Common Small Business Terms and Abbreviations
There are lots of jargon, terms and abbreviations that come along with starting a small business. Here are some of the most common you may come across.
Starting a business is an exciting and challenging venture on its own. Add on top of that all the terms, jargon and abbreviations that can creep into what you’re trying to do and it can quickly switch from exciting to overwhelming.
Here are some common small business abbreviations and terms you may come across, what they mean, and why they matter.
Common Small Business Terms and Definitions
1099 Contractor — What is a 1099 contractor, sometimes called a 1099 employee? The term comes from a group of 1099 forms used by the IRS. If your business utilizes an independent contractor, that income will be reported using a 1099 form, hence the term “1099 contractor.”
There is a 1099-G form, 1099-R form, 1099-MISC form, and others. But as a small business owner, the main forms you’ll be concerned with will be 1099-MISC (Miscellaneous Income) and 1099-NEC (Nonemployee Compensation). 1099-NEC was introduced by the IRS in 2020 specifically for independent contractors. The 1099-MISC had been used for various expenses, and is still used for other filing needs, but the 1099-NEC will be what businesses send independent contractors early each calendar year to report how much they were paid.
W-2 — A W-2 is another IRS form, this one is used for full-time employees. It’s used to report wages paid and taxes withheld. Your small business will submit this information to the IRS, and the employee will also send it as part of their annual return.
Remit Sales Tax — Depending on your state or local jurisdiction, as well as the product or services you offer, you may need to collect sales tax. Some states require you to pay — or remit — sales tax monthly, quarterly, or annually. Check with your local tax office to see what’s required.
Small- and Medium-sized Businesses (SMB) — Sometimes called SMEs (small- and medium-sized enterprises), these are companies that don’t yet meet a specific threshold of number of employees or annual revenue. The U.S. Small Business Administration has specific requirements for being considered a small business that vary by industry or subsector. But when people or businesses use the term, they are typically talking about businesses with around 500 employees or fewer.
LLC, C-Corp, S-Corp, and Sole Proprietorship — There are several different ways to set up your business, with the biggest difference among them being the tax implications. A quick summary:
- With a sole proprietorship, there is no distinction between business and personal assets, expenses, or taxes. While they are easy to set up, requiring minimal paperwork or approvals, there is little protection or tax benefit.
- While laws vary state to state, a Limited Liability Company (LLC) typically provides the most flexibility around corporate structure, tax payments, and legal liability. It also works to protect your personal assets in case your business fails or suffers losses in the future.
- C-Corporations and S-Corporation are tax classifications which impact whether the company is taxed separately from its ownership or if income and losses are passed through shareholders. Your LLC can technically be taxed as a corporation without being registered as a legal corporation.
You should speak with a tax and business professional when deciding how to set up your business and which tax classification to use.
Solopreneur — A play off the term “entrepreneur,” a solopreneur is a small business of just one employee: the founder/owner. For some companies, this will remain the permanent structure — never hiring other full-time employees. For other companies, the “solopreneur” label is only temporary as they begin to grow, expand, and hire a full team.
Microbusiness — While there is no official government definition around how few employees a company would have to be considered a “microbusiness,” we consider businesses with fewer than 10 employees to be microbusinesses. This isn’t necessarily a reflection of the company’s revenue; in fact, a microbusiness could be making millions of dollars each year.
Payroll — Paying employees, giving bonuses, withholding taxes, and other compensation and benefits details are often all part of the broader “payroll” term. Some companies run payroll — the process of documenting and paying out the various types of compensation — twice a month, some run payroll every week or every other week, or may utilize some other arrangement.
Payroll software and Payroll apps — Long gone are the days of accountants with leather-bound ledgers handwriting each paycheck for each employee. It’s not all done digitally through various software programs or apps. The best small business payroll apps help take care of all the details surrounding payroll — raises, bonuses, taxes, withholdings, and much more.
Raise vs. Bonus — Typically, a raise is a permanent increase to an employee’s hourly wage or annual salary. It may go into effect immediately, or at the beginning of a fiscal year, or is sometimes even done retroactively. A bonus is typically a one-time compensation payment that can be based on a flat rate, a percentage of salary, or some other qualification.
Employer Identification Number (EIN) — Similar to a Social Security Number, an Employer Identification Number is a unique, nine-digit number which identifies a specific company. This allows the IRS to more easily and accurately track and identify each individual business throughout the country.
Direct Deposit — While some employees may prefer to receive a physical check each time they’re paid, many will prefer to have their paychecks deposited directly into their bank accounts each pay period. Many payroll software programs make this simple, and can save companies time and paperwork processing payroll.
Garnishments — Rules and laws around garnishments vary greatly from state to state, but an employer may be required by law to set aside — or garnish — an employee’s wages in order to ensure the employee pays child support, legal fees, unpaid taxes, or other required expenses.
Employee — Anytime you compensate someone for the work they do, they could be considered an employee — although the term is typically reserved for full-time, part-time and seasonal workers. 1099 contractors are not typically considered “employees.”
Off-cycle payroll — While you will likely have a set schedule for when and how often you run payroll for your small business, you may occasionally need to pay employees or 1099 contractors outside those set times. This is called an “off-cycle payment” or “off-cycle payroll.” There are a variety of reasons you could need to run off-cycle payroll including errors in previous paychecks, one-time bonuses, or paying a terminated employee.
Artificial intelligence — Artificial intelligence (AI) is a broad term that encompasses many different potential applications, but in the world of payroll AI and chat-based technology is being used to help facilitate running payroll, track bonuses and garnishments, identify potential problems before they arise, and support small businesses as they focus on growth.
Taxes — There are various types of taxes, as well as taxes that need to be paid to various government bodies. Companies and employees are all liable for federal taxes, while some states don’t have any individual income taxes, and other local municipalities have specific taxes associated with income, property or other assets.
Being Familiar with Small Business Terms
Lingo should never be a hurdle when trying to start and build your thriving business. Use Roll to help you take care of payroll, taxes, and many more of those little things so you can focus on your passion as an entrepreneur.