Finance terminology for entrepreneurs

For newcomers to the entrepreneurial world, finance-related terminology often sounds like a language from another planet. More than a few people are scared when it comes to looking at the figures and putting into numbers the prior efforts of analyzing and designing the business idea. So for them (and for others who wish to review concepts, which never hurts) we have compiled the most important terms related to entrepreneurial finance. Pay attention, here we go.

Equity: Part of the company owned by a particular investor.

Incubator: A public organisation which helps entrepreneurs to start their companies in the early stages of the process by giving them advice, credit and/or funds.

Accelerator: A private organisation which helps entrepreneurs to start their companies in the early stages of the process by giving them advice, credit and/or funds, in exchange for part of the company.

Business Angel: A private investor who is willing to put money into your business in exchange for equity.

Venture capital firm: A company that manages private funds of multiple investors, and invests them in start-up businesses, in exchange for equity.

Seed capital: Funds invested in small amounts in a company which is just starting up.

Debt financing: The process of getting funds for the company from banks or firms that lend you the money in exchange for an interest rate.

Mezzanine financing: A mezzanine lender gives you money in exchange for high interest that can be replaced by equity if it cannot be paid.

IPO: Initial Public Offering, the first public issuance of stock in a company.

Repeatable business model: A model which generates recurring sales without effort.

Scalable business model: A model which increases sales and profits without incurring a proportional increase in costs.

Cash flow: The difference between the company’s cash receipts and its cash payments.

Break-even point: The amount of sales needed to pay the costs, both fixed and variable.

ROI: Return On Investment: The benefit to the investor resulting from an investment.

Payback period: The period required to recoup the funds invested.

Marc Ambit – Consultor and professor in TBS Barcelona Campus

Tags: entrepreneurship|finance