Running a business means grasping the intricacies of accounting, marketing, inventory, people operations and many other responsibilities, and each new responsibility comes with its own jargon. As a business owner, you’re likely to come across terms ranging from A/B testing and accounts receivable to Zapier and zero interest. Below, we dive into the ABCs you need to understand to succeed.
A: A/B testing
Marketing teams use A/B testing to determine which variant of an ad, email or webpage gets the best response. For example, you might send version A to 5,000 email recipients and version B to another group of the same size. Both emails present the same offer but have different layouts, fonts, colors and action buttons. If version A results in 50 sales and version B leads to 20, the marketing team knows to use the version A design on future email campaigns to maximize revenue and meet email marketing goals.
A is also for:
- Accounts payable. This is the money you owe others.
- Accounts receivable. This is the money others owe you.
- Angel investors. These are accredited investors who give seed money to startups.
- Asset-based lending. This is a loan for up to 85% of the value of the securities you offer (such as machinery, IP, inventory or accounts receivable).
B: Balance sheet
Balance sheets show what a company owns (including its inventory), how much it owes and how much money shareholders have invested in it. Balance sheets indicate whether a company has enough working capital to continue selling. They also show whether there’s room to take on more credit. Additionally, a business owner can use a balance sheet to determine how much their company might be worth if they were to sell it.
B is also for:
- Bankruptcy. A business is bankrupt when its liabilities are greater than its debts and it can’t pay bills in full or on time.
- Bad debt. This is money you’re owed that you’re never likely to receive.
- Blog. This is a webpage filled with articles on topics that interest a particular audience. Find out why your small business needs a blog.
- Bounce rate. This is the percentage of visitors to your website who leave without clicking any other pages or submitting their contact information for follow-up. The higher the bounce rate, the less engaging your website is.
C: Customer relationship management (CRM) software
Businesses can use the best CRM software to help manage relationships with customers and prospects. CRM systems store interaction history with every client and lead in one place and allow you to analyze related data. Modern CRM systems are also capable of automating tasks. For example, if someone fills in a lead form on your website, your CRM can automatically send the prospect a welcome email, forward their details to one of your sales representatives for follow-up and add their email address to your newsletter distribution list.
C is also for:
- Cash flow. This is the money coming into and leaving your business bank accounts. A positive cash flow means you’re receiving more money than you’re spending; a negative cash flow means the opposite.
- Cash flow projection. This is an estimate of how much actual cash you’ll have across your business bank accounts based on historical cash flow patterns.
- Conversion rate. This metric describes the percentage of people taking the course of action you want. For example, if 1,000 people visit your website and you get 30 leads from it, the conversion rate is 3%.
- Crowdfunding. This is a way for businesses to raise funds online, sometimes from thousands of individual small investors. Check out our chart to see whether a business loan or crowdfunding is best for you.
- Cybersecurity. This refers to the technological and human defenses your company has in place to prevent illegal access to your computer network and data.
Every asset you buy for your business, whether it’s a company vehicle or a commercial refrigerator, depreciates in value over time. When you calculate your corporation tax, you can offset the depreciation of your assets against your profits. So, if you made $100,000 in a year but an asset you own depreciated in value by $10,000 over that year, you’d pay corporation tax as if your profit were $90,000.
D is also for:
- Debit. A bookkeeping term for an increase in expenses or assets or a decrease in income or liabilities, debit is shown in the debit column of a ledger account.
- Debtor. This is someone who owes you money as a part of your accounts receivable.
- Deferred income. In accrual accounting, this is money you’ve received from a customer when you haven’t yet provided the goods or services they ordered.
- Due diligence. When you sell your business, due diligence is the sometimes lengthy process between the agreement on the sale price and the signing of the sales and purchase agreement that transfers ownership. During the due diligence period, the buyer’s lawyer attempts to build as full a picture of the company as possible to show their client exactly what they’re about to buy.
E: Exit strategy
An exit strategy is a business owner’s plan to step down from the responsibilities of running their company. Many business owners want to sell their enterprises to new owners, while others prefer to hand ownership to family members as an inheritance. Some simply cease trading, sell any remaining assets for cash, transfer any money left in their business bank account to their personal account, and liquidate the company. Investor exit strategies are different. They look to sell their shares in a company after a certain time period, often to another investor. Other shareholders generally remain in place.
E is also for:
- Economies of scale. These are cost savings businesses enjoy when they significantly increase levels of production. Each unit can be manufactured more efficiently at scale, and production costs are spread across a greater number of units.
- Email marketing. This is a way to promote your products and services directly to consumers via their email inboxes. Email campaigns deliver some of the best returns on investment (learn about ROI below) of all forms of marketing. Check out our top picks for the best email marketing services.
- Employee. Employees are people you pay a wage to perform certain activities in your business. You may also choose to pay a commission (a percentage of gross profit made on a sale they were responsible for) and a bonus if your company is doing well.
- Expense. This is something that costs your business money. You should include all expenses in your bookkeeping so your profit calculation is correct and you don’t pay too much tax.
FYI: Business is risky, and you actually need two exit strategies – one for if business is going well and one for if business takes a turn for the worse.
A franchisee is a person who purchases the right to use the brand name and working practices of a franchisor. Famous franchisors include McDonald’s, Pizza Hut, 7-Eleven, RE/MAX and Snap-on. Franchisees are at less risk of failure than non-franchised startups because they work in accordance with a proven business model. However, franchisors exert a high degree of control over operations, often taking fees that significantly cut into franchisees’ profits.
F is also for:
- Forecast. This is a prediction of a future outcome based on historical business trends. Businesses can use prediction tools in accounting software packages to forecast sales volumes, cash flow, profit margins and more.
- Fixed cost. This is an expense that is not affected by changes in the level of output over a defined period.
- Fixed asset. This is a long-term tangible piece of property or equipment – such as vehicles, a manufacturing plant and machinery – that a company uses in its operations to generate income.
- Facebook. As even non-business owners likely know, Facebook is the largest social media network on the planet. Companies can use the platform for advertising and customer engagement. Learn how to maximize your Facebook marketing strategies.
Tip: To make your franchise appeal to investors, you need a strong business plan and marketing plan.
G: Gap analysis
Company leaders can use a gap analysis to work out why they’re not getting the business results they want. The analysis shows why they’re failing in certain areas and how far away they are from their desired outcome. For example, a business might be making a net profit of 5% when the industry average is 8%. They may be getting a lot of bad reviews because it takes a week to send out products to customers, compared with Amazon’s next-day shipping. Once senior business managers have identified the reasons for this failure, they can develop a course of action to close the gap within a given time frame.
G is also for:
- Gearing. This is the proportion of debt (usually in the form of business loans) to the total value of ordinary shares. For example, if a company’s shares are worth $10 million and it has a debt of $3 million, its gearing ratio is 30%.
- Goodwill. When a company goes to market, goodwill is an attempt to quantify the value of nonphysical and intangible assets. Common goodwill items include customer return rates, brand identity, low staff turnover and high productivity.
- Guerrilla marketing. This is a way of gaining publicity for a business or a product or service sold through unconventional advertising practices.
A hacker is a person who gains unauthorized access to business IT networks to either steal or corrupt valuable business data or use their computing resources. Hackers do this by using known exploits or bugs in the apps and software businesses use. Other times, they can get into the system because passwords chosen to secure company networks are easily guessable. They also use deceptive practices, like phishing, to achieve their goals. After they’ve gotten in, a hacker may use ransomware, threatening to wipe all data from a system if the company doesn’t pay them a ransom, or install hidden software that mines for cryptocurrencies or logs users’ keystrokes. [Learn the types of cyber risks businesses should be aware of.]
H is also for:
- Hard loan. This is short-term debt finance secured on property. It’s often used to raise cash in difficult trading periods and by developers who need extra funding to complete a project.
- High-pressure selling. This is a sales method in which a representative uses pressure and controlling tactics to persuade a customer to buy. It’s typically considered unethical.
- Human resources (HR). HR refers to the people-management aspects of a business. HR departments are responsible for hiring employees (and occasionally external workers), running payroll, handling disciplinary issues, ensuring legal compliance and maintaining employee records.
A company’s inventory includes products it can sell now, stock of the raw materials it uses to make those products, and products in the process of being made (work in progress). Most businesses focus on stocking inventory items that sell quickly. This releases the cash needed to pay for other inventory items they can then sell. With items that don’t sell quickly, companies often drop the price to encourage consumers to make a purchase. This brings cash into the business and frees up storage space. Many companies use inventory software to monitor stock levels and place orders when an item is running low.
I is also for:
- Intangible fixed asset. This is an asset that cannot be physically touched, like intellectual property and trademarks.
- Invoice. This is a document detailing the sale of goods or services to a third party; it contains the price and payment terms.
- Instagram. Owned by Facebook parent company Meta, this is a photo- and video-sharing app that many businesses use to advertise to Gen Zers and engage with millennials. See our best practices for posting on Instagram.
- Invoice factoring. This is a way to improve cash flow; the best invoice factoring services advance up to 90% or more of the invoices you sell to them the following day. When your client pays the invoice in full, you get the 10% minus the factoring fee. Nonrecourse factoring is when the service does not pursue you for repayment if your client doesn’t settle their invoice.
In bookkeeping, journals hold the original records of transactions made by a business. Traditionally, transactions would be handwritten and manually transferred to a general ledger. Today, accounting software automates this process, creating digital journal entries for every transaction. These entries typically include the date of the transaction, the journal entry number, the affected accounts, and debit or credit amounts.
J is also for:
- Job lot. This is a collection of often-related products sold for much less than the original sales price. Before making the purchase, buyers generally don’t see what items the job lot contains or the condition of the items. Companies buy job lots in the hope they will contain a few desirable, very-high-value items. Retailers often sell job lots on eBay.
- Just in time (JIT). This advanced form of inventory management is often used by retailers, e-commerce stores and wholesalers. Suppliers and businesses work together to ensure that just enough stock is manufactured and delivered on time to meet customer demand. This method prevents overproduction by the supplier and reduces the company’s risk of unsold goods.
A keyword is a word or string of words people use when searching for information online. Keywords can be broad, like “bicycle,” or specific, like “blue BMX bicycle finance no deposit.” Many companies optimize the content on their websites to rank highly on search engine results pages for particular keywords.
K is also for:
- Key performance indicators (KPIs). These are performance targets companies use to measure their own success and that of their employees at individual and team levels. Check out these tools for tracking KPIs.
- Knowledgebase. A knowledgebase is an online library of instruction manuals, training videos and exercises, previous webinars and tip sheets designed to educate people on how to use a product or service.
Accounting liabilities are debts your company owes to other people, businesses and organizations, often referred to as third-party creditors. There are two types of liability: current, which must be paid in full in 12 months, and long-term, which is paid over 12 months or longer. If a company’s liabilities are high compared with its assets (including available cash and assets that can be sold quickly to raise cash), it will struggle to make money and its viability will be threatened if there is a long-term downturn in sales.
L is also for:
- Liquidity. This describes how sellable an asset or item is. For example, commercial property is an illiquid asset because it takes time to sell it and complete a deal. A vehicle is a more liquid asset because you can sell it and receive the cash from the sale in as little as one day.
- Link building. This is a highly effective way to boost your search engine rankings by getting authoritative sites to link back to your website. Many marketing and SEO (search engine optimization) agencies today offer link-building services for other businesses.
- LinkedIn. This is a social media network designed for people to build their professional networks. Find out how to create a business profile on LinkedIn.
- Lease. This type of financial agreement allows companies to use a particular asset over a fixed period. Unlike with hire purchase agreements, businesses never own the asset at the end of the lease period.
M: Merchant cash advance
A merchant cash advance is a type of business loan secured on future credit and debit card sales made by a business. A lender will front you an amount based on the volume of your recent card transactions and then collect a portion of your takings until the loan is paid back in full. Lenders apply a factor, instead of interest, to a loan. For example, a factor of 30% would mean that on a $10,000 merchant cash advance, you would clear your loan once you paid off $13,000 (the principal plus the factor).
M is also for:
- Mail order. This is the sending of customer-ordered products via post or courier. The direct-mail catalogs that traditionally sparked such orders have now largely been replaced by e-commerce sites.
- Market share. This is a company’s total share of available revenue for a product or service in a particular market. Individual company market share often decreases when new competitors launch.
- Mezzanine financing. Companies may use this complicated form of funding if they need additional cash but their current lenders won’t advance more money. Mezzanine lenders want security over assets and charge a high interest rate and/or demand a share of the project’s profits. Mezzanine financing is often used to complete building projects that have gone over budget or missed completion deadlines.
N: Net profit/loss
A net profit or loss is how much money a business has made or lost once all applicable costs (including administrative and selling expenses) have been subtracted from the total revenue generated. Net profit differs from gross profit in that the latter measures the sum remaining after you’ve subtracted the cost of sales from total revenue. Businesses are taxed on their net profit rather than their gross profit. Companies are sometimes valued for sale by a multiple of their post-tax net profit; the multiple varies depending on the business’s size and industry.
N is also for:
- Net assets. This is the sum of a company’s total fixed assets and its total current assets minus its total current liabilities minus its total long-term liabilities.
- Net present value (NPV). This is the difference between incoming cash and outgoing cash over a defined period across a company as a whole or in relation to a specific investment or project. Calculating the NPV is a good way to determine which of your business’s activities are likely to deliver a future income stream.
- Newsletters. Companies send email newsletters containing news, information and offers to customers who have opted in to receive them. When done well, they can generate regular and predictable revenue.
When businesses hire other companies or individuals who are not employees to perform tasks, it’s considered outsourcing. Businesses often outsource to cope with peaks in demand that their existing workforce would struggle to manage while maintaining performance standards. They also use outside experts, sometimes called independent contractors, to provide services that no employee has the knowledge or experience to perform. Contractors are often used on IT projects, like integrating the different software a company uses to simplify business operations. If a company outsources part of its operations to a third party in a different country, it’s typically referred to as offshoring or nearshoring. [Read related article: Top Countries for Business Process Outsourcing.]
O is also for:
- Operating lease. This financial agreement allows companies to rent assets that hold residual value, like construction machinery, vehicles and aircraft. At the end of the lease, a company can hand back the asset or roll over the contract and pay a smaller per-month fee that reflects the drop in the asset’s book value.
- Opportunity cost. This is the cost (either positive or negative) of selecting one course of action over another.
- Overdraft. This is a form of rolling credit offered by banks. Overdrafts are generally less expensive than loans and company credit cards. However, overdrafts can be withdrawn on demand, which may leave a company with no room for financial maneuvers.
P: Point-of-sale (POS) system
A point-of-sale (POS) system is a device or group of devices that takes payments from customers. The basic building block of many POS platforms is a cash register and/or credit card terminal. In recent years, POS solutions have become more sophisticated. Many now connect and share information with accounting software, inventory management platforms and CRM systems. Some vendors provide POS solutions for both in-store and online selling environments. [View our recommendations for the best POS systems.]
P is also for:
- Partnership. This refers to an unincorporated business with two or more partners doing business for profit. It’s considered to be less tax-efficient, and debts the business incurs are often guaranteed by the partners.
- Profit-and-loss statement. This document shows a business’s revenues, expenses and costs over a defined period – most often, a company’s fiscal year. To determine the overall health of a business, many accountants examine three documents: the cash flow statement, the balance sheet and the profit and loss statement.
- Phone system. This is an interconnected telephone network that allows businesses to talk to customers, among other features. Companies are increasingly choosing VoIP (voice over Internet Protocol) systems over landlines to manage multichannel communications and enable staff to work from home. These highly rated business phone systems keep businesses connected.
- Prospect. A prospect is someone who has been in touch with your company at least once but has not purchased anything from your business yet.
Q: QR code
A quick response (QR) code is a type of barcode. Smartphones and other devices can take a photo of a QR code to access information within it. Many businesses use QR codes to direct customers to a specific website or webpage. Manufacturing and delivery companies often use them to track the status or location of a product, parcel or other asset. Many top text message marketing providers encourage businesses to use QR codes to get customers to join specific interest-based marketing lists. [Read our EZ Texting review to find out more about using QR codes in text message marketing campaigns.]
Q is also for:
- Qualified lead. A lead is an individual’s expression of interest in a company’s products or services. A qualified lead is a person who has spoken with a company representative who has qualified their interest by finding out why they need the product or service, what their budget is and when they might buy it.
QuickBooks. QuickBooks is highly rated accounting software that digitizes and simplifies bookkeeping processes. Check out our QuickBooks Online review to find out what the software can do for your business.
R: Return on investment (ROI)
ROI is a metric that’s used to determine the success of a particular course of action. ROI can be expressed as a sum of money or a percentage. For example, if your business is operating at capacity, you might want to lease new machinery to increase capacity. If you generate another $1 million in annual sales because of the additional machinery and it costs you $250,000 a year to lease the equipment, your ROI (measured in revenue, not in profit) would be $750,000, or 300%, for the year. Companies use ROI to determine the success of a wide variety of activities. You’ll often hear ROI discussed in digital marketing campaigns.
R is also for:
- Rate of interest. An interest rate is the amount a lender charges for access to money. It’s expressed as a percentage.
- Recurring payments. Many businesses now charge monthly subscriptions for their services. This allows them to generate a predictable level of monthly revenue – the recurring payments – based on active subscriber numbers.
- Refund. This is a reversal of a payment in which a customer gets their money back. Many businesses choose to refund unhappy clients to reduce the risk that they’ll leave negative online reviews.
S: Social media marketing
Social media marketing is the use of platforms such as Facebook, Instagram and LinkedIn to generate new leads and sales. Although you can build an organic following on social media, most platforms have algorithms that prioritize paid advertising. Using the system’s targeting engine, you can select the target audiences you want to advertise your products and services to. You’re generally charged for an ad only if a user clicks it.
S is also for:
- Sale on credit. This could be either a sale in which you allow the client to pay later or you organize a finance package for them with a third-party lender that pays you when the loan documentation is signed.
- Seed capital. This is funding provided to develop a new business idea or product. It’s normally given in exchange for a shareholding.
- Sunk cost. This is money you’ve spent that can’t be recovered.
- SWOT analysis. This exercise examines a business’s current strengths and weaknesses and provides broad insight into potential growth opportunities and threats to viability. It’s very useful in helping entrepreneurs decide the future direction of their company.
Turnover, as it relates to accounting, is the level of revenue generated from sales and other activities over a defined time period. Turnover is not necessarily a measure of a company’s health. Many high-turnover businesses struggle to make large profits because they sell their products and services too cheaply. If a business is using accrual accounting, turnover figures may be high, but the business might have cash flow problems because its customers pay them too slowly. In HR, turnover refers to the rate at which employees quit or otherwise leave the company. Learn how to calculate employee turnover.
T is also for:
- Tangible fixed assets. In contrast to intangible fixed assets, tangible fixed assets are fixed assets that can be touched, like machinery, property, furniture and IT equipment.
- Telemarketing. This is a form of marketing in which consumers and business decision-makers are contacted via telephone to ascertain their level of interest in a product or service. These outbound calls can be made with the help of one of the best call center services.
Tip: Turnover and employee attrition are often used interchangeably, but they don’t actually mean the same thing. Attrition occurs when an employee leaves a company and is not replaced.
Undercapitalized companies struggle to cope with periodic downturns in revenue and to generate funds for expansion. If a company’s cash reserves drain quickly following a fall in sales, the business may have difficulty paying its employees and creditors, eventually leading to insolvency. Alternatively, some businesses need to scale to unlock higher levels of profitability. When businesses are small, they often can’t generate enough cash to pay for expansion. However, if a business owner invests in expansion, their higher profit margin on increased revenues makes further expansion more affordable.
U is also for:
- Unsecured loan. For this type of loan, the lender does not demand security in the form of an asset or property as a precondition for acceptance.
- User-generated content (UGC). This is content that customers create and a company shares online without paying the creators. It’s considered one of the most authentic forms of marketing by Gen Z and millennials.
- Upsell. This is an attempt to get a customer to purchase a more expensive or premium service or product than what they originally intended.
V: Venture capital
Venture capitalists provide funding to high-risk companies they believe have the best chance of growing rapidly. Unlike other providers of external funding, these investors don’t require you to pay them back. Instead, they ask for a shareholding and sometimes a seat on the board and the power to veto transactions over a certain amount. In addition to providing money, they connect the companies to a wider support network and advise the founders on growth strategies. Their exit strategy is to sell their shares to private equity investors or competitors within five years. The profit they make is from the increased value of their shareholding.
V is also for:
- Valuation. This is a third-party, independent estimation of the value of a business or a business asset on the open market.
- Variable cost. This is an expense that changes according to turnover. For example, in an e-commerce business, delivery services are a variable cost because the amount spent depends on the number of packages that are sent to customers.
Did you know? There’s a difference between venture capitalists and angel investors. Angel investors focus exclusively on early-stage companies and aim to sell their shares a few years later to venture capitalists when the business they’ve backed has grown substantially.
Companies invest in websites for a variety of reasons, but the primary purpose is to generate new sales and leads. Websites offer the possibility of 24/7 trading, so businesses can make sales and generate leads outside traditional office hours. The competition to achieve a high search engine ranking for your website is intense because a high ranking drives significant volumes of visitors. There are services, like Wix and Squarespace, that allow business owners to build their own sites. There are also many web design and marketing agencies that can do it for you. [Learn about the best website builders and design services.]
W is also for:
- Wholesaler. A wholesaler purchases very large quantities of products from manufacturers and sells them in smaller quantities to retailers and e-commerce companies. Most wholesalers do not sell directly to the public.
- Word of mouth. This is a personal recommendation of a company’s products and services from a customer to another person. It’s considered one of the most effective yet unscalable forms of marketing.
- Working capital loans. These loans help companies overcome short-term cash flow issues caused by dips in trade or unexpected bills. Loans are normally short-term and paid back in full soon after cash flow has returned to normal.
Like QuickBooks, Xero is well-regarded accounting software. In our detailed Xero review, we explained how the system can be used for recurring and online invoices, inventory tracking and order purchasing, reconciliation, time tracking and more. Xero has more than 1,000 native integrations, allowing you to connect with the other software used to run your business. Many accounting software users still work with a bookkeeper or accountant to ensure they’re recording transactions properly and taking advantage of every tax deduction opportunity.
X is also for:
- XML (extensible markup language). This type of coding allows for the secure sharing of data across the internet and closed company intranets.
Businesses must balance and close their books by year-end and then send their year-end financial data to various authorities, including the IRS for tax purposes. Outside of this accounting-related usage, companies also use the year’s end as a marker for completing projects, achieving goals and analyzing metrics. For example, a business may have an objective of hiring 10 new employees by year’s end.
Y is also for:
- Year to date. This is a period of time covering either the past 365 days or the time since the start of the calendar year.
- Yield. This is a measurement of ROI in a financial product.
Zapier and similar products allow companies to integrate the different business software they rely on to run their organization and streamline operations. This solves a significant problem: If your various apps aren’t connected, it’s much harder to coordinate business activities and share valuable data. Zapier and similar products use software and application programming interfaces to share data and functionality across systems. This integration not only streamlines your business but also presents opportunities to set up workflow automations and make your company more efficient.
Z is also for:
- Zero interest. This term applies when lenders and businesses offer 0% interest on a loan, line of credit or purchase. For example, purchasing a new computer system with a payment plan that has zero interest means you will be responsible for paying only the purchase price over the agreed-upon time frame and not any additional costs due to interest.
- Zombie company. This refers to a financially stricken business that’s capable of paying the interest on outstanding loans but not the principal. Zombie companies are particularly vulnerable when interest rates rise.