Being a new entrepreneur, you would come across many business terms that might even govern the success of your venture. It highlights the importance that you must give to the basics of business. Some of the terms might feel familiar to you, but the exact meaning or the scenario which governs these terms are usually unfamiliar for the people who do not have the background in business studies. In this article, we are going to discuss some of the basic business terms that you need to know for managing your startup.
Monetary Business Terms
So, let’s start with some of the terms that you would use for describing the profits of your business:
This business term describes the profit earned by your business. Now the question comes that why do we call it the bottom line. Well, this is because of the location where you can find the net profit. In each of the income statement formats, you’ll find the net profit at the bottom, thus showing the naming significance.
The ratio of profit to sales describes the profit margin. In general words, it means the amount of profit that you have generated through sales. Three types of profit margins are there in the financial statements, i.e. gross profit, operating profit, and net profit.
The point where your business would make no profit. But the revenue from the business will cover all the business costs. It is one of the basic business terms that you need to know for finding the quantity of products that you must sell to bear all the expenses associated with manufacturing.
Return on Investment:
The profit generated viz a viz the investment made in the business provides you with an idea about the profitability of a particular business.
The flow of cash either in or out of business is the focus of this business term. The activities that change the flow of cash in the business are recorded in the cash flow statement. It is totally different from the income statement and can show you the funding requirements for your business.
Owner’s Equity or Share Capital:
Owner’s equity is one of the basic business terms that you need to know. It shows the investment that you have made in your business. Here are different types of ownership of a business, you can review them for a better understanding. If you are the sole owner, you’ll be investing the owner’s equity by yourself; in case of the partnership, the investment made by the partners is the owner’s equity. However, the case of owner’s equity is different in companies because of the presence of various individuals. The investment made by each of these individuals is collectively known as share capital. In return for which these individual receive a dividend payment.
These are some of the business terms through which you can highlight the profit made in your business along with the discussion of the profit with reference to the investment made. The complexity of these terms can be even enhanced, but for you as a business owner, these versions are the basic business terms that you need to know. I have tried to explain these terms quite simply, but comprehensively, so I hope you’ll have a better understanding of the basics of business after reading this article.