Entrepreneurship and business terminology busted
Get to grips with the terminology you need to know to start your own business, from angel investors and equity to pitches and patents.
If you’re not from a business background, you’ll probably have to get your head round some new terminology if you launch your own enterprise. We’ve rounded up some key terms below, and take a look at our article on sources of support for entrepreneurs to get definitions of accelerator and incubator units, pre-accelerators and enterprise hubs.
An investor who is prepared to invest when a business is still in its very early stages, which is quite risky for them. Typically start-ups will go through several rounds of seeking investment as they grow, and funding from an angel investor is one of the earliest possible forms of investment. Angel investors make their own decisions about which start-ups to invest in and are typically keen to meet and find out about the individuals running the start-up, which isn’t necessarily the case for those who invest via a venture capital fund.
A document that shows your business’s current position and the direction it plans to take, including who owns it, what it does, what its aims are, who its competitors are and how much money it expects to make.
Legal protection for creative work, broadcast material and software. Unlike a patent, copyright protection comes into being automatically, though you might choose to indicate on your work that you are the copyright holder. You can find more information on copyright on the gov.uk website.
A way of raising all or part of the money you need to start your business by seeking small sums from large numbers of people, typically via an online platform. There are different types of crowdfunding arrangement – you might give each funder a small number of shares, repay their money with interest, provide them with a product or simply take non-refundable donations. Whichever arrangement you choose, make sure this is clear before you take any money.
A person who sets up a business or businesses. Usually there’s an implication that there’s something novel about the business; for example that it will create a new product or service, or find a new way or making or supplying something that already exists. Being an entrepreneur can also imply taking risks in the hope of making significant profits.
Relates to the value of a business. If you own 100% of the business you own 100% of the equity. However, if you set up a business by yourself but then, say, give 30% of it an investor, they would then have 30% of the equity. There are different ways of measuring the monetary value of your business – one is the total value of your assets (eg equipment the business owns, money in the bank, money owed by customers but not yet paid) minus the total value of your business’ financial liabilities (debts and any other payments you’re obliged to make but haven’t yet done so, eg wages or payments to suppliers).
Equity is typically divided up into units known as shares.
General Data Protection Regulation (GDPR)
Legislation that governs how the personal data of people in the EU is held and processed, even if the organisation doing this is based outside of the EU. Make sure you read up on the rules, as there are large fines for non-compliance.
Sums of money given to an individual or organisation for a specific purpose; unlike loans, they don’t need to be paid back. Many are from government organisations, but there are also other sources such as charitable trusts.
Aka Her Majesty’s Revenue and Customs, this is a government department that’s responsible (among other things) for collecting taxes and ensuring that employers pay the national minimum wage. You’ll need to register with HMRC and start paying taxes if your business makes more than £1,000 in a tax year.
Key performance indicators. These are measurable aspects of your business that you choose to track over time to allow you to assess how well it is doing, including setting targets and reporting on progress towards these. Common examples include sales revenue, profit, number of customers lost or gained, and number of visits to your website.
A type of legal structure you could choose for your business that means that its finances are separate from your own, unlike if you chose to be a sole trader or enter into certain types of partnership. If a limited company gets into financial difficulty, its owners are only liable for the payments it needs to make up to a certain limit, which is either the amount they have guaranteed to the company (for a company that is 'limited by guarantee') or the value of the shares they hold in it (for a company that is 'limited by shares').
A short statement, typically a line or too, summarising what your business aims to achieve. Businesses typically have either a mission statement or a vision statement, as the two are very similar.
A type of legal structure you might choose if you wanted to go into business with other people. However, unlike with limited companies, not all types of partnership create a legal separation between your personal finances and those of the business, and limited company status still allows you to go into business with others.
A legal right you can apply for (at a cost) to protect a product or process that you have invented. It allows you to take legal action against anyone who makes use of your patented idea in the relevant country for a fixed period of time – in the UK, this is 20 years. You can also apply for international patents. Applying for a patent can take several years and there are rules about what sorts of invention can and can't be patented – the gov.uk website has a useful summary. In contrast, a trade mark protects your branding is a lot quicker and cheaper, and you don't need to apply for copyright protection at all.
Both a verb to describe the act of putting forward your business to potential investors, clients or other interested parties in a positive light, and a noun to describe the content of what you say.
A presentation with accompanying slides (for example, PowerPoint or similar) that you use to succinctly explain your business to potential investors when you meet them in person, covering aspects such as your team, the problem you are trying to solve and your solution. You may decide to have a separate, more detailed set of slides that you use when an investor asks you to send them your pitch deck rather than present it face-to-face.
Aka seed money or seed capital. This is funding that you might decide to seek out at an early stage in developing your business to help you set it up and get going. This might take the form of investment from an angel investor, crowdfunding campaign or family and friends, or come from your own savings or a grant.
Working for yourself rather than an employer. If you're earning money through self-employment the government will regard you as a sole trader; however, you are free to choose a different business structure if you wish, such as a limited company or partnership.
Units of ownership in a business, also known as equities. If you decide to raise finance to start your business you may give out shares in your business in return for investment. See equity, above. There are different classes of shares, which bring different dividend rights (financial payouts based on company profits) and voting rights at company meetings.
Generally thought of as a business that employers fewer than 50 people, though definitions vary. Unlike with the term start-up, less is implied about ambitions to grow or to do something that hasn’t been done before.
Small- and medium-sized enterprises. Definitions vary slightly, but they’re generally thought of as having fewer than 250 employees.
A type of business structure that applies to self-employed people in the UK (unless they deliberately choose a different one, for example becoming a limited company). If you're earning more than £1,000 in a tax year through self-employment you either need to register with HMRC as a sole trader and start paying tax on this basis, or choose a different legal structure such as a limited company or partnership.
A new business. Often the term start-up implies that the business is being heading by someone who seems themself as an entrepreneur – that is, that they have a new idea for a product or service, are keen to grow quickly and don't mind taking financial risks.
Legal protection you can apply for to stop others using your brand, such as your product's name. The gov.uk website has more details.
Investment in your business from venture capitalists, in return for equity. Venture capitalists can be individuals or work for an organisation such as a venture capital firm or investment bank. They like to invest while a business is still in its relatively early stages (when there is still considerable risk but also the potential for significant growth) but not as early as angel investors or other providers of seed funding.
Your overall aim for what you want your business to achieve. It's essentially the same as a mission statement, and you should be able write it down in a sentence or two. If this sounds a bit clinical, think about it as being your dream for your company