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Business Terms You should know.

Business is creating and providing something of value that other people want or need at a price they’re willing to pay in a way that satisfy the purchaser’s needs and expectation and provides the business sufficient revenue to make it worth while for the owners to continue operation.

A successful business is either loved or needed

Ted Leonsis

Finance is the art and science of watching the money flow into and out of business, then deciding how to allocate it and determining whether or not what you are doing is producing results.

He heard some people speak contemptuously of money; he wondered if they had ever tried do without it.

W. Somerset

Accounting Is the process of ensuring the data you use to make financial decision is as complete and accurate as possible.

Marketing is simply attracting attention and building demand for what you’ve created.

Profit is bringing in more money than you spend.

Profit Margin is the difference between how much revenue you capture and how much you spend to capture it, express in percentage.

Revenue – cost/Revenue × 100 = PF.

Markup Is the difference between price of an offer and it’s total cost. The higher the margin, the stronger the business.

Sufficiency is the point at which the business is generating enough Profit that people who run it can oversea the future. The faster you can reach Sufficiency, the better chance of surviving and thriving.

Valuation is the estimation of the total wealth of a company. The higher the revenue, the stronger the profit margins, the higher it’s bank balance, the more promising the future, the higher the valuation. It is important to know your valuation for investors or when you want to sell your business.

Cash Flow Statement is an examination of a company’s bank account over a certain period of time. Money in – Money Out. Every cash flow covers a specific day, month or year. It is meant to monitor profit or loss.

Balance sheet is a snapshot of what a business owns and what it owes at a particular moment in time.

Value capture is the process of retaining some percentage of the value provided in every transaction.

Income statement also called P&L (profit and loss statement) or “Operating statement” or ” earning statement”. It contains an estimation of the business profit over a certain period of time.

Cost benefit analysis is the process of examining potential changes to your business to see if the benefits outweigh the cost. Before you make a decision, evaluate the total cost and benefits of the decision. A little evaluation will ensure you spend your money in the most effective ways.

Pricing Power is the ability to raise prices you’re charging over time. It allows you to overcome effects of inflation and increased costs.

Lifetime Value is the total value of a customer’s business over the lifetime of their relationship with the company. The more customers purchase from you and the larger they stay with you and the longer they stay with you, the more valuable that customer is to your business.

Overhead is the minimum ongoing resources required for a business to continue operation. The more money you raise in capital and the more slowly you spend it, the more time you have to make the business to work.

Incremental Degradation means control your cost but don’t undermine the reason your customers buy from you in the first place.

Breakeven Is the point where your business’s total revenue to date is equal to it’s total expenses to date. It’s the point where your business start creating wealth instead of consuming it.

Amortization is the process of spreading the cost of a resource investment over the estimated useful life of the investment. Use amortization to figure out whether or not a big investment is worth it.

Purchasing power is the sum of total of all liquid asset a business has at it’s disposal. This includes cash, credit and any outside financing that is available. More purchasing power is always better, it is the difference between a business that fails and succeeds.

Opportunity Cost is the value you are giving up by making a decision. Paying attention to what you’re giving up before making a decision helps you consider all your options.

Compounding is the accumulation of gains produce over time. The trick here is patience.

Leverage is using borrowed money to magnify potential gains. It amplifies both gains and losses. Using leverage is playing with fire, it can be useful if used properly but it can also burn you. Never use it if you are not fully aware of it’s consequences.

Bonds are debts sold to individuals lenders. Bonds are usually conducted through banks.

Venture Capital they are a group of wealthy investors who pull their funds together to form a co-operation. They usually require big shares as they give capital per time which means more seats on the company’s board of directors.

Public Stock Offering involves selling partial ownership of the company to investors on the open market. Mostly done by investment banks which buys shares from the company and sells it to individual investors.

Initial Public Offering (IPO) is the first public stock offering a company offers in the open market.

Bootstrapping is the art of building and operating a business without funding. Though it takes longer but the owner will maintain 100% of the business. Having a 100% ownership, control of profits and self sustaining business is a wonderful thing.

Sunk Cost are investment of time, energy and money that can’t be recovered once they are made.

Budgeting is the art of estimating future costs and taking steps to ensure future steps aren’t exceeded without a good reason. It is important for controlling Profit margins, cash flow cycle and leverage.

Through put is the rate at which a system achieves it’s desired goal. Is knowing the measure of effectiveness of the value you created.

Triage is the process of prioritizing most important matters first, allowing less urgent matters to wait.

Zeal without knowledge is the sister of folly

John Davies
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