Common Financial Terms Entrepreneurs Should Know

There are many business owners out there who struggle to prepare simple financial statements, and they entirely rely on accountants. It is fine to work with accountants and get accounting software, but as you do so take your time to understand some basic financial terms. That is because these terms most of the time, come up in meetings with partners, clients, and partners, and you will want to respond from an informed position. The following are some financial terms to know.

Expenses-expenses refer to any payment that is made to make a business run. You incur expenses on a daily and monthly basis to enable you to produce your products and services and make them available to customers. Expenses include rent, employee salaries, legal fees, marketing costs, and the contractor pays. To maximize profitability, it is essential for businesses to keep their regular expenses as low as possible.

Account Receivable-this is the amount the customers owe to your business. The amount owed is usually sent to the client by an invoice, and if the money is not paid, the amount can be legally enforced. When entering the amount receivable in the balance sheet, it is registered as an asset.

Cash Flow-This refers to the general movement of money through the company every month. Cash flow includes both income and expenses. You get money into the company when you sell things to clients or when you collect debts from accounts receivable. On the other hand, the money gets out of the company when you are paying expenses such as utilities, rent, taxes as well as the accounts payable.

Cash Flow Statement-This is a statement that shows the amount of money that came into the business as well as those that was paid out of the company within a specified time. As a business owner, you need to track the general flow of cash so that you can predict long-term solvency or capacity to pay all the bills. To learn more on financial terms, view here!

Profit and Loss-A successful business is one that can make more money when they sell the products than it costs to produce that product. You make a profit when you have more revenue than the cost of production and on the other hand, if you are generating less money than it costs to produce a product, then you are making losses, and the business is not viable as at that time. Check out more here: