Business terms can be confusing when employees do not know their meanings. However, you cannot define some business activities without using specific business terms. Just like the medical or law industries have industry-specific terms, businesses also have specific terms for different activities.
Here are a few business terms every employee should know:
1. Business costs
Fixed costs refer to the expenses a business incurs that are not dependent on its production level. They are primarily recurring costs, like rent or interests and capital costs.
Variable costs refer to costs that businesses incur that change in proportion to production and sales volume. For example, costs of packaging or raw materials.
2. Current assets and fixed assets
Current assets are used to fund daily business operations. They include accounts receivable, marketable securities, cash, cash equivalents, and other liquid assets.
Fixed assets refer to tangible and long-term assets like plant, machinery, and property.
3. Current liabilities
Current liabilities are a company’s obligations or debts payable within one year. They include dividends, notes payable, accounts payable, and short-term debt.
4. Business to business
This is a situation where one business transacts with another, e.g., when sourcing raw materials for their production process.
5. Financial statement
Financial statements refer to a company’s written records of its business activities and financial performance. Some financial statements are balance sheets, income statements, cash flow statements, and shareholder’s equity statements.
Incentivizing means providing motivation for people to use a product or service or do something. For instance, you can incentivize your workforce by giving bonuses.
When it comes to your products, you can provoke sales by bringing additional value to your products. For example, you can offer gifts or discounts with every purchase to make the buying experience more memorable.
KPI refers to a key performance indicator and is a number that shows your business’s effectiveness in a specific area. It is a quantifiable performance measure for a particular objective over time.
Key performance indicators provide targets and milestones to measure progress and insights to help you make better decisions. You can display such milestones or targets on digital signage to help your workforce remain focused on the business’s goals.
Gross profit is the profit a business makes after deducting all manufacturing and sales costs. In contrast, net profit is the amount of money a business earns after subtracting tax expenses and operating interest over a specific period.
On the other end, the profit margin is a profitability measure that is calculated by dividing income by revenues and is then expressed as a percentage.
9. Net income
It is the amount of money a company makes after subtracting the cost of goods sold, expenses, interest, taxes, depreciation, and amortization within an accounting period.
10. Limited liability
This refers to a condition where the losses a business incurs are limited to the shareholders’ capital investment and do not affect their personal assets.
Economies are large sets of related production and consumption activities that help determine how to allocate scarce resources. These activities are used to fulfill the needs of those operating and living within an economy.
12. Interest rate
This is the amount of money that a lender charges the borrower in proportion to the amount borrowed, expressed as an annual percentage.
13. Working capital
This refers to the difference between a company’s current assets and current liabilities.
14. Rate of return
This refers to the net loss or gain of an investment over a period of time and is expressed as a percentage of the initial investment cost.
15. Break even
Break-even is the point where a business’s revenues and expenses are equal.
16. Business plan
It is a written document carrying a business’s goals, strategies for achieving those goals, and the set time to achieve them.
17. Business finance
It refers to the funds available to the business owner to meet their business needs, such as starting a business and getting additional funds to finance the business, like business loans.
This term refers to a business strategy where firms develop new products or penetrate new markets besides the existing ones.
19. Target market
Target market refers to a specific customer group that a business aims its marketing resources and efforts at.
It refers to a company in its initial stages of operations.
21. Market research
It is the process of identifying a product’s viability by seeking information from potential customers.
22. Return on investment
This is a measure of performance used to determine the profitability of an investment.
23. Human resources
This is the group of people that makes up a business’s workforce. They bring in their different knowledge and skills to ensure the company runs smoothly. They require constant motivation to ensure maximum performance. For example, you can display your top performers on digital signages in the workplace to make them work harder.
Knowing these and more business terms allows you to understand your industry and incorporate these activities into your overall business plan and strategies.