To start, build, and run a business company, you need to be familiar with basic business terms! Here are 10 financial business terms you should know!
Entrepreneurs enter the business world with a variety of built-in skills, knowledge, and experience. Some of them are natural salespeople or marketing experts, while others have the ability to come up with an innovative idea. So, while there may be entrepreneurs who are financially savvy, there are a lot of them who are struggling to prepare monthly financial statements and managing their financial books.
Entrepreneurs who struggle with financial statements and other financial tasks, should use an accounting software or hire an accountant to make things simpler. Before you do that, there are some basic financial business terms you should know about. As your business develops you need to understand these terms and know exactly what they mean.
Here are the essential financial business terms every entrepreneur should know:
- Assets: These are the financial resources your business company has including the company furniture and supplies bought for use, the product it has in inventory, and any copyrights or trademarks your company owns.
- Liabilities: Any debt accrued by your company in the course of developing, growing, running, and maintaining its operations, including credit card debts, bank loans, and monies owed to product manufacturers and vendors are considered as liabilities. There are two types of liabilities: long-term debt and current or immediate debt.
- Cash flow: The overall movement of assets through your business company, including income and expenses is known as cash flow. The companies track cash flow to identify long-term solvency. You can determine your company’s cash flow by making a comparison between the available cash balance at the start and at the end of a specific period.
- Financial report: An overall account of the transactions and expenses of your business created to give your company an oversight of the budget is called a financial report. The report may be prepared for both external (for a bank or potential investors) and for internal use.
- Financial statement: This financial term is pretty similar to the previous one. The financial statement lists all of the business activities in your business organization. This is considered as a more formal document and it is usually issued by a lending organization or institution.
- Cash flow statement: A statement that shows the money that entered your company during a specific period of time is known as a cash flow statement. This type of statement usually covers 4 categories - financing activities, operating activities, supplemental information, and investing activities.
- Income statement: This type of statement is also known as a profit and loss statement. This statement presents the profitability of the company during a specific period of time and it includes the expenses and the revenues of the company through all of the activities.
- Capital: In the business world, the money a company has in its assets, accounts, and investments is known as capital. There are two types of capital - equity and debt.
- Accounts Receivable: A/R or Accounts receivable is the amount a company is owed by its clientele. Generally, the client who owns the money is notified by an invoice, and if the invoice is not paid, the debt is usually legally enforceable.
- Valuation: When a business organization seeks to fund from a bank or from potential investors, the bank and the investors want to know that value of the company or the overall worth of that business organization. This is done through a valuation, which is an approximate calculation of the overall worth of the company.
It is important to know these basic terms that will surely come up in conversations with potential clients, colleagues, and investors.
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