Starting a new business is exciting but it can also be a lot to handle. There is a constant learning curve when you enter the business world until you reach a more “professional” level. When it comes to running a business, certain terms can be overwhelming for a lot of newcomers. It can be intimidating, and not always easy to navigate when these terms are thrown around with the expectation that you already know what they mean. Too often, people are scared out of the industry, especially those who were not raised to know the language or taught these words–and too often, those who aren’t always given access to learning these industry quirks are women. Jargon and industry-specific language can be barriers for those interested in growing a business, but they shouldn’t be. That’s where we come in. From assets to depreciation, here are 11 business and finance terms that will help you navigate the world of business!
You may have heard this word. A lot. ‘Asset’ is one of the most common business finance terms as it basically means anything that has value and can be turned into cash. Assets can be owned by companies, individuals, and the government. As far as companies go, assets can be anything that generates revenue or benefits the company in some way. When it comes to cooperation, assets are listed on the balance sheets and are netted against liability and equity.
2. Balance Sheets
Balance sheets are basically the statement of your financial position. These typically include a list of your assets, liabilities, and the owner’s equity at a certain point in time. Balance sheets also include an income statement that shows an individual’s net income for a specific period of time.
A liability is a sum of money that a company or individual is indebted to. Current liabilities are payable within a year or less whereas long-term liabilities have a time limit of more than a year. Liabilities are listed on balance sheets and can include taxes, wages, and accrued expenses.
Bookkeeping is essentially an accounting method. It involves keeping a record of all of a business’s financial affairs. It’s not so different from keeping a budget!
Capital refers to the total wealth of an individual or company. These can be in the form of money or other assets owned by a business. Capital is also known as “fixed capital” which refers to a business’s long-term worth. Capital can either be tangible, which refers to physical assets, or intangible like intellectual property.
If an asset loses its value, it is referred to as depreciation. For instance, if there is a decrease in the value of factory equipment. Depreciation usually occurs due to the wear and tear of the assets.
7. Gross Profit
After deducting the costs that are associated with making and selling products, the profit a company makes is known its gross profit. Gross profit can be easily calculated by subtracting the cost of items sold from the revenue.
Liquidity basically means how quickly an asset can be turned into cash at market value. Anything ranging from savings accounts or checkable accounts are known as liquid assets because they can be easily converted into cash whenever an individual or business requires it.
Bootstrapping essentially means being your own investor. When an individual finances their own start-up business with their own personal money, it is known as bootstrapping. The term is also used as a noun with bootstrap referring to an entrepreneur with little to no experience.
10. Debt financing
The most common method of funding start-up businesses is usually through debt financing. Debt financing entails a company borrowing money to support their business from a lender. The original amount is then paid back with an interest at a given time.
11. Secured Loan
When funding a business, a company may take a secured loan. When a secured loan is taken, the borrower pledges an asset as collateral for the loan. If the loan is not paid within the specified time period, the lender may sell the asset for market value and redeem the money lent.
It’s easy to feel like you’re not professional enough or experienced to start a new business, but without giving it a shot you won’t ever gain that experience. Being able to navigate the jargon and words thrown at you is just the beginning to standing on your own two feet as an entrepreneur and call the shots for your career. It can be difficult and frustrating at times to feel like everyone else secured an education in business or inherently was born with a copy of the Wall Street Journal in hand, but when you start to decode some of the common words tossed around you begin to realize that it’s not at all that intimidating or difficult. So here is to building your own way in business and remembering your value isn’t based on fancy words!
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