Like so many groups, entrepreneurs have a specialized vocabulary. When entrepreneurs communicate with their peers there are certain buzzwords used that need to be understood. We’ve compiled a list of eight of these buzzwords with simple explanations of their meanings.
Business Structure
There are five basic types of business structure. Choosing a structure for your business will depend upon the involved parties, operating plans, and taxable income. The following list will help you choose a balanced fit of benefits and legal protections.
Sole Proprietorship
A business owned and operated by one individual who has complete control and responsibility for the entity. Sole proprietors report business income on their personal tax return and are responsible for all liabilities, debts and losses.
Partnerships
Businesses established by two or more equally responsible individuals can be either general or limited partnerships. In General Partnerships the individuals are co-owners who accept equal shares of administrative responsibilities, operational profits and losses. Limited Partnerships require one or more General Partners and at least one Limited Partner. Limited partners are investors with no control over operations. A General Partner assumes all liability for the entity and reports all income on their personal tax return.
Limited Liability Company (LLC)
Establishing an LLC allows Sole Proprietorships, Partnerships and Corporations to take advantage of the separation of business and personal liabilities. In an LLC all owners share tax responsibilities but are not personally liable for the business’ debts. LLC regulations differ by state.
Customer retention rate
CRR could be a key metric that determines whether you are keeping customers happy — and helps you expect how quickly you’ll be able to grow your business.
Customer retention rate indicates what share of your customers have stayed with you over a given amount of your time, and might be calculated on an annual, monthly, or weekly basis. While there is no normal formula for calculating your customer retention rate, here’s one correct method of measuring it.
Customer retention rate = ((CE – CN) / CS) X 100
CE = number of consumers at the end of the period
CN = number of recent customers acquired throughout the period
CS = number of consumers at the begin of the period
Let’s say you begin the month with 1,000 customers. By the end of the month, 150 have left, however, you attracted 200 new customers, therefore you currently have 1,050 customers. Fill in the formula using those figures and it’s like this:
((1050 – 200) / 100) X 100 = 85%
Corporation (C Corp)
The law treats C Corps as independent entities. Corporations enjoy the strongest personal liability protection, shielding investors from corporate losses. A Corporation is the most complicated business structure but the best option for those planning to expand and add more than 100 shareholders. Corporations require detailed recordkeeping and IRS reporting. C Corps are strictly regulated and must comply with extensive tax requirements. Regarding taxation, C Corps are taxed both as a business entity and on each shareholder’s personal income.
Due Diligence
As an entrepreneur, you must put in their due diligence before launching your business if you want to succeed. Due diligence includes researching all aspects of starting a business including structure, legal responsibilities in your state, bookkeeping systems, marketing strategies, etc. This is the research and planning stage of the process where a mentor can be a great help.
Business Capital
There are many ways to raise funds for your entrepreneurial endeavours.
Crowdfunding
Many popular websites have emerged in recent years to bring individual investors together with entrepreneurs. In return, these investors often receive a sample of the product upon launch. Equity-based crowdfunding is just becoming popular although the Securities and Exchange Commission (SEC) regulates all equity-based investments.
Angel Investors
These investors are normally individuals who regularly finance emerging entrepreneurial endeavours. Implementing the assistance of an Angel Investor is often a bridge from self-funding to a level that requires and attracts venture capitalists. Angel Investments are often loans requiring repayment, but they can be negotiated for a portion of business ownership.
Inbound vs Outbound Sales
Customer’s level of interest is what makes inbound vs outbound sales different. A sale is defined as the exchange of a product or service for money. Outbound Sales, known as pull sales, would include cold calls and any other efforts to find and bring in clients. Inbound Sales, a.k.a. push sales, entail receiving phone calls from interested consumers, assisting them with their inquiries, taking orders and making appointments.
Venture Capital (VC)
Venture Capitalists are investors who require a percentage of ownership and control in exchange for financing. Investments normally range from half a million to five million dollars although there are no regulated amounts.
Marketing
There are many types of marketing which all entail managing the exchange relationship in business. Marketing is the process of researching how to promote, sell and distribute your product or service. This process includes all aspects of bringing an idea to the market like packaging, pricing, promoting, advertising and more.
Business Networking
Forming relationships is paramount to business success. Networking with other entrepreneurs and small business owners can expand your customer base while providing you with the knowledge and wisdom of established entrepreneurs. You can find local Business Networking groups through social media and other online advertisements. Public Relations (PR), how people perceive you, is directly involved in the networking process.
Outsourcing
Rather than trying to handle every aspect of your business or hiring a large group of employees, entrepreneurs can outsource jobs. For instance, a small business might choose to hire an outside company to handle bookkeeping, advertising, computer services, etc.
