Starting Smart: A Guide to Basic Business Terms for New Entrepreneurs

Starting a business comes with a flood of new concepts. From legal documents to financial jargon, the language of business can feel like a second job to learn. This guide simplifies some of the most common terms you’ll encounter in the early stages—so you can spend less time Googling, and more time building.

Whether you’re filing your first paperwork or negotiating your first deal, understanding these terms can boost your confidence and keep you compliant.

📂 Essential Business Terms Every Entrepreneur Should Know

Here’s a short list of terms you’ll likely run into early on. These are building blocks—not just for launching, but for growing sustainably.

• Sole Proprietorship: A business owned and operated by one individual. It's easy to start but doesn’t separate personal and business liability.
   

• LLC (Limited Liability Company): A flexible business structure that provides personal liability protection while maintaining pass-through taxation. Learn how to set up an LLC.
   

• Operating Agreement: A legal document that outlines how your LLC will be run, including roles, profit distribution, and procedures for handling disputes.
   

• Cash Flow: The net amount of cash being transferred into and out of a business. This primer on small business cash flow is a helpful intro.
   

• Burn Rate: How quickly a startup spends its available cash. Especially important for companies operating at a loss while scaling.
   

• Runway: The amount of time your business can operate before running out of money, based on current burn rate.

📝 Understanding Letters of Intent (LOIs)

As you begin forming partnerships, raising funding, or exploring joint ventures, you may come across the term “LOI.” A letter of intent outlines the basic terms between two parties before finalizing a more detailed agreement. It’s a document that captures shared understanding—without being a binding contract in most cases.

Businesses often use LOIs to publicly signal intent around deals before executing binding paperwork such as a purchase agreement. You can see a full definition of LOI meaning and real-world examples in this resource.

📊 Common Legal & Financial Structures

Here’s a comparative breakdown of common business structures:

Note: The right structure depends on your location, industry, and goals. Talk to a business attorney or advisor before choosing.

❓ Frequently Asked Questions (FAQ)

What's the difference between revenue and profit?
Revenue is total money earned; profit is what’s left after expenses.

Do I need a business license to operate?
In most cases, yes. Requirements vary by state and city. You can check your local Chamber of Commerce or visit SBA.gov’s license tool.

How do I register a business name?
You’ll need to file a “Doing Business As” (DBA) if operating under a name different from your legal entity. Check with your state’s business filing agency to start.

Is business credit separate from personal credit?
Only if you’ve properly registered and built business credit through systems like Dun & Bradstreet. Learn how with Nav’s credit builder guide.

🛠 Tools to Help You Launch Smarter

Navigating business setup doesn’t have to be overwhelming. Here are some one-time-use tools that can reduce the learning curve:

• Clerky – For startup legal paperwork (especially C-Corps & SAFE agreements)
   

• Bonsai – Contract and proposal templates for freelancers
   

• Wave – Invoicing, accounting, and basic payroll, free for small teams
   

• Bench – Bookkeeping service with real humans
   

• Found – A business banking app built for sole proprietors and freelancers

✅ Final Thoughts

Every business has to start somewhere, and learning the language of entrepreneurship is one of your first key steps. Bookmark this guide, ask questions often, and don't hesitate to reach out to local business resources like your nearest SCORE mentor or Small Business Development Center (SBDC).

Starting smart means learning fast—and leaning on the right frameworks. If you found this guide helpful, consider sharing it with a fellow founder.