Running a business involves a constant learning curve and as a business owner, a comprehensive grasp of basic business terms is pivotal to improving your art of doing business.
Here are some business and finance terms worthy of note:
- Assets
This is basically something of value owned by an individual or a business, it could be in the form of physical/tangible goods such as vehicles, furniture, office equipment; or intangible goods like Goodwill, and Intellectual property
- Liabilities
This is what a business owes at a specific point in time, most businesses tend to have liabilities. Business liabilities are considered a norm in most cases, except in a case where the business uses a “cash only” for transactions.
- Revenue
Revenue is the income received from your day-to-day business operations and activities.
- Expenses
Expenses on the other hand are the costs incurred from the day-to-day running of the business. Your business expenses are part of your income statement and they are subtracted from revenue, which equals the company’s net income.
- Capital
The money or amount of wealth needed for establishing a business or producing goods and services is called capital. It is basically the first need/step when starting a business.
- Profit
This is the benefit derived when revenue exceeds expenses, costs and taxes incurred while performing day-to-day business operations. This benefit belongs to the business owners who can then choose whether to keep or reinvest into the business.
- Loss
This is the total opposite of a profit, simply put, it is an excess of expenses or costs over revenue either for a single transaction or the sum total of all transactions for the business period.
- Cash Flow
This is the amount of cash or cash equivalents that is being transferred in and out of the business.
- Return on Investment
This is a measure of profit that assesses the performance of a business by dividing its net profit by its net worth, it is the most commonly used profitability measure.
- Income statement
This document contains a summary of the business’ expenses, profit and/or loss during a specific period; Monthly, Annually, etc.
- Loan
This is a method of finance/funding obtained from banks and other financial institutions, it involves a lender and a borrower, where the former provides funds for the latter with collateral and an interest rate in most cases.
- Balance Sheet
This is a document that report’s a business assets, liabilities, and other important financial details at a specific period of time. It is a financial statement that contains information on what a company owns and owes, as well as the investment by shareholders.
- Financial Statement
This is a document that contains financial information and the performance of a company.
- Credit Limit
This is the maximum amount of credit a financial institution renders to a client, it is typically in the form of a credit limit on a credit card or line of credit.
- Depreciation
This is a method used to determine the cost of tangible or intangible assets over its life expectancy; this represents the amount of an asset’s value that has been used up.
- Liquidity
This refers to how easily an asset can be converted into “liquid” form i.e cash without affecting it’s original price.
- Bankruptcy
This is a legal proceeding that involves a person or business being unable to pay their outstanding debts.
- Collateral
This is an asset that serves as security for the lender, it is used as a form of protection or guarantee by the lender when giving out loans.
- Interest Rate
This is the rate at which the lender lends funds to the borrower. The interest rate is determined by the amount borrowed.
- Business Plan
This document contains very useful information about the business, particularly at the start of the business; it serves as a roadmap that includes the objectives, strategy, hierarchy, how it plans to achieve set goals, and every other important information pertaining to the business.
- Net Worth
This is the value of assets owned by a person or business minus their liabilities. This is used to determine a person’s wealth and financial position.
- Lead
This simply means a prospective client, this person, or business is selected from your targeted audience.
- Market Research
This is a process where a company determines whether a new service or product is viable before the actual launch, this is done by distributing to potential customers, this allows the company to get feedback and opinions from consumers and possibly implement it before the final release.
- Project Management
This involves planning and organizing the company resources needed for a specific project or event towards completion. This can be done for a one-time project or an ongoing task.
- Contract
This an agreement between two or more parties, this agreement is legally binding and it defines the duties and responsibilities of the parties involved.
As a business owner, it’s important to have a basic understanding of the terms above and how they affect your business.
Do you know of any other business terminologies not mentioned above, kindly share with us in the comment section below!
