15 Finance terms every small business owner should know
Being a business owner, you have to wear many hats. Especially when it comes to finance, the number of accounting terms and acronyms may feel overwhelming. You may not enjoy talking finance, but understanding these concepts are crucial to your success. We are here to help! We’ve compiled a list of the top terms you should know as a small business owner.
Assets: All things your small business owns for daily operations. These assets span two main categories: tangible assets or intangible assets. Tangible assets include items such as, cash, real estate, equipment, computers and furniture. Intangible assets include intellectual property, copyrights and stock.
Accounts Payable (AP): AP is the sum of outstanding amounts your business owes to vendors or suppliers that have not yet been paid for.
Accounts Receivable (AR): AR is the money owed to your business by customers for the purchases of goods and services made on credit. Account receivables are reflected as a current asset on a balance sheet, since the customers are legally obligated to pay the amount.
Balance Sheet: Summarizes your small businesses key financial data at any given time. This big picture view into your fiscal health includes assets, liabilities and owner’s equity.
Capital Expenditures: CapEx are the purchases your small business makes that will be used to improve performance long-term. These include vehicles, computers, building improvements, and machinery.
Cash Flow: Cash your small business generates from every-day business operations after subtracting purchases made on capital expenditures.
Depreciation: Is a representation of the amount of an assets value that has been used up. It applies to tangible or physical assets over its useful life. There are many types of depreciation, including straight-line and various forms of accelerated depreciation. These depreciating assets allow your small business to write off their value over a period of time.
Dividends: Are a portion of your small businesses earnings that are distributed to the shareholders. The board of directors manage and determine the amount paid to the class of shareholders, by issuing the dividends in the form of cash, additional stocks or other property.
Expenses: The cost of operations that your small business incurs to generate revenue.
Forecasting: A process that uses your small business’s historical financial statements to predict future trends. These trends can be analyzed for a specific period of time and can help with sale, profits and asset values predictions.
Liabilities: Are the debts your small business owes. These liabilities include credit card balances, mortgages, monthly bills and bonds.
Operating Expenses: OPEX are day-to-day operating expenses your small business incurs to keep it operational. These include inventory costs, payroll, insurance, rent, R&D and equipment.
Revenue: Is the amount of money that represents the goods and services your business sold before subtracting any expenses.
Retained Earnings: RE is the amount of net income available to your small business after paying out dividends to your shareholders. Your small business can incur positive net earnings (profits) or negative net earnings (loss).
Working Capital: The money your small business has available to spend or invest on items for the business.
Hopefully this quick list saves your time and helps you feel confident discussing your business’ finances. Still crunched for time? Get in touch with us today to save time and increase visibility while managing your cash flow and payments.
