Finance terms business owners need to know
January 13, 2020
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Every business owner knows that you gotta talk the talk to walk the walk. And as an entrepreneur, chances are you have some savvy skills that have brought you this far. Keeping your business afloat is no small deal. It requires an expert set of vocabulary so that you can work with tough clients, persnickety accountants, or unreasonable suppliers. As a small business owner it’s crucial that your vocabulary matches all your dealings.
Every year new words get added to the Oxford English Dictionary (OED). In 2018 alone, over 1,100 words were added. The Second Edition of the 20-volume OED contains full entries for 171,476 words in current use, and 56,656 obsolete or derivative words included as subentries. This means there are approximately 250,000 words in the English dictionary.
That’s a lot.
To make it easier for the small business owner to identify and grasp key finance terms key for any business, we’ve created a list highlighting six concepts you should understand and utilize for all business happenings.
Accounts payable, or AP, is an accounting term that denotes the money a business owes to its suppliers. It represents a company’s obligation to pay off a short term debt to its suppliers, creditors, or partners.
Accounts receivable, or AR, is an accounting term that represents the money a business can expect to receive from a customer or partner. AR denotes the money a company can legally collect payment upon. AR is usually in the form of an invoice (more on those later).
To help you keep track of your AP and AR it’s important to use software like Quickbooks to store important data like how much you owe and when it needs to be paid.
An invoice is an official statement of goods or services that one business has sold to another, with the sum total due and the due date of payment. Invoices are also called bills or a statement of charge.
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B2B stands for Business to Business. It means any transaction that occurs between two businesses, whether they are large, small, or a sole proprietorship. For example, a business paying a supplier would be a B2B payment.
If a company (like Veem) claims they are a B2B payment solution, you can now understand that this means they work mainly with SMBs that pay other businesses.
B2C refers to Business to Consumer. It denotes any transaction that occurs between an individual consumer and a business. For example, when you purchase chips at the grocery store, that is a B2C payment.
Cash flow is the net amount of cash an entity receives and disburses in a set period of time, usually a month, quarter, or year. In accounting, cash flow is calculated using the following equation: Cash from operating activities +(-) cash from investing activities + cash from financing activities = cash flow.
Cash flow might be one of the most important finance terms business owners should understand as it encompasses important financial obligations that a business has. In layman’s terms, cash flow represents the balance between your business’ income and owings. It not only depends on the amount of money going in and coming out of your business account, but also the pace at which they do so. For this reason, businesses need to take due dates, budgeting, and accounting management very seriously.
As a small business owner, it’s on you to understand the inner workings and outer dealings of everything business-related. And the best way to do this is to understand the terminology all businesses’ use. These highlighted terms only begin to scratch the surface of the finance and business terminology you need to understand to succeed.
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