As a small business owner, you will have a lot on your plate. From hiring new employees
to bringing in new business, you will wear many hats.
The more you understand about business in general the better off you will be. Even more so, you must have a strong understanding of the financial side of your organization.
Here are five finance terms all small business owners must know and understand:
- Accounts payable. These are bills to be paid as part of your business. Until an invoice is paid, it is recorded on your balance sheet as part of accounts payable.
- Accounts receivable. This can be considered the opposite of accounts payable, as it includes debts owed to your company. In short, this is the amount of money due to you from a customer who has not paid.
- Cash flow. The basic definition of cash flow is as follows: the total amount of money being transferred into and out of a business. As a small business owner, your goal is to have more money coming in than going out.
- Expense. There are many common expenses taken on by companies, including but not limited to: advertising, rent, travel, utilities, and salaries. It is imperative to track expenses as many are deductible against taxable income.
- Income statement. It does no matter if you call it an income statement or profit and loss statement, the importance of this finance term does not change. This shows sales, costs of sales, operating expenses, gross margin, and profits or losses.
Some small business owners, especially those with a finance background, have no trouble understanding these terms. Others, however, have to spend more time learning about this side of their business.
Every small business owner, regardless of industry and company size, must know and understand the five finance terms above.