Small-Business Glossary of Terms

Starting your own business can be a daunting endeavor, in part because there's a lot of specialized terminology that you'll need to understand before you can get started. Whether you're forming a limited liability company (LLC), an S-corporation, or some other type of business, knowing the jargon of the business world can help you to become a better entrepreneur.

Articles of Incorporation: Legal documents filed with the government to create a corporation.

Balance Sheet: A statement that shows the assets and financial obligations of your business.

Business License: A legal document that allows your business to operate in your state.

Business Plan: A written plan that outlines what your business will do, how it will do it, how you will market your product or service, the assets that you already have, any funding that you still need, how the business will be structured, and the financial outlook for your business.

Capital: Money used to run a business.

Cash Flow: The movement of money into and out of your business. Cash flow can be positive (meaning that you're making more than you spend) or negative (meaning that you're spending more than you make).

Certificate of Insurance: A statement that shows that your business is insured.

Compounding: The process of growing an amount of money by reinvesting profits.

Demographic: A group of people who share one or more characteristics, such as age, income level, gender identity, or location. Your target demographic is the segment of the market that you want to sell your product or service to.

Depreciation: A measure of how much value an asset has lost over time.

EIN: Employer Identification Number. An EIN functions like a Social Security number for your business.

Equity: The total value of a business if you sold it today.

FICO: A company that calculates credit scores for people and businesses.

HR: Human resources, the part of a business that handles tasks related to hiring, firing, and giving benefits to employees.

Income Statement: A financial statement showing how much your business earned and spent in a given time period.

Independent Contractor: Someone hired by a business to provide a service who is not an employee of that business.

Liability Insurance: Insurance that protects your business if it causes harm to people or property.

Limited Liability Company (LLC): A business structure that separates the finances and liability of the people who own the business from those of the business itself. For instance, if an LLC goes into debt, only the assets of the business can be used to pay it back; the business owner's personal finances would remain separate.

Liquidity: The ability to turn non-cash assets into cash quickly.

Outsourcing: Buying goods or services from another business instead of making these goods or performing these services with your own employees.

Profit Center: A piece of a business that makes and spends money.

Registered Agent: A person who receives official communications from the government on behalf of a business.

Retained Earnings: The profit that's left over after a business pays all of its expenses.

S-Corporation: A corporation that passes its earnings and losses directly to its shareholders, who are then responsible for paying taxes or claiming tax credits accordingly.

SBA: The federal Small Business Administration, which is a government agency focused on helping entrepreneurs.

Secured Loan: A loan that's secured by collateral, which the lender can take if the loan isn't repaid

Shrinkage: The loss of inventory due to theft, fraud, or clerical errors

Sole Proprietorship: A business run by one person that is not legally incorporated. This offers a lot of flexibility but also means that there's no separation of finances or liability between the person and their business.

Unsecured Loan: A loan that doesn't require collateral.

Venture Capitalist: An investor who helps to fund a promising business in exchange for a share of the company's equity.

Virtual Office: A business address where the business isn't actually physically located. Virtual offices are commonly used by businesses that have entirely remote staffs but still need to be able to receive mail.

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