to the customer (i.e. money spent, additional customers they bring with them, etc.).
- Debt: the duty to pay money, deliver goods or services when an owner enters into an express or implied agreement with a debtee (a.k.a. a creditor or lender). Business’ can use debt to create leverage to multiply yields on investments when the amount of return exceeds the debt incurred. Example: purchasing a company vehicle to offer mobile or delivery services may help to grow customer base and sales.
- Depreciation: The decline in the market value and economic potential of an asset over its productive or useful lifetime.
- Equipment: Tangible assets that are used to allow the business to operate and generate income. Examples include machines, tools, technology, etc.
- Expenses: Money spent, or costs incurred by a business to generate revenue. Also known as the cost of doing business. Expenses can be actual cash (i.e. salaries and rent), the expired portion of an asset (depreciation), or an amount that takes away from earnings (i.e. bad debts from customers that may never pay). Expenses are subtracted from revenues to determine both the amount of taxes owed and the business’ overall net income/loss.
- Financial Statement: A summary of how a business is utilizing the funds it has available (provided either by shareholders or investors). It also highlights the business’ current financial position. The 3 main financial statements for a business are the: balance sheet, income statement, and cash flow statement.
- Human capital: The collective value of the intellectual capital (competencies, skill set and knowledge) held by the people in the company. It is from this that the business can draw innovation and creativity while also building its ability to make adaptations and changes. Human capital is not tied to the business but rather to the people in possession of it, which means that it comes, goes and grows with that individual.
- Human resource: The people within the company and the knowledge, skills and motivation that they possess.
- Idea: A thought, or group of thoughts typically generated with intent. These are generally formed during brainstorming sessions or through discussions. Often, people within companies will generate ideas with the intent of using them to move the business closer to achieving the goals outlined in the business plan.
- Income Statement: A summary of the business’ performance that outlines its profitability (or lack thereof) over a certain period. It outlines the amount of revenue generated and expenses incurred by the business that aided in the net profit/loss. It can be analysed to determine what can be done to improve the results, as well as the rate at which the owner’s net income is either increasing or decreasing. The fundamental accounting equation used in this statement is Income=Revenue-Expenses (I=R-E).
- Iteration: a process for arriving at a decision or desired result by repeated analysis and testing, while making necessary changes to get the best product/service.
- Joint Venture: a new company that is formed to achieve specific objectives for two or more existing companies. They allow smaller companies to pool resources and tap into new markets that they might not otherwise have been able to (i.e. due to size, location, costs, etc.). The downside is that they can be acrimonious when it comes to things such as the division of equity, operational control and profits/losses.
- Knowledge: the human capacity and understanding that results from the personal interpretation of provided information, data and experiences. For a business, it is the sum of what is known and what resides within its personnel’s intelligence and competencies.
- Lenders: Someone or a company that advances cash to a business that expects to be repaid in full and with interest within a specified timeframe. Lenders can ask for collateral (i.e. if it’s a bank, it can go after a sole proprietor’s home) to be used against the debt if the business is not able to fulfill its obligation to repay them.
- Liability: A legal claim against the assets of a business that arise out of past or current transactions. A business must either exchange assets (i.e. cash) or provide services within a certain time frame to decrease their liabilities.
- Marketing: The process through which goods and services move from idea to reality and then to the customer. There are 4 P’s that define it: Product (identification, selection and development), Price (setting one), Place (how the business will reach its customers), and Promotional Strategy (developing and implementing it).
- Net Income: The total revenue earned over the course of a specific accounting period minus all expenses incurred over that same period (including income tax and interest owed). Also known as earnings, net earnings or net profit.
- Net Loss: the amount by which the expenses incurred over a specific accounting period exceed the total revenue generated over the course of that same period.
- Operations: The jobs that are performed by the assets in a business (people and machinery). These jobs transform either resources or data into the desired goods, services or results. These then create and deliver value to the customer by helping them to solve a problem that they are having. Business operations typically have four categories: processing, inspection, transportation, and storage.
- Owners Equity: the owner’s share of the assets once all liabilities have been addressed, considering any withdrawals the owner may have made themselves (i.e. income, etc.). Depending on the type of business, it can be known as the owner’s net worth or shareholders’ equity.
- Partnership: A type of business organization that involves two or more individuals. These individuals will pool their money, skills and other valuable resources, as well as share in the profits and losses of the company in accordance with the terms outlined in their partnership agreement.
- Passion: An essential component to a company’s success. It is the motivation within a person that is characterized by internal drive, positive emotional arousal, and the engagement of that person in work that is personally meaningful.
- Pivot: A change made to one or more components of a company’s business model that alters how the company operates. It can affect one or more of the following: customer segment, channel, revenue model/pricing, resources, activities, costs, partners, customer acquisitions, or product. This is a common part of a business’ existence and is often necessary to increase sales.
- Profit margins: The ratio of post-tax income to the cost-of-sales, expressed as a percentage. It is used a way to measure if a business is truly profitable and if it’s pricing is where it should be.
- Regulation: The rules employed that are used to control, direct and manage a company. Depending on if there is a regulatory body that governs the profession in which the company operates (i.e. the Law Society of Upper Canada for Lawyers and Paralegals in Ontario), these might be pre-set and in place long before the company exists.
- Repeat Purchase Rate: The rate at which customers will make multiple purchases of a specific product or service that a company sells. It is a sign of customer loyalty and closely analysed by professionals and the company itself when making evaluations about the business.
- Revenue: The income generated by the sale of goods and/or services before any costs are deducted. It can also be generated through another use of capital or assets that are associated with the main operations of an organization (i.e. having a conference room or office space that can be rented out by a non-competitor). Revenue is listed at the top of the Income Statement and all expenses incurred by the business are subtracted from it to determine net income/loss. Also known as Sales.
- Sales channels: The methods that a business employs to market its products to its customers. Some examples of different sales channels include: a sales force, wholesalers (i.e. Costco), distributors (i.e. independent grocery stores), telemarketing, and internet marketing (i.e. online purchase options and social media campaigns).
- Sole Proprietor: the sole owner of a business. They alone direct how the business functions, carry the associated risks personally, and are responsible for the profits and losses.
- Strategy: an action plan that is chosen for the business to either achieve its goals or solve a problem in an effective and efficient manner.
- Taxes: mandatory monetary contribution to the government’s revenue. These are assessed and imposed by the government on the activities, expenditures, income, property, etc. of a business.
- Valuation: the appraisal or estimate of the worth of a company based on several factors, including stock value, liquidity, assets, liabilities, goodwill, etc.
- Venture Capital: Startup or growth capital provided by either private investors or specialised financial institutions to promising business’. Typically, the lender will provide funding to the company in exchange for a percentage of the equity (in this case ownership) in the business.
- Website: a collection of pages on the World Wide Web on which a company reaches its customers. It provides the customers with the information that they might be seeking prior to making an informed purchase of the company’s goods and/or services, including where and how the purchase can be made (i.e. list of retailers, online shopping portal, etc.).
- Work-Life Balance: a state of equilibrium achieved when a person can successfully balance their career priorities with their personal life.
For more in-depth information on any of the terms defined here or for financial assistance, I strongly urge you to utilise the services of legal, accounting and financial professionals. They can walk you through what needs to be done and provide you with sound advice based on your company’s unique challenges and opportunities.
If you want a laugh, there is also this funny infographic put together by Forbes Magazine: 35 Startup Buzzwords Every Entrepreneur Should Know.
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