Many entrepreneurs get into business with either none or less financial terms awareness, considering they might be in business as natural salespersons. But when it comes to running a business knowing your numbers is one of the most important things.
Business owners who struggle with finances should hire an accountant or use accounting software’s, but there are financial terms every business owner should know as listed by momentum credit below.
- The balance sheet – this is a statement that shows the business financial position at the specific moment in time.
- Assets – It is basically anything with monetary value that the business owns such as cash, receivables, inventory etc.
- Sales – This is an exchange of goods and services for money and you should think of it as the engine that drives your business
- Expenses – The overhead to run the business such as rent, payroll, marketing, taxes, and interest.
- Liabilities – Debt of the business or any money owned by the business such as invoices by vendors, bank loans, lease or payroll.
- Cash flow statement – it’s the sources and use of cash from one month to another and you use this to evaluate your cash position in the business.
- Profit Margin – This is how you determine the financial health of a business also know as the ratio of profits earned minus total sales receipt over a given quarter or yearly.
- Depreciation – With time business assets decrease in value due to the time that has passed since the time it was purchased.
- Valuation – When seeking funds from investors, the investors would want to know the overall value of the business and that is accomplished through valuation.
- Bottom line – This is the total amount a business has earned or lost at the end of the month and it’s the last financial figure on a ledger.