The path to becoming an entrepreneur is long and arduous, filled with jargon that can hold you back. Learning some important terminology can put you on the right path toward rubbing elbows with angel investors, talking about your patents, and moving your company forward. Are you going with a limited partnership, or are you a sole proprietor? How much capital do you need, and where is it coming from? These questions can be easier to answer if you know the right terms.
Angel Investor: This is a person who chooses to invest their own personal money at an early stage of a company, usually a startup. This is usually a large risk, and they will receive temporary partial ownership of the company for their investment.
Asset: An asset is something a company currently owns. An asset must be a resource that can be used for profit, must be owned by the company, and must have value.
Business Acquisition: This is the process of taking ownership of another company for the purpose of expanding your own. This is often either a purchase of the company entirely or a merger.
Corporation: A corporation is a legal entity for the purposes of doing business. It’s been created by a person but is legally distinct from them, and it has most of the same rights that a human being would have.
Entrepreneur: This is a person who has started their own company or venture. They take on the potential risks of failure by giving up their own time and effort for the success of the venture.
Independent Contractor: A person who is not a full-time employee but is instead paid for carrying out the terms of a specific contract is called an independent contractor. Contractors are good resources for small businesses that need specialized tasks completed.
Limited Partnership: A limited partnership is a corporation in which there is at least one general partner running the daily activities as well as limited partners who have invested in the business and are liable for potential losses. They have less responsibility and are only liable for losses up to the amount of their investment.
Line of Credit: This is similar to a personal credit card, but the amounts are more appropriate to businesses. Interest is paid on any purchases made using the line of credit, but the balance can be paid off at any time to avoid interest charges.
Outsourcing: Outsourcing is the process of acquiring operational services from another business. This allows you to access more skills without having to put more people full-time on your own payroll, filling in gaps in your workforce. Commonly outsourced positions include payroll and customer support.
Patent: A patent is a legal, exclusive right to produce an invention or use a process. This bars anyone else from manufacturing your product or using your process until the patent expires. To patent something, the details of the invention must be disclosed publicly.
Small Business Administration: The SBA is a U.S. agency dedicated to small businesses and the problems they face. It is a useful resource for funding, guides, and federal loans.
Public Company: This is a company that has shares traded publicly on a stock exchange. This makes it easier to raise capital but opens the company up to accountability from the shareholders through boards and reporting. A company often goes public with an initial public offering, or IPO.
Sole Proprietorship: In a sole proprietorship, a company is owned and operated by a single person. This is often the case for startups or home-based businesses. The owner of the company is eligible to file taxes both as themselves and as the company and will be expected to assume all risks and potential profits.
Trademark: This is legal protection for a symbol, word, or other type of branding that distinguishes your company from others. Trademarks do not have a time limit like patents do, but they must be unique enough to distinguish one brand from another.
Valuation: An estimate of the value of any company is its valuation. This can be calculated through a variety of methods, such as comparing the business to similar companies or forecasting its cash flow.
Venture Capital (VC): This is a method of funding your company that involves giving up partial ownership for a limited time frame in exchange for money. This is a common way to get a company off the ground.
Working Capital: Working capital is the amount of cash available to a company after its liabilities are fully accounted for. This is used to determine what short-term financial obligations a company can meet.