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Navigating business English: essential terms and practical examples

Welcome back, learners!

So, you’re ready to tackle the dynamic world of business English head-on?

Kudos to you!

Let’s address the elephant in the room. Wrapping your head around business jargon can seem like navigating through a thicket of buzzwords and endless acronyms…

Daunting? Sure!

Impossible? Absolutely not!

In this blog, we’re not just going to walk through a glossary of terms. Oh no, we’re diving into the nitty-gritty of business English, slicing through the complexities, and equipping you with the tools to glide through conversations with the ease of a CEO closing a deal.

Strap in, because we’re about to demystify the linguistic tangles of the business world and transform them into stepping stones to your success!

1. ROI (Return on Investment)

ROI, or Return on Investment, is a metric used to evaluate the efficiency or profitability of an investment. It tells you how well your investment is paying off by comparing the money you put in against the money you earned.

How to calculate ROI: To calculate ROI, you subtract the initial cost of the investment from the gain you made from it, then divide that number by the cost of the investment. The formula looks like this:

For example, a batik clothing retailer in Solo spends IDR 40,000,000 on creating a new line of clothing. After launching the line, they earn IDR 65,000,000 from sales directly attributed to the new product. How would you calculate the ROI?

ROI = ((65,000,000 – 40,000,000)/40,000,000 x 100% = 62.5%

The new line of clothing has generated a 62.5% return on the initial investment, indicating a successful product launch.

Knowing your ROI is like having a financial compass; it helps steer your business decisions in the most profitable direction. If you’re considering a marketing campaign or expanding your product line, calculating the expected ROI can guide you to invest wisely. It enables you to compare the profitability of different investments and choose the ones that are most likely to increase your earnings.

2. B2B (Business to Business)

B2B stands for “Business to Business,” which refers to transactions between businesses. This is when one company provides goods or services to another company, rather than to individual consumers. It’s a model that’s integral to the supply chains of many industries.

Example: PT. Solusi Informatika is a software company that develops accounting software. They establish a B2B relationship with multiple banks, providing them with customized software to handle their financial transactions and customer data management. PT. Solusi Informatika’s software is licensed to the banks for IDR 200,000,000 annually per contract.

By understanding the B2B model, companies can better position themselves within the industry supply chain and focus on cultivating profitable, long-term partnerships with other businesses.

3. B2C (Business to Customer)

B2C, or Business to Consumer, refers to the process where businesses sell products or services directly to consumers. Unlike B2B, B2C transactions typically involve individual customers making purchases for personal use. This model is the foundation of most retail businesses and encompasses a wide range of sales activities that we see in everyday life.

Example: Imagine a clothing manufacturer that sells their products both at their

boutique stores and through online marketplaces like shoppee and tokopedia. This is an example of a B2C model because this manufacturer sells its products directly to customers.

B2C businesses may use social media platforms like Instagram and Facebook to engage with their customers, offer promotions, and provide excellent customer service to encourage repeat business. Customer loyalty programs, seasonal sales, and targeted email campaigns are common strategies to increase sales and customer retention in the B2C space.

4. Cash flow

Cash flow refers to the total amount of money being transferred into and out of a business. It is a critical indicator of a company’s financial health, affecting its ability to pay bills, employees, and invest in new opportunities. Positive cash flow means more money is entering the business than leaving it, while negative cash flow can signal financial trouble.

How to calculate cash flow: Cash flow is calculated over a specific period (e.g., monthly, quarterly, annually) and can be broken down into three categories: operating activities, investing activities, and financing activities. The basic formula for cash flow is:

Cash flow = cash received – cash spent

Example: PT. Sentosa Lestari, a furniture shop in Semarang, calculates its monthly cash flow by considering all cash receipts from customer sales, which amount to IDR 100,000,000 for the month. They also account for cash spent, which includes expenses like materials, rent, salaries, and other operating costs totaling IDR 80,000,000. Therefore, their cash flow for the month is:

IDR 100,000,000 – IDR 80,000,000 + IDR 20,000,000

With a positive cash flow of IDR 20,000,000, PT. Sentosa Lestari has enough to cover all its business operations.

5. Revenue

Revenue is the total amount of income generated by the sale of goods or services related to a company’s primary operations before any costs or expenses are deducted.

Example: PT. Aplikasi Maju, a mobile app development company in Jakarta, creates a popular language learning app. They generate revenue through app sales, in-app purchases, and premium subscriptions. If they sell 5,000 downloads at IDR 50,000 each, offer 2,000 in-app purchases averaging IDR 20,000, and secure 1,000 annual subscriptions at IDR 200,000 each, their total revenue would be:

Revenue = (5,000×IDR 50,000)+(2,000×IDR 20,000)+(1,000×IDR 200,000)

Revenue = IDR 250,000 + IDR IDR 40,000,000 + IDR 200,000,000

Revenue = IDR 490,000,000

For PT. Aplikasi Maju, analyzing their revenue helps prioritize business strategies. If app downloads generate the most income, they could invest in marketing to boost downloads. Should subscriptions be more lucrative, improving premium features might be the way to go.

Furthermore, regular revenue analysis allows PT. Aplikasi Maju to manage their budget more effectively, allocating funds to areas of the business that directly contribute to increasing income. They can also better manage cash flow, ensuring they have enough capital to cover operational costs and invest in growth opportunities.

6. Profit

Profit is the financial gain that a company achieves when the amount of revenue generated from business activities exceeds the expenses, costs, and taxes needed to sustain those activities.

Example: Continuing with PT. Aplikasi Maju, let’s say they generated a total revenue of IDR 490,000,000 from their language learning app, as previously mentioned. To calculate profit, they need to subtract all operating expenses, including development costs, marketing expenses, staff salaries, and other overheads. If their total expenses for the same period were IDR 300,000,000, their profit would be:

Profit = Total Revenue−Total Expenses

Profit = IDR 490,000,000−IDR 300,000,000

Profit = IDR 190,000,000

For PT. Aplikasi Maju, understanding their profit allows them to make strategic decisions regarding reinvestment into the company, distribution to shareholders, or saving for future growth. Profitability reflects the success of their app and can fund further development, enhancing features or expanding their app portfolio. A portion of the profit might also be allocated to increase their marketing efforts, aiming to boost sales and market share.

Additionally, a consistent profit margin can provide PT. Aplikasi Maju with opportunities for scaling up their operations, such as hiring more developers or investing in research to stay ahead in technology and innovation. Profits can also serve as a buffer in lean times, ensuring the company can maintain operations during slower business periods.

7. Market share

Market share is the portion of a specific market sector that is controlled by a company’s product or service. It is a significant indicator of competitiveness, showing how well a company is doing against its competitors. Market share is often expressed as a percentage of total sales in the industry or category.

Example: PT. Aplikasi Maju has become a key player in Indonesia’s mobile app development market, particularly in the educational sector with its language learning app. To calculate its market share, they look at the total sales of language learning apps in Indonesia, which amounts to IDR 2,000,000,000 for the year. PT. Aplikasi Maju’s sales from their language learning app were IDR 490,000,000. Therefore, their market share would be calculated as:

This means PT. Aplikasi Maju holds a 24.5% share of the language learning app market in Indonesia.

Knowing its market share allows PT. Aplikasi Maju to set informed goals for growth and market penetration. If they aim to increase their market share, they might implement strategies such as targeted marketing campaigns, partnerships with educational institutions, or even exploring new market segments like corporate language training.

Monitoring market share also helps PT. Aplikasi Maju in assessing the effectiveness of their strategies over time. They can analyze trends in their market share growth to understand the impact of new product features, promotional efforts, or changes in consumer preferences.

Furthermore, a strong market share position can attract potential investors and partnerships, as it demonstrates the company’s strength and potential for sustained growth.

8. Brand equity

Brand equity refers to the value premium that a company generates from a product with a recognizable name when compared to a generic equivalent. It encompasses consumer perceptions, attitudes, and preferences attributed to the brand based on its name, logo, and marketing. Brand equity is intangible but can significantly affect a company’s financial performance and market position.

Example: Garuda Indonesia, the national airline, benefits from brand equity associated with safety, service, and reliability. This reputation allows them to attract business and first-class passengers willing to pay more for a superior travel experience. It also facilitates partnerships with international airlines and loyalty programs, further strengthening their market position.

9. Income statement

An income statement, also known as a profit and loss statement, is a financial report that summarizes the revenues, costs, and expenses incurred during a specific period of time, usually a fiscal quarter or year. This statement provides information about a company’s ability to generate profit by increasing revenue, reducing costs, or both.

Source: https://online.hbs.edu/blog/post/income-statement-analysis

Through the comparison of income statements from different accounting periods, trends can be identified in key areas such as revenue growth and expense management. Such trend analysis is invaluable for forecasting and informing long-term strategic decisions. Management teams rely on the detailed insights from income statements to make crucial operational decisions, such as cost control measures, potential expansion, or discontinuing unprofitable product lines.

For investors and creditors, the income statement is a tool for assessing the company’s profitability and its potential for future returns on investment or loan repayments. The insights gleaned from this financial statement are also vital for tax reporting purposes, ensuring that businesses comply with tax regulations by accurately reporting their income.

Budgeting processes also benefit from income statements. By understanding the dynamics of income and expenditures detailed in the statement, companies can allocate resources more efficiently and prepare budgets that reflect the financial realities of their operations.

Lastly, the income statement provides a clear picture of net income, which is the definitive measure of the company’s profitability. It shows not just how much was earned but also the costs incurred to achieve those earnings.

10. Stakeholders

A stakeholder is any individual, group, or organization that can affect or be affected by a company’s actions, objectives, and policies. This includes not just the company’s investors or shareholders but also its employees, customers, suppliers, creditors, and even the community where it operates. Stakeholders have a vested interest in the company’s performance and decisions.

Example: going back to PT Aplikasi Maju, the stakeholders would include:

Internal stakeholders: This group comprises the company’s employees, from the developers who create the app to the executive team that makes strategic decisions, all of whom have a direct stake in the company’s success.
External stakeholders: These are individuals or entities outside the company that are impacted by PT. Aplikasi Maju’s operations. It includes the customers who use the language learning app, the investors who fund the business, the suppliers who provide server capacity for app hosting, and even the government bodies interested in technology development and tax revenue.
Community: The local community could be considered stakeholders too, especially if PT. Aplikasi Maju’s presence contributes to local economic development or if the company engages in corporate social responsibility initiatives.

Thank you for taking the time to build your business vocabulary with us!

We hope you feel equipped to approach the business world with a new lens. These terms are your toolkit, practical and ready to be put to use whether you’re at the start of your professional journey or looking to sharpen your skills!

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