As a business owner, your understanding of financial matters can make a difference in your overall success. According to the Small Business Administration (SBA), the number one reason small businesses fail is due to financial issues. And basic business finance starts with an understanding of terminology. Here is a list of the top business finance terms you should know. When it’s time to report your financial results or seek small business financing, this knowledge will come in handy.
15 Business and Finance Terms You Should Know
You may already use some of these terms or at least hear them occasionally. But do you actually know the definition of each one? Here are 15 business and financial terms you should keep within easy reach.
1. Accounting Period
This is the period to which your business’s financial accounts refer, which is generally 12 months.
2. Accounts Payable
This represents your business’s obligations (or debts) to suppliers, lenders, and creditors. It is sometimes referred to AP or A/P for short.
3. Accounts Receivable
Also referred to as AR or A/R, accounts receivable is the money that other businesses or clients owe to you. These are also classified as assets because it’s income you have earned.
4. Annual Percentage Rate
An annual percentage rate, or APR, tells you the annual cost of a loan, including all interest charges and fees. This is a useful figure in comparing financial products.
An asset is anything of value your business owns, which might include property, cash, equipment, accounts receivable, and inventory.
6. Balance Sheet
A balance sheet is a standard financial statement that demonstrates a business’s assets and liabilities at any given point. It also details shareholder equity.
7. Cash Flow
Businesses need cash flow to keep operating. This term refers to the amount of cash that “flows” in and out of your business, which impacts your liquidity and ability to pay bills.
If your business takes out a loan or secures financing, collateral is any asset you agree to use as security for that loan. If your business defaults on the loan, the lender can take the collateral.
This is a business or person to which/whom your business owes money.
10. Gross Profit
This is a business finance term that is a reflection of your total sales minus the expenses directly related to those sales, such as labor, raw materials, and marketing expenses.
11. Income Statement
Your company’s income state is also referred to as a Profit and Loss Statement. It shows the bottom line of how much your business earned over a specified period.
This business finance term refers to any legal obligation to repay a debt. Liabilities are classified as current (due in one year or less) or long-term and are listed on the balance sheet.
When your business takes out a loan with collateral, the lender will place a lien on the property that you pledge, which stakes their legal claim to the asset should you default.
Shortened to LTV, a loan-to-value ratio is the ratio of an asset’s fair market value compared to the loan used to fund it.
15. Net Profit
Your business’s net profit is its bottom line result, which is the gross profit minus any expenses and indirect costs.
Learn About Your Business Funding Options With CAB Capital
Now that you have a solid list of business and finance terms to boost your knowledge base, you can investigate your business funding options with more confidence. CAB Capital would be happy to outline our various alternative lending solutions so you can find the one that best suits your needs and goals. Contact us today to schedule a free consultation.