When you begin running your own business, you may find yourself taking on roles that you never thought you would, dealing with everything from social media, to sales and finances. You are often required to have an incredibly broad knowledge of every aspect of your business, and you may find yourself learning something new every day.
At ICS, we are here to help and support SMEs with their business accounting, providing services that range from year-end financial statements, maintenance of company books and records and submission of quarterly VAT returns, to name but a few!
However, we’re also here to provide advice and support, so we have put together a financial glossary to help you excel in business and give you the tools you need to cut through the jargon.
Accounts Payable (AP)/Creditors
This is the money that is owed to suppliers for services or goods provided by them. This will often be in the form of an invoice and will be a current liability on your balance sheet. The people that you owe money or services to are also known as creditors.
Accounts Receivable (AR)/Debtors
Conversely, this is money that is owed to you for the services or goods you have provided to customers on credit. As the customer is legally obliged to make the payment, this is usually recorded as an asset. These customers are also commonly known as debtors.
Assets
Anything you own that holds a financial value, such as cash, property or equipment. If it is in the form of cash or can be converted into cash within 12 months, this can also be known as a current asset.
Audit
A check made by an official to ensure that financial records are correct.
Bank Reconciliation
Checking that anything recorded in a cashbook matches up with the relevant bank statements.
Bookkeeping
This is the act of recording any financial activity within a business.
Business Credit Report
This gives a record of the credit history of a business. This report will give the necessary information to calculate a credit score and can be used by lenders, insurers and investors.
Capital
This is another name for the assets or wealth a business owns and could be in the form of property or money.
Capital Gain
When an asset such as property is sold for more than the price you originally paid for it.
Cost of Goods
The amount of money it costs to produce goods or deliver a service.
Default
If you fail to make payments on a loan or debt obligation, this is known as a default.
Equity
This is the value of assets associated with a business minus the liabilities. It is one way of assessing the value of the ownership of stocks or shares in the business.
FCSA
The FCSA is a trade association for professional employment services. This body assesses accountancy companies to ensure their compliance with stringent regulations. At ICS, we are an FCSA accredited member.
Financial Year
Your business will set, or inherit a financial year ending on a particular date, usually a month-end.
Gross Income
All of the money brought into the business before expenses are deducted.
Gross Profit
The money brought into a business after the cost of those sales is deducted.
Insolvent
An inability to pay debts when they are due results in a business being insolvent.
Liability
This is the name given to any financial obligation or amount of money owed. If this is due to be paid in the next 12 months, this can also be known as a current liability.
Line of Credit
This is an agreement when you are borrowing money that you can withdraw money up to an approved amount.
Merger
When two existing companies are legally united as one new company.
Net Assets (or Net Worth)
The total assets minus total liabilities of a company.
Net Income (or Net Profit)
The profit you make after deducting the cost of sales and the cost of your overheads.
Overheads
This is the name given to the costs of running your business, such as rent, utilities and marketing.
Personal Guarantees
A director or shareholder may give a personal guarantee which means that they will accept the liability for a debt if the company cannot make repayments on a debt.
Profit and Loss Statement (or Profit and Loss Account)
In order to work out the gross and net profit, this statement lists sales and expenses, showing the profits and losses over the course of a year.
Profit Margin
This is the amount by which your sales exceed the costs associated with them.
Revenue
The income from the sale of goods or services before any costs are deducted.
Return on Investment (ROI)
This is how you work out the profitability, or expected profitability, of an investment, project, or entire business.
Start-Up Loan
This is a loan available to those looking to start or grow a business in the UK.
Turnover
The total sales of a company.
Venture Capital
This is the investment that is made to finance a start-up company that is thought to have growth potential.
Working Capital
The money used for the day-to-day expenses of a business.
Yield
When an investment is made, the yield is the income returned on that investment.
At ICS, we are happy to help you make sense of your business finances, and we offer bespoke small business accounting services, so you can rely on a team of qualified accountants to take care of your business. To find out more, simply call free on 0800 195 3750 or email newbusiness@icsuk.com and we’ll be happy to help.
