Essential Financial Terms That Every Small Business Should Know
- by siteadmin
Many people have a general understanding of what finance is, but they don’t understand the specific terms associated with it. In this blog post, we will break down some of the most important financial terms that any small business should know about. If you own a startup or are running a solo project, these definitions may be helpful to you as you start your journey towards success!
Cash flow statement: this is one way that businesses track their income and expenses over time. A cash flow statement will show you whether or not there is enough money going in and out of your company to cover all costs for a given time period (usually monthly). If there isn’t enough money coming into or going out of your business during any given month, then you may have problems paying off debts with interest rates associated with them. High-interest payments can be dangerous because they increase how much money you need from revenue just to pay what you already owe! You also don’t want to be in the position where you’re selling your business for less than what it’s actually worth because of high debt (and interest rates associated with it).
Capital: this is an important term within any type of finance. It refers to the total amount of money that a company has after all debts have been subtracted from its assets. If your company doesn’t have enough capital, then you may not be able to pay off debts or operate successfully on a day-to-day basis. For example, if someone owes $50 and they only have $30 coming into their pocket each month, then they are clearly going to struggle when trying to pay back loans with monthly installments attached.
Boosts – Sales numbers: companies track this number to show how much they’ve made over a given time period (usually monthly or yearly). If you aren’t making enough revenue, then your company is going to struggle with paying off debts and keeping customers happy. In order for sales numbers to go up, you need an increase in your customer base as well as marketing strategies that help bring people from outside of the existing customer pool into it!
Interest rates: these are determined by banks based on whether someone is able to pay back their loan or not. The more likely a person appears able to repay what they owe, the lower the interest rate associated with a debt will be. If a bank thinks there’s too high of a chance that someone may default on what they’re paying each month, then they will charge a higher interest rate and the debt becomes even more expensive to pay off.
Assets: these are things that you own as part of your company (or yourself). A car would be an example of an asset because it can be used for business purposes such as transporting goods or supplies. If someone owes $50 but has assets worth $75, then their net worth is better than what we might expect at first glance! It’s important to note that just because something has value doesn’t mean that it can directly contribute towards paying back debts. For example, if I have a house with equity in it, this does not mean that I could sell my home and use those funds to pay off any loans. Instead, the value of an asset is only useful in very specific circumstances.
Equity: assets can be turned into equity if they are used to purchase other things that have greater financial worth. For example, you could take your car and use it as a down payment on another house or business property. If someone owes $50 but has equity in their home (i.e., it’s valued at more than what they owe), then this changes how much net worth we would initially expect them to have! The key here is that not all assets are equal when considering whether or not they contribute towards paying off debts – some may even lose money for you rather than earn anything extra back! When evaluating how of a deal something really is, make sure to take into account the interest rates and other costs associated with it.
Net worth: this is a term that can be used both in personal finance (i.e., how much money you have when all debts are subtracted from your assets) as well as business finance (where we’re talking about an entire company rather than just one specific person). If someone owes $50 but their net worth is $75, then they might not immediately appear able to pay back what they owe or even keep up on monthly installments! However, if their investments grow enough over time, then it’s possible for them to eventually generate more revenue than expenses and turn things around completely! This process requires patience and hard work because no matter how much your company earns in a given year if you owe more than what you make when things aren’t going to get any better!
Many people have a general understanding of what finance is, but they don’t understand the specific terms associated with it. In this blog post, we will break down some of the most important financial terms that any small business should know about. If you own a startup or are running a solo project, these definitions…