As a business owner there are a few financial terms you need to know in order to understand your finances.
I am going to break them down and explain them in plain English. Because jargon is no fun at all, and really, they aren’t difficult to understand.
1. Gross Income
Gross income is the amount of money you bring into your business in any given time frame (usually in a month, quarter or a year). It’s all the money you bring in, whether it’s for services, products, affiliate income, or anything else you can think of! It’s the money you bring in before the deductions of expenses and taxes.
Gross income is also sometimes called “Revenue”.
2. Net Income
Net income is what you’re left with from your gross income after you take out business expenses. This is the number you really want to focus on when you’re figuring out sales goals for your business.
It is also called a taxable income – the amount of a person’s or company’s income—minus exemptions and deductions—that can be taxed.
3. Expenses
The day-to-day costs of running a business. Anything from bank charges fees and facebook ads to the cost of traveling to a business conference.
That is, any costs incurred as a result of a company’s attempted or successful revenue production
4. Receivables
A “receivable” is money that you’re owed. That invoice you sent to a client that she hasn’t paid yet? That’s a receivable.
So, while not quite as good as money actually in your bank, receivables are a good thing.
Simply terms, receivables = debtors.
5. Liabilities
While receivables are funds that people owe you, a liability is money that you owe other people.
In plain English? Liability = debt.
6. Owner’s Drawings
An owner’s drawing business money to their personal account.This can be the equivalent of a salary, or it can be as simple as lunch paid for with your company credit card.
This is important as it builds up a proper discipline between the company and its owner.
For example if you accidentally use your business debit card for a personal purchase, you’d tag it as an owner’s draw), but for the most part, an owner’s draw is you reaping the benefit of your business, and giving yourself a paycheck.
7. Owner’s equity
The portion of a company’s assets that an owner can claim; it’s what’s left after subtracting a company’s liabilities from its assets. Owner’s equity is listed on a company’s balance sheet. Affects the balance section of the Annual reports.
All these above-mentioned jargons play a big role when it comes to any business. They will always get mentioned especially when compiling and reding7the company’s annual reports.
8. Owner’s borrowings
If the owner/shareholder withdraws money from the business, which is not marked as salary or dividend, it will be recorded as a shareholder loan as “due from shareholder.” This is the amount the shareholder has borrowed from the company and must repay.
Compiled by Ms. Dikeledi Seoloane on behalf of Matsobanemetja Business Consulting (Pty) Ltd – Registered Accountant and Certified Tax Practitioner.
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