Some Key Financial Terms That Everyone Should Be Aware Of
A continuous learning curve is a part of running a business. And this is true whether you're a first-time entrepreneur with a fantastic concept for a new firm or a seasoned small business owner with a fast-growing company that wants to expand. As a company owner, you should never stop learning, no matter where you are in your career—always there's a fresh platform to learn, a new challenge to solve, and a new language to acquire.
Taking things one step at a time can assist you to avoid being completely overwhelmed. For example, every small business owner should prioritize feeling secure while explaining the company's financial demands. You are, after all, the heart and soul of your company in the marketplace. As a result, understanding the "language" of company finance is an important aspect of your work as a business owner.
To engage in the realm of corporate finance, you don't need to be an accountant or a financial planner. Here's a list of the top 10 financial phrases you should know to make sure you're well-informed about your personal money:
A list of all outstanding invoices, debts, and other liabilities with a due date of fewer than 12 months. Invoices for products or services, utility bills, and tax payments due are all examples of accounts payable.
It refers to items that you own. These can be cash or assets that can be converted to cash, such as real estate, automobiles, equipment, or inventories.
Accounts receivables, often abbreviated as A/R, is a company finance 101 word that refers to the money owed to your small business by others for goods or services supplied. Such accounts are classified as assets since they reflect the customer's legal commitment to pay you money for a short-term loan.
An audit or tax examination of your financial documents by an auditor or tax authority to ensure that everything is in order.
The balance sheet, along with 3 other financial statements for your small business, is critical information that provides a picture of the company's net wealth at any given time. The guide provides an analysis of the company's resources and obligations.
Your net worth is the difference between your income and expenses. You can figure up yours by totaling up all of your cash and investments. Then take out all of your debt, whether your housing, credit card debt or any debts or commitments. The resultant net worth figure may be used to assess your overall financial well-being.
The distinction between what something is valued now and what it was acquired for is known as capital gains. Nevertheless, until the goods or investment is liquidated, the profit is only on paper.
Any portfolio should rebalance on a regular basis. It's the process of getting your stocks and bonds back to the percentages you want. You may rebalance your portfolio by selling some of your stocks and reinvesting the proceeds in bonds, or by investing fresh funds in bonds to restore the portfolio's original balance.
Term life insurance
Term life insurance covers you for a specific amount of time, usually between five and thirty years. Your beneficiaries will get a payment if you die within the specified time frame. If you don't, the insurance will be worthless when it expires. After the term has expired, the policy owner has the option to renew coverage or terminate it at any time without prior notice.
Pertains to a company's entire wealth as evidenced by its cash accounts, assets, and investments. It's also known as "fixed capital," and it relates to a company's long-term value. Capital can be intangible, such as intellectual property, or physical, such as durable commodities, structures, and equipment.
Umbrella insurance extends your liability coverage beyond that of your house, vehicle, or watercraft insurance. If you're in danger of being sued for property damage or other people's injuries, such as a nanny or other staff that work in your house on a daily basis, you should consider umbrella insurance.
When an asset loses part of its value in small increments over time, it is said to decline in value. Wear and tear are what cause depreciation. Businesses employ a variety of depreciation procedures to reduce the asset's reported value.
A legal duty to repay or otherwise settle a debt is referred to as this essential word in corporate finance. Liabilities are classified as either current (due in less than a year) or long-term (due in more than a year) and are shown on a company's balance sheet. Accounts payable, salaries, taxes, and accumulated expenditures are all liabilities of a firm.
Annual Percentage Rate
The term and concept of business finance The annual percentage rate (APR) is the total annual cost of a loan, including all interest and fees. The entire amount of interest due is calculated using the original loan amount, or principle, and is expressed as a percentage. When looking for the proper loan for your small business, it's important to understand the APR. Because it shows the real cost of borrowing, this number may be highly useful when comparing one financial instrument to another.
Financing the start-up and expansion of your small business with your own money. Consider it as though you were your own bank. The phrase and definition of bootstrapping in business finance refers to the utilisation of earnings gained to reinvest in the firm after it is up and operating effectively.
The strength of a company's accounts receivable is used to determine its financial standing. This kind of financing is comparable to factoring, with the exception that the invoices or accounts receivable remain with the firm.
Line of credit
A loan arrangement that allows a borrower to withdraw funds from an account up to a predetermined limit.
Collateral is any asset that you guarantee as security for a loan instrument. Lenders frequently need collateral to ensure that they will not lose money if your company fails on the loan. If you pledge an asset as collateral, the lender has the right to seize it if you don't satisfy the loan documents' criteria.