When you're first starting out in business, there are a lot of new terms and phrases to learn. It can be tough to keep up! But don't worry, the Glen Ellyn Chamber of Commerce is here to help. In this blog post, we'll explain 10 common business terms that every new entrepreneur needs to know. By the end, you'll be an expert on all things business!
Accounts Payable vs. Accounts Receivable
Let's start with a basic one: accounts payable vs. accounts receivable. Accounts payable is how much money your business owes to others; for example, suppliers or contractors. Accounts receivable is how much money others owe to your business, such as customers who haven't paid their invoices yet. Both are important to track carefully so you always know where your business stands financially.
Balance Sheets
A balance sheet is a financial statement that shows your business's assets, liabilities, and equity at a given point in time. This is important to understand because it gives you a snapshot of your company's financial health and can help you make informed decisions about where to allocate resources.
Benchmarking
Benchmarking is the process of comparing your business's performance against other businesses in your industry. This helps you understand where you stand in relation to the competition and what areas you need to improve in order to stay competitive.
Cash Flow
Cash flow is the movement of money into and out of your business. It's important to track because it gives you an idea of when you'll have extra cash on hand (which you can use for investing or other purposes) and when you might need to tighten your belt a bit.
LLCs
An LLC (or limited liability company) is a type of business organization that offers some legal protections for its owners. If your business is sued, for example, only the assets of the LLC itself would be at risk, not the personal assets of the owners. This makes LLCs in Illinois a popular choice for small businesses because it reduces their liability risk.
Profit and Loss Statements
A profit and loss statement (also called a P&L) shows your business's revenue, expenses, and profits over a period of time (usually one month or one quarter). This information is important because it helps you understand whether your business is generating more revenue than it's spending, and if not, what areas need improvement.
Return on Investment (ROI)
The return on investment (ROI) is a measure of how much money you make in relation to how much money you spend. For example, if you spend $100 on advertising and make $200 in sales as a result, then your ROI would be 2x (or 200%). This metric is important because it helps you understand which marketing channels are worth investing in and which aren't providing enough bang for your buck.
Sales Funnels
A sales funnel is the journey that a customer takes from becoming aware of your product or service to eventually making a purchase. Understanding this journey is important so that you can market effectively to customers at each stage and guide them closer to a sale.
SEO
Search engine optimization (SEO) refers to the process of optimizing your website so that it ranks higher in search engine results pages (SERPs). This is important because it helps people find your website when they're searching for keywords related to your business and ultimately drives more traffic (and sales) to your site.
Working Capital
Working capital is how much cash you have available after paying off all current liabilities—in other words, it's what's left over that you can use to grow or invest in your business. Having positive working capital means that you have more cash coming in than going out, which gives you breathing room to grow without putting yourself at financial risk.
Fake It ‘til You Make It
So there you have it! Ten essential business terms every new entrepreneur should know before getting started. These concepts may seem foreign at first, but don't worry. With time and exposure, they'll become second nature! And remember, even experienced entrepreneurs have to start somewhere, so take heart knowing that everyone starts out feeling a little lost when first learning about business concepts.
