If you're a new business owner, you may be hearing some terms you're not familiar with. This list of 30 business phrases can help you understand some of the jargon.
This is an accounting term that refers to the credit debt your business has incurred. Many businesses use credit for supplies, raw materials, or inventory purchases. The organizations you owe payment to are considered an account. These accounts can be put on a report for viewing. A quick glance at this report reveals the identities of your creditors, how much money is owed to each creditor, and how long that money has been owed.
Every business has assets, which in its simplest terms are items with value. All businesses need assets to produce products or sell services. An asset is anything a business owns.
According to generally accepted accounting principles, the sum of the owner's (shareholders') equity and a business' liabilities equals the total assets a business has.
A B2B (business to business) company is one that offers products or services directly to other businesses. The business can be a buyer, such as when a company purchases material for its products, or it can be a supplier providing products to other companies.
B2C is an acronym for business-to-consumer. A B2C business is one that sells products or services directly to the consumer.
A balance sheet is a statement of the financial position of a business which describes the assets, liabilities, and owners' equity at a particular point in time. In other words, the balance sheet illustrates the business's net worth.
Benchmarking, or goal setting, allows a company to assess the opportunities they may have for improving a number of areas in any of its functions. A baseline is established, and metrics are developed with which to compare the future performance of the functions.
Generally, the term bottom line refers to the last line in a financial statement of a business, where a profit or loss is shown. It has also been adopted as a term to replace "What this means is..." in presentations and papers.
Cash flow is the money that is moving (or flowing) in and out of a business in any given month. Cash may be coming in from customers or clients, who are buying products or services. Cash may be going out in the form of payments for expenses like rent or a mortgage.
The Chief Executive Officer (CEO), is the top executive in an organization. That top executive can have many titles. The top executive can also be a managing partner or president. Most organizations are replacing the title of their top executive with CEO.
Continuous Improvement Plan
A continuous improvement plan is a set of activities designed to bring gradual, ongoing improvement to products, services or processes through constant review, measurement, and action.
When employees leave a company and have to be replaced its called employee turnover. A certain amount of turnover is unavoidable, but too much can ruin a company. The two general types of turnover are voluntary (such as resigning) and involuntary (such as layoffs).
Equity is the value of the capital contributed by owners or stockholders. This is also referred to as shareholders' equity.
Financial Accounting Standards Board
The Financial Accounting Standards Board (FASB) is the primary body in the United States that sets accounting standards. The board updates and publishes generally accepted accounting principles for the standardization of accounting procedures.
The government fiscal year (FY) generally starts on October 1 of a year and ends on September 31 of the next year. For example, FY 2015 started on October 1, 2014, and ended on September 31, 2015.
The fiscal year for some business types mirrors the calendar year. Sole proprietorships, partnerships, and S corporations follow the calendar year for tax purposes, while corporations are allowed to design their own fiscal year.
Fixed assets are anything a business owns, such as buildings or equipment.
Generally accepted accounting principles (GAAP), are a set of rules and practices having substantial authoritative support. GAAP is the standard that companies use to compile their financial statements such as the income statement, balance sheet, and statement of cash flows.
A golden parachute is a name given to the clause in a top executive's employment agreement or contract that defines the payout the individual will receive should they be terminated by the organization before the end of their contract.
An insider in a company is someone who has access to important information about a company. This information could influence investor decisions that would impact the firm's stock price or valuation.
Liabilities are amounts owed by a business at any one time. They can be expressed as payables for accounting purposes. Included in liabilities are loans, credit payments due, taxes, or any other form of debt in which you are obligated to pay.
A line manager is a person who directly manages other employees and operations of a business while reporting to a higher ranking manager. The line manager term is often used interchangeably with direct manager.
Matrix management is commonly used in organizations if they have a need to share resources across functions (i.e, different departments). In a matrix management system, an individual has a primary report-to boss and also works for one or more managers, most typically on projects.
For many companies, one of their most valuable assets is their intellectual property which they must keep secret. A non-disclosure agreement (NDA) is a legal document between employee and employer, in which the employer agrees to disclose certain information to the employee for a specific purpose. The employee then becomes legally bound not to disclose that information to anyone else.
Profit and Loss Statement
A profit and loss statement (called an income statement under GAAP), is a business report that shows net income as the difference between revenue and expenses.
A business's revenue is the money generated by all its operations before deductions are taken for expenses. Revenue can come from the sale of the company's products or services, from the sale of surplus equipment or property, or from the sale of shares of stock in the company. It can come from a variety of other sources such as interest, royalties, and fees.
Return On Investments
Return on investment (ROI) ratios are a group of business ratios that indicate the performance of capital contributed to the company from investors. There are many ratios for returns on investment. Generally, ROI refers to one formula used to gauge the return of investment:
Net Profit ÷ Cost of Investment = ROI
Senior managers (typically used in large organizations with multiple layers of management) have responsibilities and authority broader in scope than a front-line manager. Senior managers are usually positioned to move into a director or general manager position.
The Shewhart Cycle is most often a circle with no beginning or end, meaning that the continuous improvement processes of business never stop. The cycle has four stages: planning (when you identify an opportunity and create a plan), doing (to test the plan on a small scale), checking (to evaluate the benefit of the plan), and acting (implementing the plan on a larger scale and then monitoring results).
Subject Matter Expert
A subject matter expert (SME) is an individual with a deep understanding of a particular process, function, technology, machine, material, or type of equipment. Individuals designated as subject matter experts are typically sought out by others interested in learning more about, or leveraging, their unique expertise to solve specific problems or help with particular technical challenges.
Variable expenses are those business expenses which vary depending on the volume of business, sales, or the volume of transactions. Examples of variable expenses include postage and shipping for customer purchases, purchase of raw materials, inventory of products to be sold, hourly wages of employees, and sales commission.
Vision is the dream of what the owners want the organization to be. It should not be confused with strategy, which is the large-scale plan the company follows to make the dream happen.