Top 7 financial terms you need to know before starting a business

So you have the idea that will change your professional life and you have finally made a decision to go on your own, to enlighten the business world with your new service or product.

And we say go for it, but before you do that, we advise you to look up of several financial terms that are essential for running your business smoothly and profitably.  If you are already into finances, this will be an easy thing for you.

  • Expenses

The word from you will get the chills since they will increase no matter if your business grows with them.

A dictionary would say that expenses are the money spent or cost incurred in an organization’s efforts to generate revenue, representing the cost of doing business.
Expenses may be in the form of actual cash payments (such as wages and salaries), a computed expired portion (depreciation) of an asset, or an amount taken out of earnings (such as bad debts). Expenses are summarized and charged in the income statement as deductions from the income before assessing an income tax. Whereas all expenses are costs, not all costs (such as those incurred in the acquisition of income generating assets) are expenses.

We would say everything you buy or pay that it is related to your business operations goes in this category.

  • Non-recurring cost

Even when you establish your business on the ground and know your expenses, there are always costs that are an unpredictable or unusual charge. They are unlikely to occur again in the normal course of a business and therefore are known by the name non-recurring costs or extraordinary cost. It is better to have some track of their occurrence in some format or report. If you are not good at reports check out an automatized solution called Invoice Meister.

  • Invoice

By the books, the definition of this term would be a non-negotiable commercial instrument issued by a seller to a buyer.

It identifies both the trading parties and lists, describes, and quantifies the items sold, shows the date of shipment and mode of transport, prices and discounts (if any), and delivery and payment terms.

But what we would say is that invoice is the document that represents your business, professionalism and the worth of your services. Not only but it looks, but by its components and ability to communicate the main parts of your business agreement. So when thinking about how to start the business on the right foot, think of your invoicing process and look.

  • Discount

One of the crucial parts of your invoice, or by the books called: The deduction from the face amount of an invoice, made in advance of its payment also known as a rebate.

On one hand, the discount speaks on how low are you willing to charge your product or service, but on the other speaks on how flexible are you to meet your client halfway in the name of good cooperation. However you see it, always have in mind your expenses before agreeing to give a big discount.

 

  • Bank reconciliation

The adjustment of differences between the cash balance shown on a bank statement, and the amount shown in your account records. This matching process involves making allowances for checks issued but not yet presented, and for checks deposited but not yet cleared or credited. And, if discrepancies persist, finding the cause and bringing the records into agreement.

  • Balance sheet

The current situation in your company or a condensed statement that shows your financial position on a specified date (usually the last day of an accounting period).

Among other items of information, a balance sheet states (1) what assets your company owns, (2) how it paid for them, (3) what you owe and (4) what is the amount left after satisfying your liabilities. With income statement and cash flow statement, it comprises the set of documents indispensable in running a business. And if all these sheets sound complicated look how easily they are done with Invoice Meister.

  • Profit

After all, spent and done there comes the profit or the surplus remaining when you take out total costs from your total revenue. But revenue is also the basis on which tax is computed and the dividend is paid. It is the best-known measure of success in an enterprise.

So when you think of your business as successful, think in terms of profit.

When you start working you will see how everything is connected to another and with help of simple finance software you will comprehend finance in no time, leaving more time to focus on your business growth.