10 Financial Terms for Small Business Owners
Starting a small business is an exciting undertaking that can also be overwhelming. To set your small business up for success, gather your financial documents and learn these 10 financial terms.
Assets are anything of economic value that your business owns and uses in its operations. Assets can be tangible or physical, including cash, furniture, equipment, vehicles, real estate, and supplies. Intangible assets include intellectual property, such as your business’s name, logo, trademarks, or copyrights.
Liabilities are financial obligations or debts that your business owes. These may include loans, accounts payable, wages for your employees, or mortgages. Liabilities are either current, such as invoices due to suppliers or vendors, or non-current, which are long-term liabilities like loans, mortgages, or leases.
3. Balance Sheet
The balance sheet lists all assets and liabilities and then subtracts liabilities from assets to find your equity in the business. It provides a snapshot of the financial health of your business and is used to determine a company’s net worth.
4. Working Capital
Working capital is the money available to cover short-term expenses in a 12-month period. It’s a reflection of the company’s liquidity for the year ahead and is also calculated by subtracting the liabilities from the assets. Learn more about working capital and calculation methods in “Working Capital and Your Small Business.”
Business owners pay expenses to keep the company operating daily. These differ from liabilities in that liabilities are long-term obligations while expenses should be paid immediately with revenue. If payment on an expense is delayed, then it becomes a liability.
6. Accounts Receivable
The invoices your customers or clients owe are part of your accounts receivable. To manage your cash flow, your accounts receivable will need to cover your accounts payable, or the money your business owes to suppliers and vendors.
7. Cash Flow Statement
To document how cash is moving through your business’s operations, use a detailed cash flow statement to record income and expenses. Knowing how your business is making money and where it’s being spent lets you know how solvent your business is. If you’re not making enough to pay the bills, your business has a cash flow shortage and may need help covering these costs. If you find yourself in this situation, Texell’s team can assist you with finding a small business loan.
8. Profit & Loss
To calculate your profit, subtract all the business’s operating expenses from its revenues. If this calculation is a negative number, this is a loss, since the business spent more money on operations than it made.
9. Income Statement
The income statement, also known as a profit and loss statement, lists profits and losses during a specific period, usually a fiscal quarter or year. This document provides insight into how your business can increase its revenue, decrease losses, or both to generate a greater profit.
10. Net Profit or Bottom Line
You can calculate your business’s net profit by subtracting all expenses from the revenues. It’s the last line in a balance sheet, which is why it’s also called the “bottom line.” Most businesses measure their net profit monthly to make sure their business is staying on track.
If you are just starting out and need help with a small business loan, Texell’s Commercial team is ready to answer your questions. As a Small Business Administration (SBA) approved lender, Texell can help with SBA 7(a) and 504 loans. Email BusinessLoans@Texell.org or call 254.774.5161 for help in growing your small business.