The ABCs of Entrepreneurship: Basic Business Terms All Kidpreneurs Should Know

Basic Business Terms

The ABCs of Entrepreneurship: Basic Business Terms All Kidpreneurs Should Know

Basic Business Terms

Kidpreneurs have big dreams of running successful companies. But starting any business comes with learning a whole new language. Mastering basic business terms equips Kidpreneurs to better understand entrepreneurial concepts. If they know the lingo, they can confidently talk to experts, like mentors and coaches. They can also talk to investors.

This article covers essential vocabulary all beginner Kidpreneurs should understand. Think of it as the ABCs of business to launch a solid foundation.

A is for Assets 

In accounting, assets represent everything of value a company owns. This includes:

  • Cash (physical or in bank accounts)
  • Equipment like computers and tools 
  • Facilities (for a storefront or office)
  • Products ready to sell
  • Vehicles like delivery trucks
  • Supplies and inventory

Tracking total assets is important to understand a business’s net worth. Assets also help secure loans since they provide collateral.

B is for Budget

A budget is a plan that shows how much money you expect to make and spend over a certain time, like a year or a month. Budgets help:

  • Forecast if revenue will sufficiently cover costs
  • Guide day-to-day and long-term spending decisions
  • Reveal opportunities to cut excess costs
  • Track financial goals and performance

Sticking to a thoughtful budget prevents overspending and keeps ventures profitable.

C is for Capital

Capital refers to financial resources provided to start or grow a company. Kidpreneurs need capital to turn ideas into reality.

Forms of capital include:

  • Cash from personal savings or gifts
  • Crowdfunding proceeds
  • Loans from banks or other lenders 
  • Grants that don’t need repayment
  • Investments from angel investors or venture capitalists in exchange for partial company ownership

Every business needs adequate capital to sustain operations.

D is for Demand 

Demand represents consumer desire for a product or service. It’s measured by:

  • Market size – The total number of potential customers.
  • Market share – How much of that total market might realistically buy from you. 
  • Willingness to pay – The highest price consumers will accept.

Understanding demand helps set viable business goals and pricing. Strong demand signals opportunity!

E is for Entrepreneur

An entrepreneur is someone who creates and launches a new business. Key traits include:

  • Risk tolerance – Willingness to take the leap even if success isn’t guaranteed. 
  • Innovative thinking – Envisioning new solutions and better ways.
  • Passion and energy – Tenacity to turn ideas into reality. 
  • Resilience – The grit to persevere through challenges.
  • Leadership – The ability to confidently guide teams toward a vision.

Entrepreneurs change the world by bringing new, valuable ideas to life.

F is for Fixed Costs

Fixed costs are business expenses that remain the same each month. Common examples:

  • Rent
  • Lease payments
  • Insurance
  • Loan installments
  • Salaries
  • Software/app subscriptions

Since they are predictable, fixed costs are easy to budget for. The goal is to have revenue exceed fixed costs monthly.

G is for Goods

Goods represent physical products that customers buy. Some examples are:

  • Food items
  • Apparel
  • Household tools
  • Toys
  • Crafts
  • Printed books, artwork or photos

Services (covered later) differ from goods in that no tangible item is exchanged.

H is for Human Resources

Human resources (HR) refers to all the people employed in a company. HR handles: 

  • Hiring and onboarding staff
  • Setting workplace policies
  • Managing payroll
  • Ensuring compliance with labor laws
  • Resolving conflicts
  • Administering employee benefits
  • Performance management

Even small startups need basic HR to build an effective team.

I is for Income Statement

An income statement shows how much money a company made and spent in a certain time. It calculates net profit or loss.

Income statements help Kidpreneurs:

  • Identify top-selling products
  • Compare budgeted costs to actual spending
  • Spot unnecessary expenses
  • Gauge profitability and growth

Regular income statement analysis improves decision making.

J is for Joint Venture

A joint venture is when two or more businesses team up temporarily for mutual benefit. Reasons include:

  • Pooling resources or talent to attempt larger projects
  • Expanding into new geographic markets together
  • Combining complementary strengths
  • Sharing risks on costly initiatives

Joint ventures allow Kidpreneurs to do more than they could alone.

K is for KPIs

Key performance indicators (KPIs) are benchmarks used to define and measure business success:

  • Customer metrics like satisfaction, retention or repeat sales
  • Web data like site visits, conversions and rank 
  • Inventory turnover rate
  • Production efficiency or quality measures 
  • Profitability ratios
  • Employee turnover

Monitoring KPIs helps spot issues before they become major. The numbers don’t lie!

L is for Liabilities

In accounting, liabilities represent financial obligations a company owes. Common examples are:

  • Outstanding invoices to vendors
  • Rent or utilities due
  • Payroll
  • Customer deposits
  • Refunds owed 
  • Bank loans

Liabilities must be repaid, so minimizing them preserves capital.

M is for Market Share

Market share shows how much of the industry’s sales a company handles. Increased market share is a sign of growth and industry leadership.

Calculating market share:

Company Revenue ÷ Total Industry Revenue = Market Share %

If total pet toy sales are $1 billion and a Kidpreneur’s company made $50 million, their market share is 5%.

N is for Niche

A niche is a specialized segment within a broader market. Startups can better cater their offerings to a specific audience by finding a niche.

Examples of niches:

  • Organic skincare products for teens
  • Tutoring services focused on SAT prep
  • Baseball training programs just for pitchers

Zeroing in on a niche drives growth. Kidpreneurs avoid getting lost competing broadly from the start.

O is for Overhead Costs

Overhead costs are ongoing business expenses not tied to producing products or services. For instance:

  • Office space rent 
  • Utilities
  • Administrative salaries
  • Insurance
  • Accounting fees

Minimizing overhead helps maximize profitability.

P is for Profit Margin

Profit margin expresses a company’s profit as a percentage of revenue. It represents what share of sales are retained as profit.

For example, if a company has $100,000 in revenue and $30,000 in profits, the profit margin is 30%.

The higher the profit margin percentage, the better! Managing margins allows pricing and costs to be set profitably.

Q is for Quality Control

Quality control processes ensure products or services consistently meet standards and deliver value.

Common quality control methods:

  • Inspections during production
  • Testing final output 
  • Controlled training for staff
  • Evaluating customer feedback 
  • Tracking procedural metrics
  • Using technology to reduce errors

Don’t let quality slip – it quickly damages reputations and sales.

R is for Returns

Product returns are customer purchases sent back for refunds or exchange. All retailers should expect some returns and set fair, easy processes.

Strategies to reduce returns:

  • Provide enough product details upfront so customers know what they are buying.
  • Offer sizing guides and selector tools to aid buying decisions. 
  • Allow trying samples first for some products before committing to the full item.
  • Resolve issues promptly if customers contact you unhappy with purchases.

Low return rates show you are delighting shoppers!

S is for Sales

Sales are the money earned from selling things before taking out any costs. Sales come through channels like:

  • Online e-commerce orders
  • Brick-and-mortar store purchases 
  • Catalog, distributor, or dealer transactions
  • Sales reps working directly with customers

Strong sales growth shows demand for offerings. Kidpreneurs should track sales daily, weekly, and monthly.

T is for Target Market

A target market refers to the specific customer segment a company plans to pursue and serve. Defining the target market guides all decisions about products, pricing, distribution and marketing.

Key target market factors:

  • Age
  • Gender
  • Location
  • Income 
  • Interests and behaviors
  • Values and motivations
  • Shopping patterns

Get crystal clear who you most want to serve – then cater to those target customers.

U is for Unique Selling Proposition

A unique selling proposition (USP) is what differentiates a company from the competition. It’s the special ingredient that makes customers choose you over alternatives.

Elements of a compelling USP:

  • Solve a problem in a new way
  • Faster or higher quality than rivals
  • Prestigious exclusivity
  • Deep understanding of customers’ needs
  • More convenient for shoppers  

All Kidpreneurs should craft and communicate their unique proposition. Give customers a reason to pick you first.

V is for Variable Costs

Variable costs fluctuate based on production volume. For example:

  • Cost of goods sold
  • Materials and supplies
  • Packaging
  • Shipping
  • Commissioned sales staff

When sales increase, variable costs rise. Managing variable costs ensures profitability at any volume.

W is for Working Capital

A company’s working capital equals current assets minus current liabilities. It reflects available capital to fund day-to-day operations.

Working capital gives startups:

  • Cash flow to pay bills before revenue arrives 
  • Ability to buy inventory and supplies 
  • Buffer for unexpected expenses
  • Funds to expand marketing and production

Every startup needs working capital at the ready to operate smoothly.

X is for (e)Xpenses

Business expenses (or eXpenses) are the day-to-day costs incurred to run operations. Major categories are:

  • Cost of goods sold – Materials and labor involved in producing offerings
  • Operating expenses – Rent, utilities, insurance, etc.
  • Selling, general and administrative expenses – Salaries, advertising, accounting fees, etc. 
  • Depreciation – Decline in value of assets like equipment over time.

Carefully tracking all expenses ensures they align to budgets. Analyzing expenses reveals opportunities to improve profitability.

Y is for Y-O-Y

Y-O-Y stands for year-over-year, a way of comparing results to the prior year. For example, a Kidpreneur might look at:

  • Y-O-Y sales growth – How current year sales compare to last year 
  • Y-O-Y customer growth – The change in customer numbers annually 
  • Y-O-Y profit change – How profits differ from twelve months ago

Y-O-Y metrics show progress over time. Growth takes patience but small gains build exponential momentum! 

Z is for Zero-Based Budgeting

With zero-based budgeting, Kidpreneurs start fresh each period. They create a brand new budget, rather than just changing old budgets.

Steps include:

  • Reviewing upcoming needs and goals
  • Justifying and prioritizing every planned expense 
  • Starting budgets from scratch vs. last year’s numbers
  • Linking spending directly to expected returns 

Zero-based budgeting ensures every dollar and activity matters. It prevents legacy waste while optimizing new opportunities.

Keep Growing Your Business Vocabulary

When Kidpreneurs learn new things, tell them to add those words to their vocabulary lists. Mastery of business terminology comes with consistent exposure and practice.

Share this Kidpreneurs glossary of basic business terms as a starting point. Identifying common words demystifies this new environment. Soon these once foreign terms will feel natural for Kidpreneurs on the path to success!

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