Starting a business can be an endlessly rewarding endeavor. However, it can also be a very confusing undertaking, full of complex tasks and document filings, each surrounded by dense walls of jargon. The deluge of terminology could be especially daunting if you have never headed a business before or if you have only operated a sole proprietorship. You may be able to make things a bit easier on yourself by consulting this list of some common terms you may encounter when starting your company.
Articles of Incorporation: official document providing business information to state officials as legally required to incorporateBalance sheet: complete details of all the liabilities and assets of a company at a specific time.
Board of Directors: shareholder-elected group charged with managing a business’s operations.
Break-even analysis: calculation of the time at which a company’s earnings will have grown enough to exactly balance its expenditures.
Business plan: the outline of an organization’s business goals and its strategies for achieving them.
Cash flow statement: accounting information showing where a business’s money comes from and where it goes.
Certificate of Incorporation: official recognition from state officials certifying the incorporation of a company in that state.
Collateral: any asset that is offered to a lender as a guaranty against the nonpayment of a loan.
Corporation: a legal construct that separates a business from its owner(s) in terms of taxes, assets, and legal and financial liabilities, subject to the laws of the state(s) in which a company is incorporated.
Current assets: business assets that are able to be quickly liquidated.
Current liabilities: financial obligations that are typically due in a year or less.
Debt financing: acquiring operating funds for a company by borrowing from a lender.
Depreciation: an accounting method of spreading the cost of an asset across its service time, particularly for tax and balance sheet purposes.
Equity: what’s left over when liabilities are subtracted from assetsEquity financing: funding a company by offering a stake in the organization to a potential investor.
Fiscal year: any period of 12 months a business uses for taxes, planning, and accounting, regardless of the calendar year.
Financial statement: summary of a company’s accounting information, generally derived from some combination of cash flow statements, income statements, balance sheets, and/or profit and loss statements.
Fixed costs: non-variable expenses of running a businessIncome statement: periodic accounting of the organization’s expenses, sales, losses, and profits.
Intangible asset: any asset lacking a physical form such as a trademark, a patent, or goodwill/reputation.
Inventory financing: funding a business venture by offering company inventory as collateral to secure a loan.
Leverage: expanding an organization’s operational capacities through various forms of financing.
Limited liability company: legal construct that allows a company to be separated from its owners in a manner similar to a corporation but designed specifically to limit liability when an enterprise is engaged in certain business pursuits.
Operating expenses: ordinary costs incurred just by being in business, including selling, technical, and administrative expenditures, not counting the expenses of providing services or manufacturing productsPartnership: business enterprise comprising two people or more who agree to work together for mutual gain.
Sole proprietorship: a company that is legally and factually indistinct from its single owner who is fully and personally responsible for any legal and financial liabilities incurred through his or her business endeavors.
Subchapter S corporation: any corporation that chooses to shift the tax burden on its earnings to its shareholders as provided under the Internal Revenue Service Code Subchapter S.
Retained earnings: that portion of net profit after taxes that a company chooses to make use of as working capital in the business.
Unsecured loan: funding acquired for which no collateral had to be offered as security against nonpayment.
Variable cost: expenditures that change depending on production, as opposed to fixed costs (e.g., sales commissions, labor, raw materials, advertising, and electricity).
Working capital: the difference between current liabilities and current assets.
The content on our website is only meant to provide general information and is not legal advice. We make our best efforts to make sure the information is accurate, but we cannot guarantee it. Do not rely on the content as legal advice. For assistance with legal problems or for a legal inquiry please contact you attorney.