Understanding Small Business Terminology

Small business owners are visionaries; they have dreams about making a difference in the communities where they live – while making a good living. Yet when most begin their entrepreneurial journey, they are unaware of all the nuances of doing business. When speaking with a bank manager about a line of credit, for example, the owner may be asked a multitude of questions that sound like Greek. Lending institutions will want to see a P&L statement, EIN, balance sheet and licenses and permits.

Becoming educated about accounting will arm you with knowledge that will help you make smarter business decisions. We’ll start with your P&L – profit and loss statement/income statement. It helps you track your revenue flow, and is broken down into categories. Keeping an eye on your utilities and Internet provider services will help you understand trends. Then there’s your balance sheet, which lists your assets (cash in the bank, physical equipment to help your employees perform their job, vehicles, etc.). Additionally, you need to consider your liability – or what you owe. This could be creditors, vendors, rent or bank loans. Now, what about those who owe you? An accounts receivable (A/R) aging report gives you data showing which customer is late. If one is habitually late, this may prompt you to issue late charges until the account is made current. The other side of the coin is Accounts Payable aging. Keep an eye on due dates and make sure your bills are paid on a timely basis. Check to see if paying early will earn you a discount!

Leave a Reply

Your email address will not be published. Required fields are marked *