There is a lot to learn when running a business. This applied to new entrepreneurs with great ideas for new businesses and established business owners with rapidly growing businesses that need expansion. No matter your stage in life, you should constantly be learning new things as a business owner. There are always new tools to learn, new problems to solve, and new vocabulary.
It is important to focus on one aspect simultaneously to avoid getting overwhelmed. Small business owners should make it a priority to feel confident when discussing financial matters. You are the heart and soul of your business. Knowing the language of business finance is an essential part of being a business owner.
Good news: You don’t need to be an accountant, financial planner, or financial advisor to trade in the business finance world. These are some finance terms and business terms that can help you get small business financing.
Learn about Finance and Business Terms
This comprehensive list includes all aspects of business finance, including accounting, business loans, and general business operations.
1. Accounts payable
Accounting payable is 101 business finance terminology. This is your small business’s obligation to pay creditors, lenders, and suppliers. Sometimes referred to by A/P, or AP, short for Accounts Payable, depending on the type of credit given to the business by the lender, accounts payable can be either short-term or long-term.
2. Accounts Receivable
Also known as A/R or AR, accounts receivables (or simply AR) is another term in business finance 101 that refers to money owed by other people for goods and services rendered. These accounts are called assets because they legally obligate the customer to pay cash for short-term debt.
3. Accrual Basis
Accounting using the accrual basis is a method that records income when it’s earned and expenses when it occurs. Larger businesses use accrual basis accounting to record and maintain financial transactions.
4. Accruals
Business finance terms and definitions refer to expenses that have been incurred but not yet recorded in the company books. Examples of common expenses include wages and payroll taxes.
5. Asset
A business finance key term refers to anything of value, tangible or intangible. It is also called an asset. Cash on hand, cash receivables, inventory, buildings, equipment, and any other items that can be converted into cash are some examples of business assets.
6. Balance Sheet
The balance sheet, along with three other reports on your small business’s financial health and performance, is vital information that provides a snapshot of the company’s net worth at any time. This report summarizes the assets and liabilities of your business.
7. Book keeping
Accounting is the timely recording of all financial transactions relevant to the business.
8. Capital
It refers to the total wealth of a company as measured by its cash accounts and assets. Fixed capital is often referred to as the long-term value of a business. Capital can be tangible like durable goods, buildings, and equipment, or intangible like intellectual property.
9. Working Capital
Working capital is not to be confused with fixed capital. It is another term in business finance 101. It is the financial resources required to maintain the business’s day-to-day operations. Working capital is your business’s cash or other instruments you can convert quickly into cash.
10. Cash Flow
Cash is essential for any business to survive. Cash flow is a business finance term. It refers to the amount that flows through a business and impacts its liquidity. Reports on cash flow reflect activity over a specific period, usually for one month or one accounting period. Cash flow control is particularly important for small businesses starting. The cash available to the business can be restricted until it grows and produces more working capital.
11. Cash Flow Projections
Your cash flow projections will influence your future business decisions. You can use past cash flow patterns to plan for future expenditures and working capital. These patterns will provide a detailed view of how you spend and receive cash. This information is key to accurate and informed cash flow projections.
12. Depreciation
When an asset loses some value over time, its value can be called depreciation. Wear and tear cause depreciation. Businesses can use a variety of methods to depreciate assets.
13. Fixed Asset
Fixed assets are tangible, long-term assets used by the business but not expected to be sold. Items such as furniture, equipment, and real estate are fixed assets.
14. Gross profit
This is a business finance term. It can be defined as the total sales (income), less any costs (expenses), directly related to these sales. All expenses include raw materials, manufacturing, labor, and marketing.
15. Statement of Income
This is the most important report that investors and lenders want to see to evaluate the viability of your small business. This is also known as a profit-and-loss statement. It reports on the business’s bottom line, i.e., how much it has earned and spent in a particular period. It will either show a net gain or a loss.
16. Intangible Asset
Intangible assets are business assets that are not physical. These assets could include patents, goodwill, or intellectual property.
17. Liability
A business finance key term refers to a legal obligation to repay or settle a debt. The business’s balance sheet will list any current liabilities (payable in one year or less) or long-term (payable after a year). All liabilities include accounts payable, wages, taxes, and accrued expenses.
18. Liquidity
Liquidity measures how quickly assets can be converted into cash to achieve their full market value. You will have more financial flexibility if your assets are more liquid.
19. Profit & Loss Statement
See the “Income Statement” above.
20. Statement of Cash Flow
Lenders and investors require this document to show a summary of your actual revenue collection and expenses. Statement of cash flow is an integral part of financial statements. It should include operating, investing, financing, and other activities.
Do not be overwhelmed by the complexities of finance and business terms
You will often be asked to take on multiple roles as a small business owner. These include the chief financial officer and bookkeeper. Don’t let the business terminology and definitions intimidate you. Knowledge is power.
Understanding the terms of business finance is key to helping your small business succeed. Also, understand how they affect your financial health. You can handle the financial challenges of owning a small business if you have a basic understanding of key terms in business finance.
