There are a few small business basic financial terms that every business owners should know as their small business develops. These financial terms may arise in business meetings with potential inventors, business partners and business clients; therefore it is significant for you to understand these financial terms and to know how they might affect your small business.
Net Income: Net income represents a business’ total revenue; including the earnings and profit after all operating expenses, which includes taxes, interests, as well as preferred stock dividends have been deducted.
Gross Income: The gross income is the amount of cash that you earn before anything is deducted for taxes or other expenses. For instance, despite the fact that your monthly sales might be $3,500, you would possibly get a check for $2,500. In that particular situation, your net income might be $2,500; however your gross income is $3,500.
Stocks: Stocks are the equities or shares in a business. Basically, having stock in a business provides you a partial claim on their assets and earnings.
Growth Stocks: Growth stocks are the business’ shares that investors believe will quickly develop than usual. The growth stocks are the high risk and high reward, as they rise quickly and fall quickly.
Value Stocks: The value stocks are the shares of businesses that investors observe are underrated. The shares are sometimes undervalued or underrated due to bad publicity or a negative quarterly report; but, they have got a better potential.
APR: APR stands for annual percentage rate. It gives you an idea about how much it costs you to borrow for one year, including the interest costs and some additional expenses associated with the loan. To put it simply, the APR is the cost of a loan quoted in terms of an interest rate. Interest rates are useful as the rate can be used with any amount.
Bonds: When you lend cash to the company or government, you get it back with added interest in due course.
Dependent: Person who depends on you financially for support and be eligible as a taxpayer’s dependent. This is normally a child, a non-working next of kin, parents, or siblings can be claimed as a dependent.
Mutual Funds: Mutual funds are the investment strategies that help you to pool of your funds collected from the investors to purchase bonds, stocks or other similar things that might be complicated to restore on your own.
Cash Flow: Cash flow is the amount of cash that is flowing in and out of your business monthly. Even though it does appear from time to time that cash flow only goes in one direction – out of the business – however it does flow both ways in and out.
Debt Ratio: Debt ratio is a factor that determines a business’ overall liabilities as a proportion of its resources. According to one explanation, the debt ratio suggests a business’ potential to repay its liabilities using its resources. To put it in other words, this demonstrates how much amount of assets the business should sell to pay off the liabilities.
Asset Allocation: Asset allocation is a term that is simply how assets are separated among different asset categories, such as stocks, cash, real estate, bonds and so forth – even collectibles, insurance investments, commodities, and some other categories.
Fee Agreement: The term fee agreement is an agreement that is between a lender and a borrower, in which they discuss about compensation and repayment.
Cash Advance: A cash advance is a short-term funding program that helps you to get cash against your credit card. In this program, the cash advance service allows the cardholder to withdraw cash up to a set limit.
Term Loan: A term loan is a type of business loan that is repaid with an agreed repayment schedule. The age of these term loans are usually between 2-10 years.
Accounts Receivable: Accounts receivables are sales made, but not paid-for by the customers. The cash amount a business has the right to get after a product or service has been given.
FICO Score: Fair Isaac Corporation or FICO score is a type of credit score used by banks to determine the credit worthiness of a borrower. It combines a few factors such as the length of credit history, payment history, and amount payable. The higher the FICO score, the more contented you are.
Collateral: Collateral is a valuable asset of a business that a lender can seize from a borrower when the borrower fails to pay back the borrowed amount according to the agreed terms.
As a small business owner, you don’t have to be a financial expert to be successful, but you do need to know these basic small business financial terms that will help you to better understand your small business.