A perpetual work in progress. Please contact me if something isn’t here that you would like to see added. If you do, I’ll acknowledge you with a nod to your insta handle. A bit like adopting an animal at the zoo. What an honour!
important note! You can still be AWESOME at business finance without knowing all these fancy words. You know my mantra – KISS! Keep It Super Simple if you see a ?, it means it’s simple AND useful to know.
?accountant someone who ideally has spent many years working magic with numbers and money. Not always the life and soul of parties, good ones however are very good value when it comes to helping entrepreneurs realise their dreams, if they’ll listen to them. Beards optional. Less so these days.
?aged payables: these are monies that you owe your suppliers. Typically an aged payables report is a list of outstanding supplier payments with an indicator of how old the debt owed to them is. Also called Trade Creditors.
?aged receivables: monies owed to you by your customers. Typically, an aged receivables report shows you who owed you what and how long since their invoice was issued. You should regular review this document and chase up late payers to keep your cash flow in good shape. Also called Trade Debtors
amortisation like depreciation but used for intangible assets that aren’t easy to physically see or hold.
?balance sheet this is a snap shot of the business at any one time and shows how healthy the business is. It features the business assets, such as cash and equipment and liabilities, such as loans and tax due. The balancing figure shows how much is left when you deduct the liabilities from the assets. The bigger this number, the stronger the business is considered to be.
Board A group of Directors (see exec and non exec directors) who are responsible for the Company. A well represented board will really make the difference between success and a drifting company lacking in achievement and strategy.
?Break-Even quite simply when your sales equals your costs but there’s nothing left over and your profit is zero.
?budget a plan of how much you’re going to spend in the business. This is then used as a guide to help measure performance and steer the company and control cash flow. It’s a great tool to get all people in a company singing to the same tune and I recommend making them part of the budget setting process.
Book-keeping Recording the business financial transactions.
capital just another word for business money. That’s all.
?cash flow forecast: this is a projection of how much cash is available in the business over a period of time. If prepared accurately and often, this document is a really good alarm system of when extra funds might be needed, or even if there’s excess capital that can be put to better use or paid out to shareholders or business owners.
?cloud based accounting a financial record keeping software held “in the cloud” (google that) and not on a localised server. Examples are Xero and Quickbooks.
?contribution see gross profit
corporate governance the way that a business is managed, balancing operational matters with ethics, law and actually, in a nutshell, just doing the right thing.
?Corporation tax the tax a limited company or plc pays on its profits, unless your a big international company (they know who they are) and then you’ll spend a lot of time and money trying to dodge it.
?current asset is an asset such as cash or an asset that can be turned into cash in the next twelve months such as an aged receivable, stock or prepayment.
?current liability is an amount owed by the company that is payable within twelve months. This can include loan payments or payments to suppliers.
Depreciation The expected useful life of an asset in the business. EG. If computer equipment is expected to last three years, it is said to be “written off” over that period. Therefore the depreciation of a laptop costing £300 is £100 per year.
?Directors loan account an account that keeps track of how much money a director has injected into the company or how much of the company’s money a director has spent. Note the government don’t like it when a directors loan account is overdraft and will tax it accordingly.
dividends money that gets paid to shareholders as their reward for investing in a company.
double entry stop sniggering. This really isn’t what you think it is. It’s a book-keeping term when things were a lot more paper based. Although the principles remain, it’s almost invisible with accounting software packages. It basically means that for every action, such as a bank payment, an equal and opposite transaction occurs, such as a log of an expense. I’m not sure I’ve made this one that much clearer. Don’t worry. It’s not life or death critical knowledge. Unless you want to be a book-keeper in which case study AAT. They’ll explain it better.
drag along rights when a majority shareholder sells their shares, the minority shareholder is forced to also seek theirs and must be given the same price, terms and conditions.
?drawings the money a sole trader or partner takes out of the business
?Entrepreneurs the lovechild of the dreamers and the doers, often with a little dose of crazy, but they make my world more interesting. Sometimes I think I might even be one myself.
Equity Coming soon
executive director is a person who is actively engaged at director level in the operations of the business
Fiscal an American term for taxes, not really used in the UK
Gearing how heavily the business is in debt (see key business calculations)
goodwill the value created, often when a business is bought for a value greater than the sum of its assets.
?gross profit is calculated by taking the cost of making a sale from the sales income itself, but before administration expenses are deducted. It is often expressed as a % margin. Also called contribution.
?how to master your finances A most excellent course on how to be most excellent at maxing out your business potential with outstanding financial management. And here is a handy link for convenience!
intangible asset An asset that is not easily seen or held, such as goodwill.
internal rate of return Coming soon
?limited company a separate legal entity from its owners, who own the company by holding shares.
liquidity Coming soon
?management accounts a suite of documents that cover a period in time, often a month and include a profit and loss statement, balance sheet and cash flow forecast. These documents give you a good idea of what is going on in the business on a timely basis and with good analysis and interpretation, help steer the business in the right direction.
?mark up a figure applied to the cost of a product to get to a selling point, e.g a shop my mark up by 2.5 times so a product that costs £100 to buy will be sold for £250.
?net profit what’s left after all costs have been deducted from sales
non executive director a generally knowledgable and experienced person who sits on a company board as a mover and shaker and aids the executive directors in decision making at the top level. These people are not involved in the day to day operations.
?management accounts a period of time where the business activity is regular measured and reviewed. Management accounts are often monthly or quarterly.
ordinary share coming soon
partnership two or more people in business together who are not operating in a company limited by shares or not for profit organisation.
preemption rights Often appearing in a shareholders agreement, these are a contractual clause giving a shareholder the right to buy shares before they can be offered to anyone else, in proportion to their existing shareholding.
preference share coming soon
?profit and loss statement a document that shows how much a business has “made” during a set period of time, by taking the sales less all of the costs relating to the sale and administration of the business.
Public limited company coming soon
Recession the Harry Potter equivalent of Voldemort and the doom word of the economy. Part of the economic cycle. Some might say a provider of opportunity for the optimists and a worrying time for thousands more.
Reserves coming soon
Revenue this is the same as sales, turnover or money generated.
Shareholder someone who owns all or part of a limited company or plc. They usually expect a reward for their ownership in the form of dividends.
?sole trader someone who operates a business on their own and does not use a limited company to do so.
tag along rights When a majority shareholder sells their shares, the minority shareholders have a right to also sell theirs.
?triple bottom line one of my favourites and one for the hippies inside all of us. This is an accounting framework where social and environmental impact is measured as well as finance. In the words of Jessie Jay “it’s not about the money, money, money”. (Well, almost)
?VAT tax added to many types of goods and services at the current rate of 20%.
?year end a point in time at which a company closes its accounting records and prepares a statement detailing the activity for that period. It can be any point in the year but is nearly always a month end. March is a popular year end because it coincides with the end of the British tax year (albeit 5 days earlier. Cue google search to find out why the tax tear ends on 5th April)
?zzzzzz Something you should never be caught doing when it comes to money and finances. This will only end up in tears.