Understanding key business concepts can help you start that company you've always dreamed of owning. It also can help you become financially savvy, enabling you to avoid errors that inexperienced entrepreneurs generally make. Startup mistakes include targeting the wrong market, poor financial management and not selecting proper business partners.
A business model describes how a company makes money. In other words, it shows how the firm creates, delivers and captures value. For example, if your company sells sports shoes, your business model is what differentiates you from other sellers of athletic footwear.
Strategy is a plan of action designed to achieve a particular goal. It is also an elaborate and systematic plan of action. For example, if your company's goal is to gain a 10 percent market share in a specific sector, your strategy must indicate how you intend to reach that objective.
Also called counterparties or economic allies, business partners make up the strategic group that helps a company thrive. These include lenders, customers, contractors and suppliers.
Marketing is the commercial process that enables a company to promote and sell goods and services. Marketing specialists use the 4P acronym to summarize what a business must do to remain profitable. The acronym stands for product, price, promotion and place. Place, in this context, means distribution channels – such as supermarkets and retail stores.
Compliance initiatives help a business abide by various standards when dealing with counterparties. They also prevent employees from running afoul of the law. Abiding by regulations is a money saver, because government agencies often impose hefty fines on companies that violate rules.
If you're a business owner, accurately sending the taxman his due helps you avoid substantial penalties. The Internal Revenue Service and state fiscal agencies require that businesses file income information quarterly and at the end of the year. To avoid the doldrums of an IRS audit, make sure your business files all income data on time.
Accounting is the process that enables a business to record and report its transactions. A bookkeeper records corporate economic events by debiting and crediting specific accounts. These include assets, liabilities, expenses, equity and revenues. The bookkeeper makes journal entries in a general ledger, which is a two-sided form with one column for debits and another for credits.
Financial reports shed light on how a business performed over a specific period, such as a quarter or fiscal year. Accounting data summaries include a balance sheet, a statement of profit and loss, a statement of cash flows and an equity statement.
By analyzing a new company's finances, you can determine whether it is a flourishing firm or one experiencing fits and starts. Investors use financial ratios to analyze corporate items, such as solvency, profitability and efficiency.
Also called financial markets, securities exchanges enable investors to buy, hold and sell investment assets. If you're an entrepreneur, a financial exchange may be a good place to raise cash for your company.