Introduction:
When entering a business, there are a few key elements to learn that you need to always have under your belt. As you start navigating business terms and are eager to learn more, it is essential not to let the basics slip from your grasp, as it can be easy to forget them from time to time when you are a beginner.
Beginner Business Terminology:
REVENUE:
The first key element of a business is understanding revenue, and it’s pretty simple. It is the sum of money coming into the business regardless of expenditures. An example is Nike’s total annual income in 2022 of $49.107 billion based on sales of their products alone, not subtracting the costs they have incurred over that term.
GROSS PROFIT:
The next term is gross profit, which is your total revenue minus the cost of goods. For example, if Nike had revenue in 2021 of roughly £60 million and the cost of their products was £10 million, then they would have a total gross profit of £50 million for that financial year.
FORMULA:
Gross profit = Revenue – Cost of Goods
NET PROFIT:
Net profit is the final piece of the puzzle that helps you understand how much your business is generating and track growth. It is what remains after subtracting the cost of goods and all other expenditures from gross profit. These expenditures can include anything from office rent to your phone bill and product packaging. Once this sum is calculated, you are left with your total net profit, which is the amount gained beyond your investments. For example, if Nike’s total expenditure was £29 million, then you would subtract £29 million from £50 million, resulting in a net profit of £21 million.
FORMULA:
Net profit = Gross Profit – Total Company Expenditure
If you are considering taking up business as a study option or looking to launch your own company, take that first step no matter what it takes, as that leap of faith could be the best thing to ever happen to you. Even if people are telling you not to or other factors are holding you back, just go for it, prove them wrong, and learn along the way. What’s the worst that can happen? You might even think business is a waste of study for you if it’s not the path you want to take. However, business is arguably one of, if not the best, fields to study, as it teaches you so much about our society and how to navigate the consumer market. It helps you understand buyer habits and marketing strategies. As much as it benefits those looking to market their products, it also helps customers make conscious purchases while stepping outside the attention-grabbing bubble of flashy sales.
ADDITIONAL TERMINOLOGY:
Administration: How the business is organized, including all the departments and components, and how they are structured to work together efficiently.
Cash Flow: The amount of money coming in and going out of the business. It’s crucial for covering expenses, reinvesting in operations, returning money to shareholders, and staying solvent. Cash flow should remain positive, meaning the company still has money after paying its expenses.
Equity: The ownership value of the company. It calculates what the business would have left if the assets were liquidated and the debts paid off.
Conclusion:
Starting your own business is always a challenging milestone, but using this beginner’s glossary guide will help you navigate through it.
