15 Basic Business Terms Every Maryland Entrepreneur Should Understand
Are you a Maryland entrepreneur looking to start or grow your business? If so, it's important to understand the basics of business terminology. In this blog post, we'll define 15 basic terms every Maryland entrepreneur should know. By understanding these terms, you'll be able to communicate more effectively with your accountant, Maryland business lawyer, and other professionals who can help you grow your business.
15 Basic Business Term Every Maryland Entrepreneur Should Understand
Accounts Payable
Accounts payable is the designation for the amount of money you owe to creditors or suppliers. This can be short-term business loans, credit cards, or even leasing costs for real estate.
Accounts Receivable
Accounts receivable is the designation for the amount of money owed to you by your customers or clients. This is useful in business valuations and contains money owed for the merchandise or services you provided customers on credit.
Balance Sheet
The balance sheet is one of the most important financial documents, and it communicates the value or worth of a company at a point in time, sometimes referred to as its “book value”. This is one of the important financial statements that can be a snapshot of a business’s health.
Related: Maryland Business Tax FAQs
Bottom Line
The bottom line is the final line of a financial report containing the business’s net income or profit achieved over a given period of time.
Cash Flow
Cash flow is the basic movement of money in a small business, both coming in and going out, ignoring accounts payable and receivable. Should more money come into the company than goes out, this is referred to as having a positive cash flow. If a company has negative cash flow for any periods, then it must meet the shortfall through selling assets, borrowing, or raising new capital.
Fixed Costs
These are expenses facing a business that are for set durations and are not controlled or affected by short-term variations in business operations or production levels. Examples of fixed costs would be the cost to lease a storefront for a year, insurance, or property taxes.
Income Statement
A full list of a company’s income from all sources, as well as expenditures. This statement will also provide a determination of whether a profit was made during the period. The income statement is often combined with the balance sheet and cash flow statement as a well-rounded picture of a business’s financial health.
Net Income
Net income is total sales, minus expenses, taxes, interest, and the cost of the goods sold. This is also known as net earnings or profit. This is one of the most important financial measurements for the new small business owner to focus on.
Net Loss
A net loss is when there is not enough income to outweigh expenses. If the total of all sales is less than the total of operating expenses, taxes, interest, and the cost of goods, the business has incurred a net loss.
Product Or Service
Every business is solving a problem that exists for a consumer. The solution they offer the consumer for that problem is the product they sell or the service they provide.
Profit Margin
Profit margin shows what percentage of every dollar earned becomes profit. Profit margin is a commonly used ratio that can help gauge the money-making activity of a particular business since it easily illustrates the percentage of sales that become profits.
Target Market
When starting a business, each entrepreneur must identify their target market, and it is crucial to engage with them and cater to them for growth. The target market or target audience will often share some feature or set of characteristics that the company determines are likely present in potential customers.
Raw Materials
Raw materials are the goods that are input as components for more complex or refined goods. The most common raw materials include various textiles and fabrics, steel, corn, lumber, energy, and many other things considered commodities. The cost of these is used to calculate the cost of goods sold for income and profit calculation.
Return On Investment
This is the ratio of all profit produced by an enterprise, divided by ownership’s total investment.
Sweat Equity
For some businesses, owners can provide equity in the company in exchange for the personal efforts of others made on behalf of the company.
Get Help From an Experienced Maryland Business Attorney
While this list is nowhere near exhaustive, if you are just starting in the entrepreneurship sector, it can be a great short-term study guide to help you on the road to business ownership. For additional assistance in ensuring you start and operate your business with minimal risk and minimal tax liability, contact Steve today.
