Small Business Terminology

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Business TermDescription
AccountingAccounting involves the systematic recording and reporting of business financial transactions
Accounts PayableAccounts Payable reflects how much you owe your creditors for goods or services supplied to you
Accounts ReceivableAccounts Receivable is the amount of money your customers or clients owe your business for goods or services you supply
AssetsAssets are the cumulative financial holdings of your business and are usually classified into either Current Assets or Fixed Assets. Current, or short-term, assets include cash or inventory. Fixed, or long-term assets, include equipment, buildings, vehicles or land
B2B/B2CIs the purpose of your business to supply goods or services to other business, then you operate a B2B business, standing for ‘business-to-business’. The converse of B2B businesses are B2C businesses, which supply goods or services directly to an end-user or consumer
Balance SheetThis is a key financial document, which provides a summary view of business assets, liabilities and owner’s equity
Barrier to EntryBarriers to entry describes the high start-up costs or other obstacles that prevent new competitors from easily entering an industry or area of business.
BillingsThe process of preparing or sending invoices
Break-Even PointThe break-even point is the production level where total revenues equals total expenses. So, the break-even point is where a company produces the same amount of revenues as expenses either during a manufacturing process or an accounting period. Since revenues equal expenses, the net income for the period will be zero. The company didn’t lose any money during the period, but it also didn’t gain any money either. It simply broke even.
Business EcosystemA business ecosystem is the network of organisations, including suppliers, distributors, customers, competitors, government agencies, etc., involved in the delivery of a specific product or service through both competition and cooperation.
Buyer PersonaA buyer persona is a semi-fictional representation of your ideal customer based on market research and real data about your existing customers. Information included in buyer persona(s): customer demographics, behaviour patterns, motivations, and goals.
Cash AccountingThe total amount of money being transferred into and out of a business, especially as affecting liquidity.
Cash FlowThe total amount of money being transferred into and out of a business, especially as affecting liquidity
COGS (Cost of Goods Sold)Cost of Goods Sold (COGS) is the cost of acquiring or manufacturing the products that a company sells during a period
ContractAn amount that has to be paid or spent to buy or obtain something.
CostsAn amount that has to be paid or spent to buy or obtain something.
CreditorsA person or company to whom money is owing
Days Sales OutstandingA person or organisation that owes money
DebtorsA person or organisation that owes money
DemographicThe structure of a particular sector of a population
Direct CostsExpenditures for equipment, utilities or inventory, which are for all the money you spend to operate your business
Double-AccountingDouble-entry bookkeeping, in accounting, is a system of book keeping where every entry to an account requires a corresponding and opposite entry to a different account. The double-entry has two equal and corresponding sides known as debit and credit. The left-hand side is debit and right-hand side is credit.
EBITEarnings Before Interest and Tax – the measure of profit before interest and income tax is commonly called ‘operating earnings’ or ‘operating profit’ (It is not called net income, because this term is reserved for the final bottom-line profit number of a business, after all expenses (including interest and income tax) are deducted from sales revenue).
EquityEquity represents the shareholders’ stake in the company, identified on a company’s balance sheet. The calculation of equity is a company’s total assets minus its total liabilities, and is used in several key financial ratios such as ROE.
ExpensesExpenditures for equipment, utilities or inventory, which are for all the money you spend to operate your business
Financial RatiosFinancial ratios are relationships determined from a company’s financial information and used for comparison purposes. Examples include such often referred to measures as return on investment (ROI), return on assets (ROA), and debt-to-equity, as three examples.
Fiscal YearA fiscal year is a one-year period that companies and governments use for financial reporting and budgeting. A fiscal year is most commonly used for accounting purposes to prepare financial statements.
Fixed CostThe difference between sales and cost of sales, ie before taking off any indirect costs. So, it is calculated by subtracting the cost of goods sold (COGS) from revenue (sales).
Gross ProfitThe difference between sales and cost of sales, ie before taking off any indirect costs. So, it is calculated by subtracting the cost of goods sold (COGS) from revenue (sales)
IncomeMoney received, especially on a regular basis, for work or through investments
Indirect CostsCosts, other than Direct Costs, and more-so for the running of your business, examples of which are salaries and rental
Intellectual PropertyIntangible property that is the result of creativity (patents, trademarks, copyrights, and trade secrets)
LiabilitiesThe state of being legally responsible for something. A thing for which someone is responsible, especially an amount of money owed
Net LossWhen total expenses exceed overall revenues, you have a Net Loss in your business
Net ProfitNet Profit is also known as your Bottom Line. Net Profit represents total revenues less total expenses
Net WorthYour net worth is simply the difference between your assets (what you own) and liabilities (what you owe)
Organic GrowthOrganic growth is the growth a company achieves by increasing output and enhancing sales internally. This excludes profits or growth attributable to mergers and acquisitions but rather an increase in sales and expansion through the company’s own resources.
Owner’s EquityUsually represented as a percentage, Owner’s Equity refers to the owner’s part of business assets
Product Market Fit (PMF)Product-market fit describes a scenario in which a company’s target customers are buying, using, and telling others about the company’s product in numbers large enough to sustain that product’s growth and profitability.
ProfitA financial gain, especially the difference between the amount earned and the amount spent in buying, operating, or producing something.
Profit & Loss StatementThe Profit and Loss (P&L) statement is a financial statement that summarises the revenues, costs, and expenses incurred during a specified period, usually a fiscal quarter or year, but can also be for a month. The P&L statement is synonymous with the income statement.
Profit MarginProfit Margin measures how much profit you keep relative to your total sales. There are three types of profit margins: Gross Profit, Operating Profit, and Net Profit
Restraint of TradeLegal contract between a buyer and a seller of a business, or between an employer and employee, that prevents the seller or employee from engaging in a similar business within a specified geographical area and within a specified period. It intends to protect trade secrets or proprietary information but is enforceable only if it is reasonable with reference to the party against whom it is made, and is not contrary to the public policy.
Return on Investment (ROI)Return on Investment (ROI) shows how much you gained or lost on a business investment relative to how much you spent on it. Calculate ROI by dividing net profit by the cost of the investment
SalesThe exchange of a commodity for money; the action of selling something
Sales ForecastA calculation or estimate of future sales, taking into account factors such as industry or cyclical events
Sales PipelineA sales pipeline is a visual snapshot of where prospects are in the sales process. Sales pipelines show you how many deals salespeople are expected to close in a given week, month or year and how close a rep is to reaching their sales quota.
Variable CostsSee Direct Costs
Working CapitalWorking capital, also known as net working capital (NWC), is the difference between a company’s current assets, such as cash, accounts receivable (customers’ unpaid bills) and inventories of raw materials and finished goods, and its current liabilities, such as accounts payable.
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