June 20, 2022 By Suzanne Robertson

The systems and processes used to run your business evolve at lightning speed. Entrepreneurs should always keep learning so they can keep up with the competition and move their business forward.

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One of the most important areas for a business owner to understand is how finances affect their bottom line. Even if you work with an accountant, bookkeeper or another financial professional, it’s important to understand the business and finance terms below.

If you’d like more information, head over to the SmartBiz® Small Business Blog. We cover credit, financing, employee management, marketing, technology and more.

Accounts Payable (AP or A/P)

Accounts payable refers to an account within the general ledger that represents a company's obligation to pay off a short-term debt to its creditors or suppliers. Business owners may choose to pay its outstanding bills as close to their due dates as possible in order to improve cash flow.

Accounts receivable (AR or A/R)

Accounts receivables is another business finance term that means the money owed to your small business by others for goods or services rendered. These accounts are labeled as assets because they represent a legal obligation for the customer to pay you cash for their short-term debt.

Accrual accounting

This accounting method is when revenues and expenses are recorded when they are earned, regardless of when the money is actually received or paid. For example, you would record revenue when a project is complete, rather than when you get paid. This accounting method gives a more realistic idea of income and expenses during a period of time, therefore providing a long-term picture of the business that cash accounting can’t provide.

Artificial Intelligence (AI) marketing

AI marketing is a way to collect data and customer insight to help shape your marketing efforts. AI can help you attract and retain customers.


In business, assets are anything with value, tangible or intangible, owned by the company. Business assets can be cash, are cash on hand, accounts receivable, commercial property, equipment, inventory, and anything else that can be sold for cash.

Balance sheet

Along with three other reports relating to the financial health of your small business, the balance sheet is essential information that gives a “snapshot” of the company’s net worth at any given time. The report is a summary of the business assets and liabilities. For more information, review this article on the SmartBiz Blog: How to create a balance sheet for your business.


A bookkeeper sets up the foundation for accountants, tracking finances by recording transactions. This gives a holistic view of your business so you can easily see the amount of money coming into and leaving your business.

Business debt coverage

This ratio measures your company’s ability to repay business debt, providing a snapshot of the overall financial health of your business. To calculate, divide your annual business cash flow by the annual business loan payments, including the anticipated payments you would make on the loan you’ve applied for. Learn more here: What is business debt coverage.

Business debt usage

Also referred to as the debt-to-equity ratio, business debt usage compares your total outstanding business debt to annual business revenue or total business assets.

To qualify for a loan, your business debt needs to fit the lender’s criteria. Watch this short video for more information: Business debt usage.

Business revenue trends

Simply put, the business revenue trend is a percentage that reflects the revenue growth of your business over time. It illustrates how your sales have increased (or decreased) over your years in business. For more information, visit the SmartBiz Blog: Is your business growing?

Cash accounting

Cash accounting is an accounting method where payment receipts are recorded during the period in which they are received, and expenses are recorded in the period in which they are actually paid. In other words, revenues and expenses are recorded when cash is received and paid, respectively.

Combined debt coverage

This ratio adds together your annual personal and business cash flow and compares them against your combined annual personal and business debts. Learn why debt coverage matters on the SmartBiz Blog: Combined Debt Coverage Explained.

Commercial Real Estate loan (CRE)

Commercial real estate loans can be used for refinancing an existing CRE loan or for purchasing commercial real estate where you operate your business. Learn more on the SmartBiz blog: 5 Types of Commercial Real Estate Loans.



A valuation performed by lenders that determines the possibility a borrower may default on his debt obligations. It considers factors, such as repayment history and credit score.

Debt refinance loan

The purpose of a debt refinance loan is to help business owners refinance or pay off existing high interest debt. Learn what types of loans may be eligible for a refinance on the SmartBiz Blog: Refinance Business Debt.


The FICO SBSS score is the business credit score used by lenders. FICO stands for the Fair Isaac Corporation, the largest and best known of several companies that calculate credit scores. SBSS stands for the Small Business Scoring Service. In short, your FICO SBSS score is calculated by reviewing personal and business credit history. Other business financial information also comes into play like the age of your business, number of employees along with financial data, like revenue and assets. The SBSS score ranges from 0-300, and the higher your score, the better.

Personal credit score

Your personal credit score is a number that represents your creditworthiness and tells lenders how likely are you to pay back the money you’ve borrowed. Learn more on the SmartBiz Blog: Your personal credit score.

Personal debt usage

This ratio compares the total personal debt you owe to the total limits on your credit accounts. It’s an important indicator to banks of personal liquidity should unexpected expenses occur.


The Small Business Administration (SBA) is a government agency founded in 1953 and created to support entrepreneurs and small business owners in the United States. SBA programs support small businesses in all areas. Those include specialized programs for women, minorities, and veterans. SBA also provides loans to victims of natural disasters like flooding and wildfires along with specialized help in international trade.

SBA loan

SBA loans are a government-guaranteed small business loan with a long-term and a low-interest rate. The most common misunderstanding about these loans is that the SBA government organization lends money directly to small businesses. However, the agency typically does not make direct loans. The SBA provides a guarantee on the loan, promising to reimburse the bank for a certain percentage of your loan if you default on that loan. This guarantee lowers the risks to banks and other lenders, encouraging them to offer these loans to more American small businesses. Many banks and other financial institutions offer SBA loans, but their process, requirements, and fees can vary. For in-depth information about the popular SBA 7(a) loan program, visit the SmartBiz Small Business blog and review our comprehensive article: What is an SBA Loan?


This score is one factor that helps lenders determine how likely your business is to make timely loan payments and ultimately pay back the loan in full.

Working capital

Working capital, also known as net working capital (NWC), is defined as the difference between current assets and current liabilities. Current assets, according to the Small Business Administration’s website, are the most liquid of your assets. Current liabilities are any obligations due within one year. Working capital can be a positive or negative number and represents the cushion of protection you can give your short-term creditors.

Final thoughts

Delegation is an important skill for small business owners. If you are not handling your finances well, consider hiring an accountant or a bookkeeper to handle the books. If you don’t want to bring on a full time employee, you have options. Review this article for hiring ideas: Employee or independent contractor: Which is best for you?