Commonly Used Business Terminology

There are many different types of businesses out there and each one will use some of their own special terms or jargon to describe their business operations. However, there are a number of commonly used business terms that may be helpful for you to understand, whether you work for a company or own your own business.

Commission

A commission is compensation paid to an individual for the sale of goods or services, and is often based on a percentage. For example, every time Salesperson A successfully closes a deal that sells Product B to Consumer C, he or she will earn a commission based on the amount of the sale. Sales people typically earn their wage on commission.

Corporations

Corporations are a type of business organization that allows a group of people to pool their money, labor, and resources to generate a profit from the products/services the business offers. In the eyes of the federal government, a corporation or LLC (limited liability corporation) is a single entity, which can means shareholders (owners) enjoy a measure of financial and legal protection. This means that the individuals who own, manage, and control the business don’t have to pay taxes for the corporation out of their personal income tax returns. Instead, taxes are paid by the corporation itself. The individual owners only pay taxes on the money they draw or receive from the corporation (e.g. salaries and bonuses).

Doing Business As (DBA)

Doing business as, or DBA, is a designation used when the owner of a business names the company something other than his or her given name. For example, let’s say sole proprietor named John Smith owns a retail store called Island Persuasion. Because Island Persuasion is not his own name, he must use the DBA designation to open bank accounts in the company name in order to pay employees and conduct business. Registering for a DBA designation typically involves a small fee.

Direct Mail Marketing

Direct mail is a form of marketing that involves sending information about a business through the mail. Direct mail can be physical mail that is sent through the United States Postal Service or can be sent electronically (email).

Return on Investment

Return on investment, or ROI, is a measurement of the return, or profits earned, on a specific amount of invested capital. For example, if Company A spent equal amounts on advertising in the newspaper and on TV, but received more business from consumers who saw the TV ad than the newspaper ad, the return on Company A’s investment is better with the TV ad. As a result, Company A may choose to shift its advertising budget to pour more money into developing TV ads than newspaper ads.

Sole Proprietorship

A sole proprietor ship is an unincorporated form of business owned by one person, an independent contractor, where the business and the individual are one in the same. It is the easiest type of business organization to set up and dissolve. There aren’t any required forms to fill out to start a sole proprietorship, but income and expenses must be reported on the owner’s personal federal income tax return. Examples of sole proprietors include landscapers, musicians, artists, freelance writers, tutors, caterers, and others.

Additional Resources

If you want more information about commonly used business terms, there are several options you may have available. Check out business books or register for a business-related seminar at your local library, or register for an intro to business class at a nearby college or university. You can also scour the internet for reputable sources of information. If you’re thinking about starting a small business, look for your local chapter of SCORE, an organization that offers free and confidential mentoring from 12,000-plus businesses leaders who volunteer their time. Their goal is to help small businesses across America grow and succeed. You can also check out the U.S. Small Business Administration’s website at www.sba.gov.