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!
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
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 smoe 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.
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.
Director - An officially names 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.
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).
Investor - Somebody who invests in a business by giving money, usually in exchange for shares.
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.
PAYE - the mechanism in the UK by which tax is deducted by employers from employees pay and reported and passed to HMRC.
Seed Investment Scheme
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.
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.