Financial Lingo Bingo
With everything that’s happening at the moment, the chances are you’re keeping a closer eye than ever on the finances of your business. If so, you might be coming across financial terms you aren’t sure you understand or terms you have never heard before. This blog explains some of the common – and not so common – finance and accounting terms you might hear.
Accounts Payable (AP)
When you buy goods or services you need to pay for in a short period of time, these are known as Accounts Payable. Your Accounts Payable department is responsible for making the necessary payments.
Assets
Your assets are everything you own that has some monetary value. They are typically broken down into two different types:
- Fixed assets – these include things you have bought to help the business operate, such as vehicles and IT equipment. They also include intangible things such as patents or trademarks.
- Current assets – these include the cash in your business, the cash that is owed to you (ie unpaid invoices) and stock.
Balance Sheet
Your balance sheet takes your company’s total liabilities (see below) and subtracts them from your total assets (see above). The figure is the net worth of your company at a given moment in time.
Capital Expenditure (CAPEX)
This is money you spend to buy fixed assets that you’ll use in this tax year and beyond. For example, equipment, machinery or buildings. Note that Operating Expenditure (OPEX) is the ongoing cost of running your fixed assets.
Cash Flow
This is the money that comes into and goes out of your business every month. Cash coming in might be from customers buying your products or services. Cash going out might be salaries, utilities, taxes and goods and services you’ve bought.
For more on this, you might like:
Coronavirus Bounce Back Loan
The government-backed scheme helps small and medium-sized businesses to borrow between £2,000 and up to 25% of their turnover. The maximum loan available is £50,000. The government guarantees 100% of the loan and there won’t be any fees or interest to pay for the first 12 months. Find out more.
Coronavirus Business Interruption Loan Scheme (CBILS)
This government-backed scheme helps small and medium-sized businesses to access loans and other kinds of finance up to £5 million. The government guarantees 80% of the finance to the lender and pays interest and any fees for the first 12 months. Find out more.
Coronavirus Future Fund
The Future Fund provides government loans to UK-based companies. The loans range from £125,000 to £5 million. They need at least equal match funding from private investors. Find out more.
Debt Finance
Debt finance is debt you take on to invest in the future growth of your business. This might be a loan or an overdraft, asset-based finance (i.e debt taken out against an asset you own, also referred to as collateral) or a bond. Compare this to equity finance (see below).
Equity Finance
Equity finance is a way to raise money to fund the future growth of your business. You sell shares in your business to raise capital. Compare this to debt finance (see above).
Expenses
A business expense is defined as something an employee needs to do their job. It’s typically taken to mean expenses an employee pays for out of their own pocket and then claims back. It includes things such as travelling on business.
If you have more employees than usual working from home and claiming expenses at the moment, the government has issued guidelines on which expenses are eligible and which are exempt.
Furloughing (or the Coronavirus Job Retention Scheme)
If you cannot maintain your current workforce because your operations have been severely affected by Coronavirus, you can furlough employees and apply for a government grant that covers a percentage of their usual monthly wage costs. At the moment, the government is covering 80% of wage costs, up to £2,500 a month, but this percentage will reduce over time. The scheme is currently due to end in October 2020. Find out more.
Gross Profit
Gross profit is the profit you make after you deduct the costs of making your goods or providing your services. Compare it to net profit (below).
Liabilities
This is the money your business owes. Liabilities are typically divided into current liabilities and non-current liabilities. Current liabilities are debts you owe that will need to be paid back within a year, such as supplier invoices. Non-current liabilities are debts that don’t need to be paid back within a year, such as bank loans.
Net Profit
This is the profit left after all your company’s overheads have been taken off. Compare this to gross profit (see above).
Profit and Loss
This shows the money you have made from selling your goods and services minus the money you have spent on goods, services and overheads.
Turnover
Your turnover is the total value of your sales over a particular period.
Working Capital
Your working capital is your current assets (see above) minus your current liabilities (see above). It shows you how much cash you have available at any given time.
Are any of these terms ones you’d never heard before? Is there a term that isn’t here you’d like explained? Let us know on social media.
