Starting up a company can sometimes feel overwhelming, not least because it means reading up on a host of new information. Becoming a founder means taking an interest in every aspect of your business, including those outside your comfort zone and indeed your previous experience.
From buzzwords to classic accounting terms, there’s always something new to learn, so I’ve put together this (by no means exhaustive) list of common business terms that you may or may not have come across before, with a brief explanation of their meanings.
Accruals / Deferrals
In a business sense, accruals refers to money that’s either been earned or spent but has not yet been recorded in the accounts. This can be applied to revenues (i.e. money that’s been earned) or expenses (i.e. money that’s been spent).
A deferral is the opposite of an accrual. The term refers to income or expenses that have been recorded but have not yet been received. Again, this can be applied to either revenue or expenses.
Affiliate marketing is becoming increasingly common with the rise of bloggers as influencers. Partner advertisers are paid based on performance; for example, for a blogger might receive a set amount for every customer that clicks on a link in one of their posts.
AOV is the abbreviated form of Average Order Value. It tells you how much your customers are spending, and is often used by merchandisers to see how effective your upselling strategies are. You can work out your AOV for a set period by simply dividing your total revenue by the number of orders placed.
B2B / B2C / C2B
B2B stands for Business-to-Business, while B2C stands for Business-to-Consumer. They refer to your target audience. C2B – or Consumer-to-Business – is often used in place of organic marketing as it refers to consumers that come to you rather than those you’ve reached out to.
Business Continuity / Disaster Recovery
Essentially, this means your Plan B. Business continuity management involves identifying potential risks and coming up with a contingency plan that so that you’re still able to operate should the worst happen.
While often confused with business continuity, disaster recovery refers specifically to technology. A disaster recovery plan should detail your strategy for protecting and retrieving vital information and systems if your IT infrastructure is hit.
Conversion rate refers to the number of customers who visit your business versus the number who actually sign up or make a purchase. It’s most often heard in Internet marketing, but it can also be applied to retail outlets.
CTA stands for Call to Action – a fairly self-explanatory term. It’s used in marketing to refer to copy that instructs or encourages a customer to take action through words such as “buy”, “visit”, “shop” etc.
CTR stands for Click-Through Rate – a term used in online advertising. When you put a clickable link in an advert, your CTR is the percentage of people who view the ad that actually follow the link.
FMCG stands for Fast-Moving Consumer Goods â€“ also referred to as Consumer Packaged Goods (CPG). These terms refer to low-cost goods such as toiletries and perishables that sell quickly and frequently.
A fairly new term, growth hacking is all about speed. The aim is to find the most efficient way to grow your business, and the process involves testing out a series of methods in a short space of time.
Guerrilla marketing is particularly important to small businesses as it refers to advertising strategies on small budgets. It’s usually high-energy and unusual, and is designed to turn heads and leave an impression.
KPI stands for Key Performance Indicator; these are the factors used to measure your company’s success. KPIs will vary from business to business, but usually include stats such as revenue and customer acquisition.
Liquidity refers to how easily a company’s assets can be converted into cash. It can be broken down into two similar but separate categories: market liquidity, which assesses easily an asset can be sold without losing its value, and accounting liquidity, which assesses how easily a company can cover its financial obligations.
We frequently hear talk about the differences between net profit and gross profit, but the term operative profit is a little less clear. It refers to the income that remains after taxes and interest have been deducted from the gross profit.
We all know what this means in the GOOP sense, but it takes on a different meaning in a business context. Organic customers are, in short, customers that aren’t paid for through ads. It’s a term often used in conversations about SEO and social media marketing.
PPM stands for Point Product Margin – which is also referred to as simply point margin or gross margin. It’s sometimes expressed in percentage form, but more frequently as a decimal. To work out your point margin, you simply subtract your costs from your selling price, and then divide the result by your selling price.
Risks / Issues
There’s often confusion amongst project managers about the difference between risks and issues. Put simply, risks are problems that might arise and issues are problems that have already happened.
ROE or RONW
ROE, meaning Return on Equity, and RONW, or Return on Net Worth, are synonymous. They measure profitability by calculating the amount that shareholders have made on their initial investment. It can be worked out by dividing your company’s net income by the shareholder’s equity stake. This can then be used to work out a percentage increase that the shareholder has gained on their investment.
ROI stands for Return on Investment, and is used to calculate the benefits of different investments. You can calculate your ROI by dividing the gain received from your investment (minus the initial cost) by the cost of the investment. Remember to account for employee time as well as money spent.
RPV stands for Revenue Per Visit, which is a combination of your AOV and your conversion rate. You can work out your RPV for a particular time period by dividing your revenue by your number of visitors.
SGR, or Sustainable Growth Rate refers to the amount of expansion that an organisation can self-fund. It’s an important factor for start-ups to consider when making projections for the future.
Sole Trader / Limited Company
These two terms are important not only because many start-ups begin as one-man bands, but also because new businesses will often hire freelancers or contractors for the sake of flexibility. Sole traders are registered self-employed and are personally liable for their business operations, while a contractor registered as a Limited Company is separated legally from the business.
Stakeholders / Shareholders
The term “stakeholders” is often used as a synonym for shareholders, but they do have separate meanings. While a shareholder owns part of a company, typically having made a financial investment, a stakeholder is anyone who has an interest in the company doing well. That could mean employees, customers, suppliers etc. In other words: all shareholders are stakeholders, but not all stakeholders are shareholders.
While start-up businesses are often unable to match the salaries of bigger companies, they will sometimes attract employees by including stock options in their compensation packages. A stock option gives the holder the right to buy a set number of shares at a set price within a fixed time period â€“ even if the shares increase in value.
Synergy is a word that’s often taken for business jargon, partly because it’s frequently misused by middle managers. It actually means that two companies – or two departments – would be more successful if combined. The phrase “the whole is greater than the sum of parts” springs to mind.
UX / UI
UX is shorthand for User Experience, while UI means User Interface. The two terms are fairly self-explanatory, and are often used in reference to job descriptions. For example, a UX Designer would be focused on ensuring customer satisfaction, while a UI Designer would probably be a graphic designer or a website builder who creates the webpages that greet your customer.
Valuations can sound intimidating to start-up companies, but it’s important when you’re looking to bring investors on board. Valuation involves assessing the financial worth of a company, usually through projected earnings and market value.
Those are some of my key words and phrases. Which ones have you heard and which ones are new? Are there any important terms you think I’ve missed? Let me know in the comments.