Business and Finance Terms for Small Business Owners

1. Accounts payable

Your accounts payable consists of money your company owes to its creditors. Sometimes referred to as A/P or AP, accounts payable can be short term or long term depending on the credit provided to the business by the lender. The efficiency and effectiveness of the accounts payable process will also affect the company's cash position, credit rating and relationship with its suppliers." Implementing a dependable accounts payable system will produce accurate financial information you need to plan for both the short and long term.

2. Accounts payable aging report

In short, this is a detailed year-to-date report regarding the obligations due to suppliers. It’s a tool that organizes your business's accounts payable (AP) balances. This report helps you see the amounts you owe in black and white.

3. Accounts receivable

Trade accounts of businesses representing moneys due for goods sold or services rendered evidenced by notes, statements, invoices or other written evidence of a present obligation.

Bank Term Loans Now • Pre-Qualify in Minutes

4. Accounts receivable report

This report is the opposite of an aging of accounts receivable report. An accounts receivable (AR) aging report shows the balances of money owed to your business by customers or others.

5. ACH (Automatic Clearing House)

The automated clearing house (ACH) is an electronic funds-transfer system that facilitates payments in the U.S. The ACH is run by the National Automated Clearing House Association (NACHA). Most credit and debit transactions made through the ACH clear on the same business day.

6. Appraised value

The value placed on an item, product, or business by an appraiser. This can help you sell items, determine colleterial, or set price points for your products or services.

7. APR

The annual percentage rate (APR) is the amount of interest on your total loan amount that you’ll pay annually (averaged over the full term of the loan). APR is important because it can give you a good idea of how much you'll pay to take out a loan.

8. Assets

A business asset is an item of value owned by a company. Business assets span many categories. They can be physical, tangible goods, such as vehicles, real estate, computers, office furniture, and other fixtures, or intangible items, such as intellectual property.

9. Bad debts

Bad debt is an expense that a business incurs and is estimated to be uncollectible. Bad debt must be accounted for by all businesses who extend credit to customers, as there is always a risk that payment will not be received.

10. Balance sheet

Financial statement listing a company’s assets, liabilities, and equity on a specific date. Our blog has a step-by-step article to help you create one that works for you: How to Create a Balance Sheet for Your Business.

11. Bankruptcy

A bankruptcy may be voluntary or involuntary. It’s a condition where a business cannot meet debt obligations and petitions a federal district court for either reorganization of its debts or liquidation of its assets. More information can be found in the National Bankruptcy Act.

12. Business credit report

A credit report is a profile of your business that contains vital information that lenders examine when evaluating a business loan application. There are three major credit reporting bureaus that generate reports that are used to determine your creditworthiness. Equifax, TransUnion and Experian provide reports that include your name, personal info and details about the accounts that you hold. These reports also include information about closed accounts, unpaid debts and bankruptcies. The bureaus use this data to determine your scores. You’re entitled to a free credit report from each of the bureaus through a federally authorized site. Reviewing your reports can alert you to identity theft and fraudulent activity.

13. Business credit score

A business credit score (also known as the Commercial Credit Score) is similar to a personal credit score, or FICO score and measures a company’s creditworthiness. Business credit scores generally range from 0 to 100. Read 5 reasons to keep Personal Credit Scores and Business Credit Scores Separate on the SmartBiz blog.

14. Business plan

Hopefully, you have a solid business plan in place before you open your doors. It’s an essential roadmap for business success. This living document generally projects 3-5 years ahead and outlines the route a company intends to take to grow revenues. Learn how to build a business plan here: How to Write a Business Plan (without going to business school).

15. Capital

"Capital," in the business world, is simply money. Therefore, capital structure is the way that a business finances its operations—the money used to buy inventory, pay rent, pay employees, cover debts, and other things that keep the business's doors open.

//resources.smartbizloans.com/wp-content/uploads/Term-Funding-Deserve.png

16. Cash flow

Cash flow is the total amount of money being transferred into and out of a business, especially as affecting liquidity. It’s typically calculated as cash receipts less cash payments over a certain period of time. There is often a lag between when you have to pay your suppliers and employees and when you actually collect cash from customers. Solving Small Business Cash Flow Issues has more information about this important measurement.

17. Collateral

Collateral is something pledged as security for repayment of a loan, to be forfeited in the event of a default. Common types of collateral for small business loans include:

  • Real estate
  • Buildings
  • Equipment
  • Vehicles
  • Inventory
  • Accounts receivable
  • Future sales
  • Cash reserves

18. CPA

CPA stands for certified public accountant. CPAs provide a wide array of services, including auditing financial statements, financial analysis and planning, tax preparation, etc. Our article has information to help you determine if an accountant needs to be on your team: The Importance Of Having An Accountant From The Beginning.

19. Credit Score

Also known as a FICO score, credit scores are a 3-digit number that summarizes your creditworthiness, ranging from 300 (the worst) to 850 (best). Learn more here: What you Need to Know About Credit Scores.

20. Debt Service

The amount of the required periodic payments of principal and interest on a loan. The debt service coverage ratio (DSCR) helps lenders determine whether a business can take on a loan. The calculation is based on the business’s available cash flow when compared to its debt. This is one of the key metrics used to assess your eligibility for small business financing.

21. DUNS number

The Data Universal Numbering System is abbreviated as DUNS or D-U-N-S. It’s a proprietary system developed and regulated by Dun & Bradstreet (D&B) that assigns a unique numeric identifier to a single business entity. Learn why a small business needs a DUNS number on the SmartBiz blog: Why Does Your Business Need a DUNS Number?

22. FICO

Also known as a credit score, FICO is a software company based in California and founded 1956. Its FICO score, a measure of consumer credit risk, has become a fixture of consumer lending in the United States. Read more about understanding your FICO score on the SmartBiz Blog.

23. Insolvency

The inability of a borrower to meet financial obligations as they mature, or having insufficient assets to pay legal debts.

24. Liquid Assets

Cash, checks and easily-convertible securities available to meet immediate and emergency needs.

25. Loan Constant

A way to determine the true cost of borrowing, the loan constant is an interest factor used to calculate the debt service of a loan. The loan constant, when multiplied by the original loan principal, gives the dollar amount of the periodic payment. What Small Business Owners Need to Know About the Loan Constant has additional information about this important factor.

26. Maturity

Loan maturity date refers to the date on which a borrower's final loan payment is due. Once that payment is made and all repayment terms have been met, the promissory note that is a record of the original debt is retired. In the case of a secured loan, the lender no longer has a claim to any of the borrower's assets.

27. Microlender

Lenders giving small loan amounts – usually less than $50,000. One of the most used applications is microlending or microcredit. Microloans are small loans that are issued by individuals rather than banks or credit unions. These loans can be issued by a single individual or aggregated across a number of individuals who each contribute a portion of the total amount.

28. Net Worth

Net worth is the total wealth of an individual, company, or household, taking account of all financial assets and liabilities. Property owned (assets), minus debts and obligations owed (liabilities), is the business owner’s equity (net worth).

29. Partnership

A legal relationship existing between two or more persons contractually associated as joint principals in a business. Learn more about this business structure here: Partnership Vs. S Corp: Differences You Should Know About.

30. Prime Rate

Interest rate that is charged to business borrowers having the highest credit ratings, for short-term borrowing. Published daily in the Wall Street Journal, the Prime Rate is the basis for rates to other lenders.

31. Proprietorship

A common legal form of business ownership. Approximately 85 percent of all small businesses are proprietorships.

32. Solvency

The financial ability to continue business.

32. SMB

A common term used to describe small and medium businesses in the United States.

Final thoughts

This is not a comprehensive list of business and financial terms for small business owners. If you’re looking for in-depth information you need to know to improve operations, visit the SmartBiz Small Business Blog.

Business owners wear many hats – from payroll to marketing to accounting. It’s important that you continue to increase your knowledge as your business evolves. You’ll be able to put systems and processes in place to build and strengthen your business.

//resources.smartbizloans.com/wp-content/uploads/Banner-06-Grow-Your-Business.png