Listed below are some everyday financial projection terms that I was requested to define in common terms during a recent business financial event. For more information on business financial planning be sure to join Small Business Thoughts for free and search the Library at http://www.smallbusinessthoughts.com.
| accounts payable | Money owed to others for goods and services received |
| accounts receivable | Money owed from customers for goods and services sold |
| additional inventory | Raw materials or finished goods that are ready or will be ready for sale, which are purchased to replenish existing inventory |
| amortization | The paying off of debt in regular installments over a period of time |
| assets | All resources owned by the business |
| balance sheet | A financial statement that shows the company’s financial position at a moment in time—all assets, all liabilities, and all equity |
| benchmarking | Comparing company’s results to the experiences of others of similar size and within the same industry |
| benefits | Costs paid by company for employee-related items, such as Social Security, worker comp, health insurance, vacations, sick days, etc. |
| book value | Sum of all assets, minus all liabilities = equity. The intrinsic value of the business owned by the stockholders |
| breakeven point | Point at which total sales for a period of time = total expenses for that period of time (in other words, there is neither a profit nor a loss) |
| business concept | An idea which can be used for commercial purposes |
| C-corp. | A limited liability legal structure in which the company is taxed separately from its shareholders |
| capital | Long term money held in the business that is used to create profit |
| cash flow statement | An analytical tool that demonstrates the short-term viability of a company, particularly its ability to pay bills |
| collateral | Property and goods used to secure repayment of a loan |
| cost of goods sold (COGS) | Also called cost of sales or variable costs. The costs associated with a specific product, not including overhead costs, such as payroll or office supplies. |
| current | Will occur within 12 months of the financial statement date |
| debt capital | Debt raised by the business by taking out a loan |
| depreciation | Cost of expensing a fixed asset over its estimated useful life; Many people use “Straight Line” depreciation, equal amounts over the life of the asset, for management planning and reporting purposes. “Accelerated” depreciation might be used for tax reporting purposed. Consult your accountant for advice. |
| direct cost | Cost that can be directly traced to producing specific goods or services |
| disbursements | Money paid out |
| dividends paid | Money paid to shareholders |
| equity | (see book value) |
| expense | Operating costs the business incurs through its efforts to earn revenue |
| financial projection | Estimate of future financial outcomes (see forecast) |
| fixed expense | Business expenses which must be paid every month, even if you have no customers (for example: rent, utilities, telephone, loan payments) |
| forecast | Making statements about events which have not yet been observed |
| fringe benefits | (see benefits) |
| funds management | Management of cash flow |
| gross profit | Revenue minus the cost of making a product or providing a service, but before deducting overhead, payroll, taxes and interest payments |
| gross profit margin % | Gross profit divided by total sales |
| income | Revenue produced through sales of goods and services |
| income statement | Analysis of financial performance over a period of time (also called the Profit and Loss statement, or ‘P&L’) |
| indirect cost | Costs that are not directly accountable to a unit of production, also called overhead (such as taxes, administration, personnel, and security) |
| industry comparison | (see benchmarking) |
| liabilities | What the business owes to others |
| line of credit | The maximum credit a customer is allowed; This is usually arranged with a bank, and the borrower is allowed to borrow up to a pre-defined amount. This is generally used to maintain a certain minimum cash balance for the business. |
| long term | Occurs later than 12 months from the financial statement date |
| model | Computer program that uses facts and assumptions to simulate financial operations of a business |
| net profit | Sum of total revenue and gains, less all expenses (including taxes) for a reporting period |
| net profit before taxes | Sum of total revenue and gains, less all expenses except for income taxes for the reporting period |
| net profit margin % | Net profit divided by total sales |
| operating expense | Expenditures incurred in the normal course of business |
| overhead | (see indirect cost) |
| owners distribution | A payment of earnings to owners of a business |
| payment terms | Conditions under which a seller completes a sale, including the time the customer has to pay off the amount due |
| profit & loss statement | (see income statement) |
| profitable | Excess of purchase price over the costs of bringing product or service to market |
| projected | Estimated or forecast |
| ratios | Calculations used to make numerical comparisons |
| receipts | (see income) |
| revenue | (see income) |
| S-corp. | A limited liability legal structure in which the corporation’s income or losses are divided among and passed through to its shareholders who then report the income or loss on their own individual income tax returns |
| sales | (see income) |
| sales forecast | Estimated sales for a time period |
| sales unit | As used in the SCORE model, it is a product or service, or a group of products or services, regarded as a single line-item entry in the sales forecast |
| short term | Occurs within 12 months of the financial statement date |
| sole proprietorship | A business entity that is owned and run by one individual in which there is no legal distinction between the owner and the business |
| sources of funds | Typical sources include profit from operations, debt from money borrowed, and sale of equity interest to shareholders |
| spreadsheets | An interactive computer application use for analysis of information in a tabular form. These are frequently used for financial information because of their ability to re-calculate the entire sheet automatically after a change to a single cell is made. |
| subcontract | Individual or business who signs a contract to perform part or all of the obligations of another’s contract |
For more information about financial statement terminology, you may like the free video The Financials – Managing Your Business Session 1 Understanding Key Concepts.
Copyright ©John Trenary 2021