Definitions

What is a business plan?

A business plan is the piece of paper that tells you how your business is going to work; if indeed it is going to work. If the plan is just for you, then that can be very short, and it simply states: this is what I am going to offer as a product or service, this is who's going to buy it, this is what it's going to cost me, this is what it's going to cost them and, the figure at the end is your profit - and hopefully there is one. If it's for a bank or any other form of backer or investor, then they'll be wanting something much more complicated, and that's where you get into very detailed, nasty spreadsheets.

What are investors?

In the simplest sense, an investor is anybody who puts money into the business. That could even be just you - you might be the sole investor in your own business. Often, people borrow money from family members as well, or they need to go to banks. Equally, it could be somebody who thinks, Yes, this is a good business idea. The difference between the two is that you can pay yourself back in your own time and you may have a similar arrangement with your own family, whereas banks or other financial investors are more likely to say, I am going to put this amount in, therefore I want that back plus more by a certain date.

What are shareholders?

Shareholders are a little different from investors. They would have put money in, but not necessarily, because you can set up a company with a number of shareholders during the beginning when the company is worth nothing. Technically, their shareholding is worth nothing. More likely though, they'll have put something in, and the idea is their money will be worth a lot more in due course.

What are consumers?

Consumer is a word that has come to the fore in the last twenty years or so. It is basically your customer, the person or persons who are going to buy your product or service.

What is segmentation?

Segmentation is an idea that was invented in the last 20 years or so, probably by advertising agencies and management consultants, to make your customer base sound more complicated than it needs to be. What it basically means is by segmenting the types of people that could buy your product or service, you can market your idea to them in a series of different ways. It is very unlikely to be something that should bother a sole trader at this early stage, because all you want is your first few customers, and you don't really mind where they come from.

What are profits?

Profits, in the simplest sense, are the bit left over once you've paid for everything else. The 'everything else' needs quite a lot of careful definition when you're working on your own - it must cover everything that you've had to pay for in order to provide the product or service to your customers. There are also other things that you can do with profit because you might be wanting to keep some profit aside for a rainy day, you might be wanting to increase your quality of living, or you might want to ring-fence some of it to anticipate next years tax bill. Of course, it isn't profit if you haven't paid this years tax bill.

What is an invoice?

An invoice, in the old-fashioned sense, is a piece of paper from me to my customer, saying you owe me x Pounds for service or product y delivered. A lot of these can be done electronically as well.

What is a purchase order?

A purchase order is a piece of paper, or electronic proof, that you have been engaged by a customer to do a piece of work. Typically, it would have the purchase order number on it, which you can cite back to them when you're wanting to get paid, your name, address, and company details, the nature of the work that needs to be done, plus the cost of it - all of which is your proof that you were indeed engaged to do that, so you need to be paid.

What are wholesalers?

Wholesalers are people who provide what customers would regard as cut-price materials - only customers can't go and buy direct from them. They effectively provide a sort of wholesale warehousing place, where goods cheaper than you normally find them can be found, and as a sole trader you take those to your place of work, you then add your suitable mark-up, and pass that onto your customers.

What are suppliers?

A supplier is anybody that you engage with to provide you with something, which you are then going to use to sell on in some way to your own customers. They might be providing you with products, and you're then either selling them on a margin or adapting them in some way. They might also be providing you with services. For example, if you need your computer fixed, the repairers become a supplier to you.

What is a trademark?

A trademark is a legal way of noting that you came up with a slogan, brand name or logo, or something that is very distinct and unique about your business that you don't want anyone else to be able to copy. It proves that if anyone does copy that, you can go to the necessary legal authorities and say I invented this, it's entirely my idea, and I did it along time ago.

What is a patent?

A patent is a mechanical kind of trademarking, and it usually refers to items. When I say items, they tend to be more pieces of machinery. For example, the Dyson vacuum cleaner works in an utterly different way to all previous vacuum cleaners, and I believe it went through many different patents in order to protect itself from that. It usually refers to something utterly new, such as a Biro versus a fountain pen.

What is copyright?

Copyright usually applies to ideas more than it does to physical objects, because what one is trying to prove is that it was essentially their idea first. This is one of the most difficult areas in law, because it is really difficult to copyright an idea.