Definitions of Commonly Used Words in Business

Accounts Payable: Accounts Payable (AP) are the bills that you need to paid. An example of an AP is the invoice you receive for buying supplies from the manufacturer. They are considered liabilities.

Accounts Receivable: Accounts Receivable (AR) are the debts owed to you. If you sell your product or service to your customer and they do not pay you at the time of sale, the money they owe you is considered an AR. They are considered assets.

Assets: Assets are property that your business owns. This includes anything that has value, such as cash, AR's, inventory, supplies, equipment, etc.

Branding: Branding is used to create an identity for your product or service and differentiate it from your competition.

Business Plan: A business plan is a document that details the specifics about how a business will run.

Cash Flow: A business's cash flow is the process of cash flowing into and out of the business within a set amount of time. For example, you might bring in $100 in sales, but spend $50 in supplies within a given month.

Cost of Goods Sold (COGS): COGS is the cost you pay for supplies, goods, labor, etc. in order to sell your product. For example, if you buy a bicycle at a yard sale and sell it on Ebay, the cost to buy the bicycle is your COGS.

Commission: Commission is the money paid to a person who sells your product or service to a customer. Commissions paid can be a set amount of money per unit sold or a percentage of the sale.

Copy (Advertising): Copy is the written word(s) used to communicate information about your product or service. They are the words used to try to get people to buy from you.

Direct Marketing: Direct Marketing is a method used when your customer has direct access to your product or service. There is no middleman in direct marketing.

Doing Business As (DBA): A DBA is a name a business operates under that is different from the legal name of the business. For example, the legal name for a home painting service might be Johnson Enterprises LLC, but the DBA might be Johnson's Home Painting Services.

E-Commerce: E-commerce is the act of selling products or services over the internet. When you have a website in which you try to make a profit, you are involved in e-commerce.

Earnings: Your earnings are your income or profit.

Equity: Equity in a business is the difference between your assets and liabilities. Simply, if the business has $1,000 in assets and $100 in liabilities, then the business has $900 in equity.

Fixed Costs: Fixed costs are the costs that do not change in relation how much you sell. Paying rent or salaries are examples of fixed costs. They do not change if your sales or income/profit increase or decrease.

Gross Margin: Your gross margin is the difference between the total amount of money you made from selling your product or service and the total amount of money your product or service cost you. For example, if it cost you $10 to make your widget, but you sold it for $30, your gross margin is the difference - $20.

Inventory: Your inventory are the goods you have on hand or in stock. Your inventory can also be the materials you have on hand that are used to manufacture your product.

Invoice: An invoice is the bill that is given to the purchaser of a product or service for money due.

Liabilities: Your liabilities are your debts. They are items in which you owe money. If the debt can be repaid in less than five years, it's considered a short-term liability; longer than five years, it's a long-term liability.

Marketing Collateral: Marketing collateral are the materials used to describe your product or service. Brochures, newsletters, postcards, flyers, and press releases are all forms of marketing collateral.

Profit: Your profit is the money you made from the sale of your product or service minus your costs/expenses before tax. Your net profit is the money you made minus your costs/expenses AND tax.

Return on Investment (ROI): A ROI is your net profit divided by your total equity. For example, if cost you $100 to invest in a lawnmower and over six months, your net profit from mowing lawns with it was $1,000. Your ROI is 90 percent. To calculate:

Equity ($1,000) - Cost ($100) / Cost ($100) = ROI

Variable Costs: Variable costs are costs that change in proportion to the number of units produced. For example, if you own a dog grooming business, dog shampoo is a variable cost. You only incur the cost based on the number of dogs you wash. Variable costs aren't as risky as fixed costs because you only incur them when you sell your product or service.

Wholesaler: A wholesaler is a person who provides the distribution of inventory from the manufacturer to the retailer.