Financial Terms that help Entrepreneurs run Businesses

As an entrepreneur, it is likely you will be more interested in developing and selling your products or services online, than worrying about the financial jargon. However, financial jargon will be difficult to avoid as understanding this will provide you with greater understanding of your financial position – a critical part of running a business; as well as the ability to have better conversations with your bookkeeper and accountant.To help, we have compiled the following Glossary.

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Glossary

A B C D E F G H I J K L M N O P Q R S T U V W X Y Z

 

A

Accounting
The process of identifying, measuring, recording and communicating, economic information to permit informed judgments and decisions by users of the informationAccounts Payable
Money that is yet to be paid for invoices, bills and other liabilitiesAccounts receivable
Money that is yet to be collected by a company from its customersAssets
Resources that are owned by the business and can be measured and shown as moneyAudit
A physical review of financial records performed by a tax official or auditor to ensure that all costs are accounted forback to top

B

Bad Debts
Money that is owed to a company without likelihood of being repaidBalance Sheet
Also known as a statement of financial position, the balance sheet is a snapshot of what the business owns and or controls, what it owes and the invested amount in the business by way of equity at a particular point in time. It is usually produced on a monthly and annual basisBenchmark
A standard which a product or company is measuredBookkeeping
Recording the financial activities of a businessBreak-even analysis
Used to calculate the units of sales required to cover your costs and determine the price of your productsBreak-even point
The exact point where a business’ income is equal to their expensesBudget
An estimate of future transactions, either in terms of quantities, or money values or both designed to provide a plan for and control over future operations and activitiesBusiness angels
A person who provides starting or growth capital in promising ventures and helps with advice and contactsback to top

C

Capital
The amount of what the owner has contributed to the businessCash
Includes all money that can be immediately available including bank notes, coins, petty cash, specific cheques and money in savings and debit accountsCashflow Statement
A cashflow statement records the money coming in and out of your business for a set period of time. cashflow statements can be done daily, weekly, monthly, quarterly or annually.Closing balance
The amount that is recorded at the end of an accounting periodCOGS
The expenses that are directly related to your sales, such as purchase of stock, freight costs for delivery of your stock and any import or, customs duty.Company or Corporation
A company is a separate legal entity that owned by shareholders and managed by directorsCredit
A loaning term used when a customer takes ownership of a product or service with an agreement to pay for it at a future date.CrowdfundingFinancing a business idea with public donations usually via an online crowd funding websiteCurrent Asset
Cash or an asset that can be turned into cash within the next 12 monthsCurrent Liability
A liability that must be paid in the next 12 monthsback to top

D

Debt
An amount that is payable such as bills, taxes and loan repaymentsDefault
Failure to pay a debt or loan obligationDepreciation
A decrease in the value of an asset (usually by wear and tear) over a specified period of timeDrawings
Personal expenses paid by a business accountback to top

E

Expenses
A loss or outgoing incurred by the business during the reporting periodback to top

F

Finance
Money used to support a business or purchase an assetFinancial Statement
Summary of business’ financial situation, can include a profit & loss statement, balance sheet and cashflow statementsFixed Asset
A physical asset used in the day-to-day operations of a business. This includes the business’s property, platn and equipment eg. Car, land, buildings, office equipment, and computers.Fixed costs
Fixed costs are costs that remain the same regardless of the number of units you sellback to top

G

Gross income
The total money earned before expenses are paidGross profit
The difference between income less your Cost of Goods Sold (COGS)Gross profit margin
Includes the amount of money remaining upon calculating the COGSback to top

H

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I

Income Statement
Also known as a profit and loss statement, The income statement summarises the income and expenses of the business for a period of time. It is usually produced monthly and annually. The difference between the income and the expenses results in either a profit or loss for the business. Businesses may also produce this report with a comparison against a budgetIntangible assets
Assets that are not physical, however can contribute to the success of a business. Includes patents, trademarks, goodwill, brand recognitionback to top

J

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K

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L

Liabilities
Obligations by the business, these are the amounts that are owed by the businessLiquidity
The speed of which assets can be turned into cashLoss or Net Loss
When total expenses exceeds total revenues for the business over the reporting period.back to top

M

Margin
The difference between the cost of production and the selling priceMarkdown
Marking down is discounting your selling price. Slow moving stock takes up valuable space in your store or warehouse, which means there’s less room for other stock that may be in more demand. Marking down your slow moving stock hopefully moves that stock off your shelves.Markup
Markup is a simple calculation using a percentage to add to the cost price of your products, based on a consideration of fixed costs, desired profit/salary and return on investment.back to top

N

Net Assets
The total assets less the total liabilitiesNet Income
The total money earned after tax and other contributionsNet profit margin
The net profit margin allows you to identify your profit after covering the cost of the goods sold and other expenses of the business as a percentageNon-current Asset
Assets of the business which would not be expected to be converted to cash, sold or consumed by the business within 12 months after the end of the last financial year.Non-current Liability
Obligations of the business that do not require payment within 12 months after the end of the last financial year.back to top

O

Opening balance
The amount that is carried forward into a new accounting periodOverdraft
A facility arranged with a bank to be able to overdraw your bank accountOverhead
The total fixed costs associated with running a businessback to top

P

Partnership
A partnership is a number of two or more people who operate a business togetherPetty cash
Cash used for various non-specific purchases such as postage, milk etc.Plant and Equipment
A collection of fixed assets used throughout the business including furniture, machinery, computers, telephonesProfit or Net Profit
When total income exceeds total expenses for the business over the reporting periodProfit & Loss Report
Also known as an income statement, the profit and loss report summarises the income and expenses of the business for a period of time. It is usually produced monthly and annually. The difference between the income and the expenses results in either a profit or loss for the business. Businesses may also produce this report with a comparison against a budgetback to top

Q

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R

R & D
Businesses undergo research and development (R&D) for a number of reasons including development of new products, new market, innovations etc.Refinance
Taking out a new loan to repay an existing loan, can help to reduce fees, extend the original loan, change the parameters of the loan etc.Return on equity
Identifies the return you are getting on your investmentReturn on investment
Calculated as a percentage ROI determines a companies profitability by dividing net profit by cost of investmentRevenue
Money earned before tax, expenses and other deductionsback to top

S

Sales
Income derived by the business from the sale of goods or service during the reporting period.Sole Trader
A form of business structure operated by a single personStatement of financial position
Also known as a balance sheet, the statement of financial position is a snapshot of what the business owns and or controls, what it owes and the invested amount in the business by way of equity at a particular point in time. It is usually produced on a monthly and annual basisStock
Goods or materials that a business has on hand for the purposes of resaleStocktake
A physical count of stock on hand at the end of a reporting periodSuperannuation
Compulsory savings for retirementback to top

T

Tax invoice
A valid invoice required for the sale of goods or services over a set price.back to top

U

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V

Variable costs
Variable costs are costs that are directly related to your productsVariable interest rate
An interest rate that changes with market conditions for the time of the loanback to top

W

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X

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Y

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Z

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