Jargon-Busting Business Finance Terms

Jargon-Busting Business Finance Terms

If you’re a business owner, it’s important to have at least a basic understanding of the various financial terms that you’ll come across in your day-to-day operations. After all, knowledge is power, and the more you know about your business finances, the better equipped you’ll be to make sound decisions for your company. Of course, with all of the jargon out there, it can be tough to keep everything straight. That’s why we’ve put together this helpful guide to demystify some of the most common business finance terms

Bookkeeping

The first term on our list is “bookkeeping.” Bookkeeping refers to the process of tracking your company’s financial transactions. This includes recording all incoming and outgoing money, as well as keeping track of invoices, receipts, and other documentation. Many business owners opt to outsource their bookkeeping to an accountant or bookkeeper, but if you’re on a tight budget, you can also handle it yourself using accounting software like QuickBooks, Sage or Xero.

Profit and Loss Statement

A profit and loss statement—often abbreviated as a “P&L” or an “income statement”—is a financial document that shows your company’s profitability over a specific period of time, typically on a quarterly or annual basis. Your P&L will show your total revenue, along with your total expenses, which can include things like cost of goods sold, overhead costs, taxes, and interest payments. By subtracting your total expenses from your total revenue, you can get an accurate picture of your company’s bottom line.

Balance Sheet

A balance sheet is another financial document that shows a snapshot of your company’s overall financial health. Unlike a P&L, which focuses on profitability over time, a balance sheet provides information about what your company owns (assets) and owes (liabilities) at a specific point in time. This can be helpful in showing whether or not your company has enough cash on hand to cover its short-term obligations—which is known as being “solvent”. See our blog about Balance sheets in more detail.

Accounts Receivable

Accounts receivable (A/R) refers to the money that customers owe your company for products or services that have been delivered but not yet paid for. This might include things like invoiced items that haven’t been paid yet or deposits that have been made but not used. It’s important to keep tabs on your A/R so that you can follow up with customers who are delinquent on their payments and keep cash flowing into your business.

Conclusion

These are just a few of the many financial terms that you might come across as a business owner. Of course, this is by no means an exhaustive list—but it should give you a good starting point. By taking some time to familiarise yourself with these terms and their definitions, you’ll be better equipped to make sound decisions for your business.


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