Entrepreneurial glossary – Part 3
Your mind is made up, you’re starting a business! To do so, you’ll have to attend a slew of meetings and venture out onto uncharted waters. In little time, it will likely become apparent that you have new skills to learn as well as a new vocabulary specific to the entrepreneurial world, comprising business creation specialists, investors/financers, partners, service providers, etc. Luckily for most of us, terms used in entrepreneurship often stem from the English language. But for those less fluent, this can be a serious obstacle.
Here is the third vocab set (the first one is here1, the second one here2), that will come in handy if you’re looking for financing and for managing your finances day-to-day:
Business Plan ► The concrete and operational rollout of the business model3, complete with figures. It consists of a formal written document presenting a company’s strategy, the manager’s vision, how the business model will be implemented, as well as the company’s future financial situation (forecasted financials) and activity (profit and loss forecast). Check "learn more" at the end of the article to find out more4.
Pitch ► A presentation used to introduce yourself as well as a company, product, project, idea, etc. All in all, it’s a short speech that should only lasts a few minutes (hence the term elevator pitch, as long as it takes to go up or down). The goal of a pitch is to convince your audience (investors, customers, partners, etc.) but also to spark interest and curiosity. To start working on yours, try either "the only 10 slides you need in your pitch"5 or "how to create a pitch deck"6.
Fundraising ► When a company seeks funds from people other than credit institutions. Managers can appeal to Business Angels or even funding from private people via online crowdfunding platforms (see below). Funding can take place as a personal loan between peers, or as equity participation. Fundraising allows companies to access funding for their development.
Business Angel ► An investor who decides to financially support a business project he/she finds interesting with his/her own capital. Most often, they also provide guidance: their experience, their network and their various entrepreneurial skills. Business Angels invest in innovative and high-risk projects in hopes of achieving short-term capital appreciation (generally within 5 years). ROI and their exit from the company are often negotiated and planned prior to injecting funds. In Luxembourg, a certain number of Business Angels have grouped together in the LBAN network7.
Crowdfunding ► Enables businesses (and individuals!) to raise funds (from the general public) for a project (be it economical, personal, humanitarian, etc.). This generally takes place online8, has grown leaps and bounds thanks to the social networks, and exists in three forms: donations, capital investments (crowdequity) and loans (crowdlending).
Cost (or management) accounting ► A method for processing financial data that aims to explain the financial results. Very often, financial accounting, which supplies an overall view of the company’s accounts, is the only mandatory form of accounting. Cost accounting provides a detailed view of each activity and is an excellent management and steering tool, enabling companies to identify areas of performance and non-performance within their organization by centering in on costs and calculating profitability per station, product, workshop, decision center, etc.
Break-even point ► Your break-even point is the amount of turnover you must generate over a given period (usually one year) to break even, so an accounting result of zero (total charges = total revenue). It can be broken down into days of sales, a number of months and/or quantity of products for sale. The tool myBUSINESSPLAN9 will help you calculate your break-even point very easily (only in french for now).
Sales revenue ► The sum a company generates through the sales of goods or services. It is equivalent to the total of all transactions the company conducts with third parties within the scope of their normal, everyday activity (generally considered exclusive of taxes and VAT). Sales revenue can also be defined as the sum of all billed items.
Profit ► A company records a profit (as opposed to a deficit or loss) when their total income (primarily their sales revenue, and any operating revenue such as income from sales of equipment, royalties or financial income such as interests, etc.) exceed the amount of deductible expenses (personnel costs, depreciation, professional fees, purchase of merchandise, interests, etc.). This often indicates that the company is durable (profitable) and the company will probably pay taxes on their profit. Nonetheless, good profitability in itself is not enough. It must be paired with excellent treasury.
Treasury ► The total of all available funds (cash-on-hand) and funds placed in bank accounts. Your treasury is vital to your company. If your company is unable to fulfil its commitments, meaning unable to pay employees/fiscal and social authorities/suppliers or repay credits, it could very quickly end up in bankruptcy. This is why it’s essential to implement proper cash management by establishing a cash flow forecast, through which you will be able to track disparities between receipts and disbursements month by month, or even week by week. Once you have your cash flow under control, you can look into optimizing it.
Depreciation ► An accounting term referring to the loss of value of an asset (building, vehicle, computer equipment, machine, etc.) belonging to a company, due to “wear and tear,” the passing of time, or obsolescence. Depreciation expense is the value of such depreciation, calculated based on a legally established accounting method for determining your company’s expense (usually deductible). Consequently, accounting depreciation allows you to stagger the cost of acquisition over the time of use (for example, 30 years for an apartment building or 5 years for a vehicle).
Fasten your seatbelts, because we’ve concocted one final mishmash of lingo from the realm of social entrepreneurship. Meet you at part 4!
Learn more :
1 : first vocab set / 2 : second vocab set / 3 : business model / 4 : what you need to know about a business plan / 5 : the only 10 slides you need in your pitch / 6 : how to create a pitch deck / 7 : LBAN network / 8 : online / 9 : myBUSINESSPLAN
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