Amit Chougule

Entrepreneur – Endurance Cyclist

Rookie Entrepreneur’s Financial Glossary

Financial Glossary

Financial Glossary

Running a business or startup by rookie doesn’t mean there will be an excuse for not understanding your finances. The first thing you need to understand in business is your numbers, ie. financials. There are some important terms which everyone must know. You need to learn the skills you need for being an entrepreneur. I listed some of financial terms below, if you want to know any other specifically, you can add a comment.

  • Assets – Things that your business owns are considered as Assets. eg. Cash, Computers, stock or property. The things that can liquidated ie. sold to get cash when needed are considered as assets.
  • Balance Sheet – This is a snapshot of business at a particular time. It will list all of your assets & liabilities to find your net assets. The higher the net assets, the stronger the underlying business. The lower the net assets , business is in difficult position if failed.
  • Bank Reconciliation – This is important part of business operation. One should do it every month atleast to cross check that ensures your accounts match with reality of your bank account.
  • Creditor – Anyone who you owe money to is creditor. This could be your supplier, landlords, accountant, service providers etc.
  • Break Even Point – The point when what you earn is equals to what you spend. ie. your earned profit covers all your expenses.
  • Debtor – A person or business that owes you money is debtor. The earlier you recover your payments, the better it is for your business and cashflow.
  • Cash – This is your liquid asset. When you have money in cash form, its available when you need it. Always Remember – CASH IS KING , respect it.
  • Gross Margin – Gross margin is net sales minus cost of raw material. The gross margin tells you the amount that your business earns from the sale of its products or services, before any selling, marketing & administrative costs.
  • Gross Profit – Gross profit is the difference between sales and the direct cost of marking the sales. This is not all profit but a gross profit before covering other expenses.
  • Overheads – These are costs that you have to pay to run a business. All the fixed costs like rent, marketing, utilities and administrative costs etc. Try to keep these as low as possible. This is most important factor in your business in early stage until you receive funding.
  • Liability – A financial obligation or an amount owed to a company or individual.
  • Overtrading – When business expands its operations very quickly, and start selling more things than what its supply chain or production unit can support is considered as overtrading. This can result in bad customer experience and cash flow problems.

  • Net Profit – Total gross profit minus all business expenses. This profit exists on a paper. When you actually receive it, you can spend it or reinvest. In early stage of startup, its important to reinvest your net profit back in business rather than spending on unnecessary things.  
  • Profit – This is final money earned. The total revenue of business minus total expenses is PROFIT.
  • Profit & Loss (P&L) Statement – This is also known as income statement or management accounts. This is a financial statement listing sales and expenses and used to work out the gross and net profit of a business. If you are making loss, you need to strictly take some actions to improve situation.
  • Stock – The actual products or material that business have ready to sell. If business have too much stock, or too little stock , both things are bad for business. Thats why its highly important to know what stock level need to be maintained.
  • Revenue – This is also called Turnover. The amount earned before expenses, tax and other deductions are taken out. The more revenue, the better the situation of business can become.
  • Variable Cost – This is cost which changes based on number of goods produced or demand of product or services. This can keep changing as per demand.
  • Working Capital –  This is cash available to a business for day to day expenses. Remember, every buck you spend is another you need to earn. So work hard for this capital money.

I hope this will help to reduce some inferiority about finance. If you have anymore questions regarding any other financial terms, feel free to comment below, I will answer it asap.