Business Plan Lingo and Resources All Entrepreneurs Should Know This glossary of terms and resource guide will help you create a business plan that sets you up for success.
By Eric Butow Edited by Dan Bova
Opinions expressed by Entrepreneur contributors are their own.
This is part 4 / 8 of Write Your Business Plan: Section 6: Getting Your Business Plan to Investors series.
Whether you're starting a business for the first time, or revisiting your current plan, building a scalable business starts with creating a strong foundation. Before we get into helpful terms and resources to write yours, Jesse Draper, Founding Partner of Halogen Ventures, offers these three tips:
- Just press go! It will never be perfect. I cannot tell you how often founders say, "Let me get my ducks in a row." Here is a little secret: Your ducks will never be in a row, and if you are a great founder, like the ones in my portfolio, you are always making it better . . . your ducks are always being iterated upon and forming more of a line. So just start!
- Diversity breeds success. If you look around and realize that your entire team is made up of Stanford graduates who all look the same and are the same personality type on the Myers-Briggs assessment . . . recruit from new places. At Halogen we think about diversity of age, race, and gender in our teams. When I raised my first fund, people thought I was crazy investing in women. "Do women even start companies?" Now there is so much great research on how diverse teams perform better.
- Get through the "Noes." While fundraising for your business, plan on meeting with at least 100 investors. I can't tell you how often entrepreneurs say, "Everyone is saying 'No.'" When I ask how many investors they have met with, they say, "Eight." First of all, this is a numbers game. After twenty or so meetings, it is great to check in and see why funders are turning down your deal and get some feedback because maybe there is something you are missing that you can adjust. But overall, plan on meeting with at least 100 investors.
Related: 5 Must-Haves for Entrepreneurs and Their Startups to be Successful
Business Plan Terms to Know
Balloon payment: A single, usually final, payment on a loan that is much greater than the payments preceding it; some business loans, for example, require interest-only payments the first year or two, followed by a single large payment that repays all the principal.
Branding: The marketing practice of creating a name, symbol, or design that identifies and differentiates a product from other products; well-known brands include Tide, Dockers, and Dell.
Business concept: The basic idea around which a business is built. For instance, FedEx is built on the idea of overnight delivery, while Amazon.com was originally built around the idea of selling books over the internet.
Cash conversion cycle: The amount of time it takes to transform your cash outlays into cash income; for a manufacturer, the number of days or weeks required to purchase raw materials and turn them into inventory, then sales, and, finally, collections.
Competitive advantage: Factor or factors that give a business an advantage over its competitors. This can be based on the quality of products or services, lower prices, better customer service, faster delivery, and/or all of the above.
Co-op promotion: Arrangement between two or more businesses to cross-promote their enterprises to customers.
Current assets: Assets likely to be turned into cash within a year. current liabilities—Amounts you owe and are to pay in less than a year, such as accounts payable to suppliers and short-term loans.
Due diligence: Doing research to find data on a business, company, customers, lender, vendor, or any individual or group with whom you may potentially do business.
EBIT: An accounting term for a company's operational earnings separate from the effects of interest payments and taxation.
E-commerce: Selling products and services through sites on the internet.
Related: 6 Tough and Timeless Startup Lessons
Executive summary: Section of a business plan that briefly describes what the rest of the plan contains; also the first section of the plan, often written after the other sections.
Factoring: The flip side of trade credit; what happens when a supplier sells its accounts receivables to a financial specialist called a factor. The factor immediately pays the amount of the receivables, less a discount, and receives the payments when they arrive from customers; an important form of finance in many industries.
Forecast: To forecast is to use prior data to determine upcoming trends. Forecasting can prove very helpful for budgeting and marketing purposes. In a business plan for a startup, forecasting can indicate that you have utilized historical data within your industry to predict future results.
Initial public offering (IPO): The first sale of stock by a private company to the public. Typically IPOs are issued by smaller, younger companies seeking capital to expand. However, established companies can issue one later on to generate additional funding.
Limited liability corporation (LLC): Business legal structure resembling an S corporation but allowing owners more flexibility in dividing up profits while still providing protection from liability.
Liquidity: A company's ability to convert noncash assets, such as inventory and accounts receivable, into cash; essentially, the company's ability to pay its bills.
Logistics: The science of moving objects, such as product inventory, from one location to another.
Related: It Always Takes More Time and Money Than You Think to Start a Business
Management team: The key personnel that have significant roles in managing and running the business. They need to be profiled in the management section of a business plan.
Marketing plan: Part of your business plan, and something that you will update regularly. Such a plan outlines how you will spread the word about your product and/or services. It includes everything from advertising to promotional messages to web presence to giveaway items with your company name or logo.
Mission statement: A sentence or two describing a company's function, markets, and competitive advantages.
Objectives: Long-term aims, frequently representing the ultimate level to which you aspire.
Organization, functional: A company or other entity with a structure that divides authority along functions such as marketing, finance, and so on; these functions cross product lines and other boundaries.
Related: Developing a Business Model That Works
Organization, line: A company or other entity with a structure divided by product lines, means of production, industries served, and so on; each line may have its own support staff for the various functions.
Organization, line and staff: A company or other entity with a structure calling for staff managers, like planners and accountants, to act as advisors supporting a line manager, such as the operations vice president.
Outsourcing: Having a component or service performed or supplied by an outside firm or individual; used to reduce time and money costs for support work and add flexibility in production staffing.
Related: Put Your Focus on Startup
Positioning: Marketing tool that describes a product or service in reference to its position in the marketplace; for example, the newest, smallest, cheapest, or second largest.
Rate of return: The income or profit earned by an investor on capital invested into a company; usually expressed as an annual percentage.
Search engine optimization (SEO): Utilizing keywords and other strategies in order to position your website to come up higher during an online web search.
Target market: The audience most likely to buy your goods or services, usually found as the result of demographic research
Turnaround: A reversal in a company's fortunes, taking it from near death to robust health or the revival of a failing company to more profitable status.
Unique selling proposition: The factor or consideration presented by a seller as the reason that one product or service is different from — and better than — the competition.
Vision statement: A sentence or two describing a company's long-range aims, such as achieving a dominant market share or attaining a reputation for world-class quality.
Working capital: The amount of money a business has in cash, accounts receivable, inventory, and other current assets; normally refers to net working capital, which is current assets minus current liabilities.
Online Business Plan Resources
Angelcapitalassociation.org—For locating angel investors
Bizfilings.com—Information for small business owners
Entrepreneur.com/topic/business-plans
FundingPost.com—Events that include angel investors and VCs
Gust.com: Angel investor networks
Nolo.com: Legal forms and information
Nvca.org: National Venture Capitalist Association
SBA.gov: Small Business Association
Score.org: Volunteer mentors and advisors, and business plan templates
Helpful Business Books
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The Business Owner's Guide to Financial Freedom
Tailored for small business owners and entrepreneurs like yourself who are looking for long-term financial planning and wealth management, The Business Owner's Guide to Financial Freedom reveals the secrets behind successfully investing in your business while bypassing Wall Street-influenced financial planners.
