Becoming an entrepreneur can be a wonderful way to seize control of your professional life. You get to be your own boss and make your own rules without having to report to anyone else. However, starting a company is very different from working for someone else as an employee. You’ll have to take care of some administrative steps before you can start your business. Plus, there’s an entirely new vocabulary around entrepreneurship that you’ll have to learn. This guide provides a primer to some useful terms worth knowing.
LLC is short for limited liability company. This is a type of business structure that you can legally register your company as. Other types of entities include a corporation, s-corporation, or nonprofit. An LLC is often favored by small businesses because it protects personal liability, improves flexibility, offers tax perks, and minimizes paperwork. Instead of paying a lawyer big bucks to register your LLC, use a business formation service. You can read reviews of cheap LLC formation services to make sure you’re getting a good service.
Cash flow refers to the net balance of cash that goes in and out of your business. When clients pay you, that’s cash flow coming in. When you pay expenses, that’s cash flow going out. Harvard Business School provides a guide to the different types of cash flow, like operating cash flow, investing cash flow, and financing cash flow. Note that cash flow is unique from profit, which refers to the money left over after a business has paid its operating expenses.
Accounts payable is a type of business account. It refers to money that your business owes third parties, such as vendors or creditors. For example, if you rent a commercial property, your commercial rent is part of your accounts payable. If you took out a business loan, the monthly installment you pay back is also part of your accounts payable. Your business also has an accounts receivable account, which refers to money you are owed—such as outstanding invoices your customers haven’t paid.
Every business has assets and liabilities. Assets are items that add value to your business. Examples include cash, inventory, office equipment, machinery, company cars, and real estate. Liabilities are things that detract value from your company. Examples include debts like bank loans and mortgages, as well as taxes owed, wages owed, and accounts payable. It’s important to understand your ratio of assets versus liabilities because they impact the overall value of your business.
The whole point of a business is to make money. However, to keep your business running, you’ll probably have to pay certain expenses. Expenses are money that goes out from your business, eating into your profits. Examples of expenses include advertising, continuing education, credit and collection fees, bank fees, dues and subscriptions, insurances, employee benefit programs, and more. Oracle NetSuite has a comprehensive list of the different types of expenses. Note that some expenses are tax-deductible.
Marketing is how you boost your business profile and attract the attention of customers. Digital marketing refers to digital marketing forms, like social media, email marketing, and influencer marketing. One advantage of digital marketing is that it can be relatively cost-effective. Formats like social media can be used for free, for example. For this reason, digital marketing is often popular among small business owners. There are also marketing types beyond digital, such as printed pamphlets.
Starting a business is exciting. However, it’s also intimidating if it’s your first time. There are administrative steps to complete, like registering your LLC and new vocabulary to learn. The list of terms above can help you feel confident as you embark on entrepreneurship.
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