You know the difference between your linesman pliers and your slip-joint pliers, and you can talk all day about thermostatic radiator valves or rolled steel joists, but when it comes to R.O.I, VAT and PE ratios, they might as well be a foreign language.
Sure, that expert knowledge of your profession can only ever be a good thing. If you’re going to get your projects done – and get them done well – then knowing every little intricacy of every task is only going to make life easier.
Still, as a self-employed tradesman, a Mastermind-level knowledge of your trade sadly isn’t enough to ensure success. With tax returns to complete, marketing and advertising to invest in and a whole heap of other behind-the-scenes tasks to complete, knowing your way around the basics of business-speak certainly comes in handy.
Trying to grow your business but find yourself bamboozled by baffling buzzwords? Need to meet your legal obligations but can’t wrap your head around the complex lingo? Here’s your ultimate jargon-buster, containing all the business terminology you need to know to make a success of your trade business.
A is for…
Accounts Payable (AP)
Literally, the bills to be paid as part of running your business. For example, you order timber from a supplier and receive it along with an invoice. Until that invoice is paid, it’s recorded as ‘accounts payable.’
Accounts Receivable (AR)
The amount owed to you by customers who haven’t yet paid. Whereas Accounts Payable is a liability (as in, it’s money you have to pay), Accounts Receivable is the opposite, as it’s money that you’re owed.
Resources that you have which have value. For example, your van, your equipment, and any money owed to you can all be business assets.
If you hire employees in your trade business, then automatic enrollment means that you’re required to enrol them in a pension scheme providing they are over 22 years old, younger than the state pension age, and earning at least £10k per year.
B is for…
A summary of your business’ finances. These are usually produced at the end of the financial year and detail your assets and liabilities. Balance sheets are invaluable for helping you to understand how your business is doing.
The point at which your costs and your revenues are the same. For example, if a job costs you £500 in materials and labour hire, then you need that job to pay you £500 to break even.
C is for…
Capital Gains Tax
Tax you pay to HMRC if you make a profit from selling an asset.
Say you buy a van for your business for £500 and sell it for £600, that’s a capital gain of £100. You can make up to £11,700 in capital gains before you’re eligible to pay Capital Gains Tax.
A device that allows you to accept card payments from your customers.
The total sum of money going in and out of your business.
Click-through rate (CTR)
A way of measuring how successful your online advertising is.
Your CTR is determined by dividing the number of people who clicked on your ad by the number of times that ad was presented. So if it was presented 100 times but only one person clicked on it, you have a CTR of one per cent.
The higher the CTR, the more successful your campaign.
D is for…
A term used in accounting to calculate the decrease in value of assets. For example, buying a van for £500 which is then only worth £400 a year later.
Using websites, online services and apps to promote your business to potential customers.
E is for…
Using email to contact people and encourage them to hire your business.
F is for…
Also called the Fiscal Year. This is any period of 12 months used by businesses and the government to calculate finances. In the UK, this runs from the beginning of April to the end of March.
The costs of running your business that stay the same no matter how well your business is doing. For example, the monthly rent on the workshop or storage space you hire would likely be a fixed cost.
G is for…
The General Data Protection Regulation governing how business’ in the European Union use people’s personal data. See our complete guide to GDPR to learn how this affects your business.
Google My Business
A tool you can use to improve the way your business is represented in Google’s search results.
H is for…
Her Majesty’s Revenue & Customs – the government department responsible for collecting your taxes, among other things.
I is for…
The basic tax that you pay on any money you earn through your business.
A document which you give to your customers, outlining the cost of the goods or services you’ve provided. See our recent guide to invoices for a more detailed description.
L is for…
Any money your business needs to pay, such as loan repayments or money owed to suppliers.
A type of legal structure for starting a business. Unlike being a sole trader, if you start a limited company, your business is not tied to your own personal finances and assets.
With a limited company, you’re only responsible for any business debts up to the amount that you originally invested in that business.
M is for…
Your potential customers. The homeowners and businesses willing and able to buy your services.
Promoting your business to potential and existing customers.
The minimum amount that you need to pay employees and apprentices.
In 2018, this is £7.83 per hour for employees aged 25 and over and £7.38 for ages 21 to 24. Other minimum wage rates are set for young people and apprentices.
N is for…
The total amount of earnings after all expenses and taxes have been deducted. The amount of earnings before all those deductions are called your gross income.
When the value of an asset is less than what you paid for it.
Nominal interest rates
Interest rates which haven’t been adjusted for inflation.
O is for…
Office of Fair Trading
The Office of Fair Trading is an organisation which aims to protect consumers from commercial practices which are deemed to be unfair.
Otherwise known as operating expenses. These are the costs incurred as a result of the day-to-day running of your business, such as wages, material costs, or running your van.
P is for…
Pay As You Earn (PAYE)
A system for collecting the tax from your employees’ earnings or pensions.
Pay Per Click (PPC) Advertising
The standard advertising system used by the likes of Google and Facebook. See our guide to Pay Per Click advertising for more.
The amount by which the money you make exceeds your costs.
R is for…
Designing a website in a way that it responds to the size of the screen you view it on. If you build a website for your business or have one built for you, it should be responsive to ensure that it works just as well on a customer’s iPhone as it does on their home computer.
Return on Investment (R.O.I)
A way of measuring the efficiency or success of an investment. This is calculated by subtracting the cost of that investment from the net profit it generated.
The higher the R.O.I, the more successful that investment was.
S is for…
Search Engine Optimisation (SEO)
Refers to the techniques and processes used to influence how your online presence appears in search engine results. For example, you might use SEO to ensure that yours is one of the first businesses listed when a customer searches for “plumbers in London.”
A self-assessment tax return is a process you’ll need to go through in order to ensure you’re paying the right amount of tax to HMRC.
If you’re a sole trader, you’re self-employed and keep 100% of the profits from your business, but are also responsible for 100% of any debts.
Costs already incurred by a business that can’t be recovered.
T is for…
A group of people or businesses who are most likely to need or want your services.
U is for…
If you take out insurance for your trade business, an underwriter is a person who will analyse the risks involved in your business, determine whether or not you can be improved for insurance, and also determine how much that insurance will cost you.
A sales technique in which you sell a customer a product or service that is more than what they originally wanted. For example, a homeowner may contact you about painting a single room in your home, but you upsell them a package in which they pay you more to paint several rooms.
V is for…
Value Added Tax (VAT)
A standard tax rate of 20% on goods or services that businesses must pay if their annual turnover is more than £80,000.