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The A - Z of Business Money Lingo

The A - Z of Business Money Lingo

September 4, 2022
Deborah Edwards

This is a work in progress, but do come back again soon when we will have made sense of all these business terms and phrases. If there's something missing, do let us know!

Abundance mindset - a type of "money mindset" which is opposite to "scarcity mindset" and therefore believes that there is enough in the world, be that clients, money or opportunities.

Advanced Assurance - A forward approved assurance (but not a guarantee) that SEIS and EIS tax relief will be given to investors investing in a qualifying company, operating in a qualifying trade. For more info, click here

Balance Sheet - A document which is like a photograph in time of a business. It shows how much is owned by a business (in the form of assets such as equipment, buildings, motor vehicles, websites etc), how much is owed to the business (see debtors) and how much is owed by the business (see creditors). It also details what shares are held in the business and assessments can be made on the business health by having access to this information. Balance sheets are publicly available in the UK on Companies House

Break-even - the point in the business when your income is the same as your outgoings. If this is on a profit & loss basis, then you may find that you do not have enough cash to cover all the outgoings if you have loans to pay for example, so you should consider both a profit & loss breakeven and a cash break even.

Budget - A financial plan which sets out aspired sales and expenditure for the year ahead, which is used as a roadmap. As the year progresses, we typically measure our achievements against the original budget. Insider tip: What actually happens rarely reflects what's in the budget, but it's a really good idea to have one and at least try to stick to it if you want better control over your money. Especially if you are working with other people who are responsible for performance. Even better, get these people to decide what the budget is with you. A budget is best done in the few months before a financial period starts.

Capital Gains - This is a tax that is payable when you sell an asset or shares. An asset could be a second home that you sell (note we do not pay taxes on our main house if that is our "primary residence". You may also pay capital gains taxes on sale of shares.

Cash flow - This is the term used to describe how money moves in, out and around the company. Understanding cash flow is essential to sound financial management. Cash flow patterns are usually identifiable in each business and often no two businesses are the same. Cash flow can very from season to season for some businesses and inside different points of the month.

Cash flow forecast - This is a document that is essential for financial management as it shows how business money is expected to track in the future according to the scenarios that are presented. It enables business leaders to identify cash shortages and make decisions to weather storms as well as points of high cash which might be better invested elsewhere.

Companies House - the central government office where limited companies and plc records are held. 

Company of One - A business where one person chooses to stay on their own and not build a team. This is not necessarily the same as a sole trader (which is a legal term) as a company of one could operate their business in a limited company.

Compound Interest: The accumulation of interest over time. Also referred to as "interest on interest" and is a great way to grow wealth. If this is in a savings bank account then it is a good thing, however it can be a bad thing if it is on credit card debt or on an overdraft. The trick is to get it working in your favour.

Confirmation statement - this is an annual form that is required by Companies House. It keeps the Company Record up to date, detailing shareholdings, directors details and the company registered office.

Contribution - Also known as gross profit, this is the amount that is available to pay (contribute) towards the rest of the costs of the business once the cost of sales is deducted from the sales received.

Corporation Tax - this is the tax that is paid by limited companies in the UK. It is 19% at the time of writing (November 2022) but is going up to 25% for some businesses from April 2023.

Creditor - Somebody who is owed money by the business.

Current Asset - these are usually cash, or things that can be turned into cash within a twelve month period, such as stock, trade debtors and loans that it may have made to other individuals or organisations.

Current Liability - the amount that a company owes that is due within the next twelve months. This is typically trade creditors, HMRC and other loans that are payable inside a year.

Debtor - someone that owes money to your business. These will typically be customers who don't pay you immediately on receiving the goods or service. These are also called Trade Receivables in Xero and other accounting software.

Depreciation - This is an accounting adjustment that bears no resemblance to the real world, but it is supposed to recognise the "useful life" of an asset in the business. Typically, depreciation is written off over a number of years, depending on the type of asset. e.g. computer equipment is typically three years, so if a mac costs £1200, it will be written off as depreciation of £400 in year 1, £400 in year 2 and £400 in year 3 on a straight line basis.

Director - An officially named individual who is responsible for a limited company.

Directors Loan Account - An account held within a limited company that monitors and records how much money is owed to or by a director of the company. Sometimes called a Directors Current Account.

Dividend - A distribution of money to shareholders in a limited company as a reward for investing in them.

Enterprise Investment Scheme - A tax incentive scheme for individual investors to invest in smaller companies.

Equity - Equity is the amount of funds invested in a business, plus any accumulated profits over the years that haven't been taken as dividends. It is one of the balancing figures on a balance sheet.

Fiscal - This is a word that is used in governments relating to finances and taxes. Note that it is one of the biggest clues that something is a scam if it is used in HMRC communication as they rarely tend to use it. Scammers are getting better though...

Fixed Asset - These are larger business expenses that will typically help to generate profit and will be useful in the business for more than a year. This could be computer equipment, plant, machinery and equipment, your website (if it can be bought from e.g. having a shop function), vehicles and buildings.

Goodwill - This is usually a measure of the reputation of a business in a quantifable way and is calculated as part of its value when it is sold. It will appear as an intangible asset on the buyers balance sheet.

Gross Profit - this is the amount that is made when costs of sales (cost of goods sold) is deducted from sales. It is often expressed as a percentage, calculated as follows: Gross profit / Sales = X%. It is a useful measure to monitor because it can indicate whether pricing strategies are efficient and whether the business is operating effectively.

HMRC - In the UK, this is the central government office that monitors and administers taxes.

Incorporation - This is the term for businesses that are limited companies. They are separate legal entities to the people who own them (shareholders) or are responsible for them (Directors).

Intangible Asset - This is an asset such as goodwill which isn't physical and as such can't be held or touched, such as goodwill.

Investor - Somebody who invests in a business by giving money, usually in exchange for shares.

Liability - the opposite of an asset, a liability is what a business owes to it's creditors.

Limited Company - a separate legal entity... this means that it almost like another human being in its own right and will be registered at Companies House.

Liquidity - the ability of a company to have cash, either by holding cash itself or generating cash quickly, e.g. through recalling in debts, selling stock etc

Long term liability - An amount that is owed by the business but isn't repayable within the next twelve months. On a balance sheet, loans are usually split between the amount that is owed within the next twelve months and the amount that is owed after this period.

Money mindset - a reference to the way that a person thinks about money, often as a result of their childhood and other life experiences. See Abundance Mindset and Scarcity Mindset.

Net Profit - the profit that is left after all expenses have been deducted from sales. This can be expressed either pre (before) tax or post (after) tax.

Partnership - an unincorporated business which is owned by two or more people and registered with HMRC. In the eyes of the law, the business is an extension of the partners and not a separate entity, unlike a limited company.

PAYE - the mechanism in the UK by which tax is deducted by employers from employees pay and reported and passed to HMRC.

Scarcity mindset: The opposite of abundance mindset, a scarcity mindset is fearful that "things" will run out. This could be cash or that the market is limited. It can hamper a business owners willingness to spend money or make investments if it doesn't believe that the investment is likely to pay off.

Shareholder: Someone who owns shares in a limited company.

Shareholders Agreement: A legal agreement between the owners (shareholders) of a limited company or PLC.

Sole Trader - someone who owns a business on their own and that business is not a separate legal entity.

Sunk Cost Fallacy - The idea that if you've already invested in something, you may as well keep going because you don't want to lose the initial investment. It works with people too. You may have employed a team member and invested training in them, but they aren't working out. Even so, you keep going with them because they've had the time and money. In this case, the phrase "hire slow, fire fast" makes good sense, but always be mindful of employent law.

Turnover - the sales that are made in a business. They are usually referred to without VAT being included.

VAT - Value Added Tax that is applied in may countries. It is also called Good Sales Tax and is added to the sale price of many goods and services, depending on whether the seller is VAT registered or not. In the UK, the VAT registration level is £85,000. There are three usual rates of VAT; standard (20%), exempt (0% for some goods and services) and zero rated (0% for some goods and services). There are different schemes that can be applied; the standard scheme, the cash based scheme and the flat rate scheme.