16 Basic Business Terms that Small Business Owners Should Know!
When deciding to start a business, an individual should do their homework and get a clear understanding of the following:
- What products or services they intend to offer?
- Who is their ideal customer?
- What needs do they want to meet?
- Why should anyone buy their products or services?
Also, it is advisable to have to a clear understanding of some basic terms that are commonly used in the business world. You do not have to attend college or graduate school to understand basic business terms. But, it is good to have some understanding of basic business terms before starting a business.
Here are a few ways to educate yourself regarding some of the basic business terms:
- You may want to go to college to receive a bachelor’s degree in business administration or Master’s in business administration (MBA).
- You can take online courses to get a general understanding of what it takes to start a business.
- You can always hire a business consultant or business coach to give you guidance on starting your business.
- There are many programs out there to assist individuals with starting their own business.
- You can always do your own research on how to start a business by reading books focused on the type of business you want to start.
By knowing certain basic business terms, you will have a clear understanding of how to be a successful business owner.
Here are sixteen basic business terms every small business owner or entrepreneur should know:
1. Business Plan: This particular document will give you a sense of whether or not it makes sense to start your business at a certain time, how does your particular business industry look, what are the industry trends in your business field, and helps you to determine whether or not the type of products or services you will offer to customers is worth selling. Business Plans are normally written for a three year period or a five year period. Good to review and edit your business plan on a yearly basis.
2. Marketing Plan: This is the most important part of the business plan. The marketing plan lets the business owner know how to promote, advertise, and offer their products or services to their ideal customers. The Marketing Plan should be reviewed and edited whenever the business owner decides to introduce a new product or service to their customers. Also, should be reviewed and edited if the business owner needs to revamp a particular product or service.
3. Market Research: The entrepreneur or business owner will do extensive research on how to reach their ideal customers. Doing research will let the business owner know the right techniques to use to sell their products or services to their ideal customers. The results from the marketing research will go into the Marketing Plan for the business.
4. Incorporation: This is the process of filing the necessary paperwork with your local government agency to have one’s business recognized as a legal entity with certain rights and protections.
5. Capital: The equity (whether monetary or non-monetary) that an entrepreneur will use to start their business to cover any startup costs. The best form of equity to start a business is one’s own money or borrowing money from family or friends. Can always borrow money from banks by way of a loan.
6. Business insurance: This is a way for small business owners to protect their business from many risks. It does not cost much to get business insurance to protect your business from lawsuits filed by customers, damage to one’s business due to unforeseeable disasters, and incidents that occur from employee negligence.
7. Financial Management: As a small business owner, you must have a clear understanding of the business finances. Here are a few reasons why understanding the business finances is important:
- Managing old and new assets so that every asset contributes to the maximum extent possible toward the profitable operation of the business.
- Ensuring the assets that you have are used to bring the maximum return possible on the money that you invest.
- Obtaining funds to finance additional assets.
- Evaluating the need for new assets.
- Repaying borrowed monies from profits that the same money has generated. Source (Page 88) The Entrepreneur & Small Business Problem Solver by William A. Cohen (2006 3rd Edition, John Wiley & Sons, Inc.)
8. Record Keeping: This is the process of keeping the records of the business to ensure that the business is profitable and is being run efficiently. Here are the basic requirements for a good record-keeping system:
- The system that you choose for the business should be easy to use and to understand.
- The system has to be very accurate and relevant to the particular business. Accurate means that the record keeping system should not have any errors and conform to whatever standards you have set for the system. Relevant means important to your business.
- The record keeping system should be consistent regarding the standards and structure decided on for the system.
- The system should keep the records in a timely fashion and should always be current.
9. Product or Service: These are the items that the business intends to sell to their ideal customer.
10. Customer: The individual or entity that a business would like to sell their products or services to.
11. Pricing: This deals with the process of deciding how much the business will charge its customers to buy its products or services. The price for products or services is determined by current market. Here is how the pricing decision affects one’s business:
- The price will determine how much profit the business makes.
- The price will determine the amount of financial resources the business has to compete in the marketplace.
- The price will determine whether or not the business can be successful with introducing the product or service into a new market.
- The price selected for a particular product will create a certain image of the business. Status and quality comes from high prices, and economy and value comes from low prices.
12. Promotion and Advertising: This is the process of using different avenues to get the word out about your product or service to the targeted customers. The different avenues a business owner may use to get the word out about their product or service are:
- Print (newspapers and magazines).
- Broadcast (radio, TV).
- Direct Mail (letters addressed to potential customers).
- Specialty items (pens, pencils, and other gadgets with the business name and product name on it).
- Outdoors (Billboards and bus posters).
- Social Media (the internet).
Here are three basic reasons for the process of advertising:
- To promote the awareness of a business and its products or services.
- To stimulate sales directly.
- To establish a firm’s image or modify a firm’s image. Source (Page 213) The Entrepreneur & Small Business Problem Solver by William A. Cohen (2006 3rd Edition, John Wiley & Sons, Inc.)
13. Selling: The process of offering the business’ products or services to customers to buy. Personal selling is the process of the business owner meeting face-to-face with customers to explain to them why they should buy their product or service. Here are a few reasons why personal selling is better than other promotional selling techniques:
- The business salespeople are able to tailor their sales techniques and presentations based upon the customer’s behavior, needs, wants, motives, special circumstances, and environment.
- The salesperson can always change their sale pitch based on the reaction they receive from the customer during the initial presentation.
- With face-to-face personal selling, the business owner is able to do market pinpointing which allows them to limit who they offer their products or services to.
- Have a better chance of increasing the number of sells because can do on-the-spot sales since the product or service is available to the customer.
- With personal selling you can conduct research on how to improve your selling skills, handle complaints from customers right away, and get feedback on the needs and wants of your customers.
- There is no time limit on how long you can sell your products or services to customers in person.
14. Trademark, Copyright, and Patent: This is the process of protecting your business from being ripped off by others who may steal your business ideas, products, and services to make money for themselves.
a. Trademark: This includes any name, word, symbol, or device used by a business to identify their goods and differentiate those goods from goods being sold by other businesses. The trademark will indicate the origin of the goods or services. It is always good to register your trademark with the Patent and Trademark Office in your country. In the US, the trademark is only recognized by the US government and not in other countries. Trademark registrations are good for about ten years and you have to renew the trademark during the ninth and tenth year of the trademark.
b. Copyright: This is a form of protection for authors and writers of their original writings whether it is literary, musical, artistic, or other types of intellectual works. A copyright is secured automatically upon creation. You have to register your copyright with the US Copyright Office and the copyright is valid up to 70 years after the author’s death.
c. Patent: This is the grant that the US Patent and Trademark Office gives to an inventor to a particular invention with gives him or her certain rights concerning the invented item. The patent is good for about 17 years from the date the patent application was approved.
15. E-Commerce: This term stands for email commerce and this is the process of doing business over the internet. With E-Commerce, it has become simpler and easier for businesses to reach their targeted or ideal customers. Also, this modern day form of doing business has made it easier for small businesses to reach ideal customers from all over the world.
16. Human Resources (Employees Relations): Every small business should have a human resources department, even if, it is just the owner handling such affairs. Every business must have a good employee relations policy in place whether there are only five employees or 150 employees. You need a program setup to deal with issues regarding your employees or run the risk of losing valuable employees, having bad customer service, and potential lawsuits filed by disgruntle employees.
These are just a few of the basic business terms that an entrepreneur should understand when deciding to start a new business.
Donya Zimmerman is a business consultant, mediator, and legal professional with over ten years of experience. Donya is also a public speaker and aspiring author. She has a few books in the works that will be published and released in the latter part of 2015. The books will focus on entrepreneurship, small business, and daily devotionals. She is owner of Family & Community Mediation and Business Consulting (FACMBC) based in Baltimore, Maryland and has been in business since 2013. Services provided by FACMBC: Mediation and Conflict Resolution Services; Business Registration Assistance (Limited Liability Company, Corporation, S-Corp, Limited Liability Partnership, etc.); Business Plan Drafting Assistance; Business Certification Assistance (MBE, WOSB, 8A, 501(c) (3), Hub Zone, etc.); and Business Organization Assistance. She is also a contributing writer to the Maryland Daily Examiner Newspaper. Donya Zimmerman has made article contributions to the Simply Inspirational Women in Business Journal for 2014 published by Dr. Cheryl Cottle.
If you are thinking about starting your own small business or non-profit organization do not hesitate to contact me because I can show you how to do so. Contact information: firstname.lastname@example.org; www.facebook.com/FACMBC; www.twitter.com/FACMBC; https://dzimmerman36.wordpress.com; http://www.linkedin.com/in/dzbusconsultantandmediator
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