Finance Business Dictionary: Key terms to know
Table of Contents
As a business owner, managing the financial side can be confusing, especially if you’re not familiar with the common terms involved.
That’s why we’ve compiled this finance business dictionary of the key financial terms every self-employed person should be familiar with.
Knowing these terms will make it easier to keep accurate records, negotiate with investors, and anything else business finance-related.
The terms we’ll explain include:
- Accounts payable and receivable
- Accounting software
- Asset
- Balance sheet
- Business account
- Cash flow
- Dividend
- Equity
- Fiscal year
- Gross profit
- Income statement
- Limited liability
- Net profit
- Revenue
Our finance business dictionary
Accounts payable and receivable
Accounts payable
Refers to money that your business owes, like an invoice you have yet to pay to suppliers, debt to creditors, or any other sum of money your business owes.
Accounts receivable
On the other side of the coin, this is money that individuals or businesses owe you. For example, when you sell something to a customer on credit.
Accounting software
A software that generally helps you record, calculate and track your business’ financial records over time. Instead of performing these tasks manually in a logbook, you can use a website or app to do it faster and more accurately.
Asset
Something of value that you own or lease that helps you run your business, including cash or things you can sell or otherwise convert into cash. Business assets can include equipment (like a laptop), bank balances, and stock.
Balance sheet
A common report that checks your financial health. The sheet will show the business’ net worth, and it’ll be able to pay its financial obligations and operating costs.
Simply put, the balance sheet is a two-sided chart showing the value of what you owe on one side and what you own on the other. The total of both should balance each other out (hence the name).
Business account
Like a personal bank account but solely meant for your business income and expenses. While business banking is not usually free, account providers such as Countingup offer extensive services for affordable prices.
Cash flow
The money you bring into your business (your cash inflows) and the money you spend on expenses (your outflows).
If your business is soaring and you make more than you spend, you’re doing something right. But if you struggle to balance your cash flow, you may need to make adjustments.
Dividend
A sum of money that a limited company pays out to individuals and companies that own shares in the business –– its shareholders.
You can distribute any profit your company makes to shareholders via dividends. As the director of your company, you can also choose to pay part of your wage in dividends.
Equity
The cash value of a valuable item you own after paying off any liabilities like tax or interest. Owner’s equity is the value of all your business assets, minus the money you owe on them.
Fiscal year
A fiscal year is a 12-month accounting period that businesses use for financial and tax reporting purposes, also known as a financial year.
In the UK, the fiscal year starts on April 6th every year, ending on April 5th the following year. For example, the current fiscal year (2022-2023) just started on April 6th 2022 and will last until April 5th 2023.
Gross profit
The money you make after deducting the costs of making and selling your products or providing your services –– your Cost of Sales.
Your gross profits should be on your business’ income statement. It may also be referred to as sales profit or gross income.
Income statement
A financial document you fill in to report your company’s income and expenses to HMRC in a specific time period. Your income statement shows if you made a profit or loss during that time. It’s also referred to as a profit and loss statement.
Limited liability
This is a business structure that reduces the owner’s financial risk. If a business fails or can’t pay its debts, limited liability reduces the amount of money that the owner is personally responsible for.
By reducing financial risk, limited liability provides a safety net for investors and owners.
Net profit
The amount of money you have leftover after you have accounted for all your expenses. Typically, net profit is a percentage that tells you how much is left for you for every £1 you earn.
Because net profit accounts for your operating costs, lenders and investors prefer using this figure when considering your business’ health.
Revenue
This is the income a business brings in via sales of its main products and services before any expenses are subtracted.
Revenue can be commonly referred to as ‘sales’, which is the total cash value of all sales made by a business. You might also hear it referred to as the ‘top line’ since the revenue is found on the top line of an income statement.
Get your finances in order with Countingup
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Save yourself hours of accounting admin so you can focus on growing your business.
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