Important financial terms small business owners should know

Important financial terms small business owners should know

Sep 6, 2016

Small business owners should have an understanding of financial terms, as they are the nuts and bolts of a business operation. If you have an accountant or are handling your own financials, knowing these financial terms will help you understand how well your business is functioning. Here are a few terms small business owners should be familiar with;

P and L – This is a statement, usually completed every month, will give you an understanding of how your business is running.

Balance Sheet – This is an indication of your businesses assets and liabilities. This statement will provide valuable information for decision-making.

Assets – These are items such as cash, real estate, land, equipment, tools, computers, and furniture.

Liabilities – These are loans outstanding and monthly bills your business owns.

Equity – This is the money you and any other owners have invested in the business.

Bottom Line – This is the net income or earnings that a company makes for the month.

Markup – This is the additional price added to the cost price.

Gross Margin – This is the difference between total sales revenues and total cost of goods sold. It can be stated on a per-unit basis, in dollars or as a percentage.

Gross Profit – This figure is your “Cost of sales” minus your costs directly associated with sales, such as materials, labor, and delivery.

Net Profit – This is your profit after costs such as overhead, materials, wages have been deducted.