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Building one’s financial intelligence is a key step along the path toward becoming a successful entrepreneur. Below is a listing of financial vocabulary with easy to understand definitions. This list includes common accounting, investing, and business terms.
Accounts Payable – money you owe for products and services already received
Accounts Receivable – money owed to you for products/services already delivered
Angel Investor – a private high net worth individual who will invest money in medium or high potential ventures in exchange for percentage ownership in a company
Appreciating Asset – something you own that is going up in value
Appreciation – increase in value over time
Asset – something you own that has value
Balance Sheet Formula – assets minus liabilities equal owners’ equity. (A – L = OE)
Balance Sheet – a financial statement that keeps track of assets, liabilities, and owners’ equity.
Bond – debt instrument through which companies and governments can raise money
Cash Flow – the in and out of money to/from your business
Cash Flow Statement – a financial statement that keeps track of all the money that goes in and out of your business.
COGS – the cost of goods sold. What you pay for what you sell.
Depreciating Asset – something you own that is going down in value
Depreciation – reduction in value over time
EBITDA – earnings before interest, taxes, depreciation, and amortization
Equity – ownership in a company
Expenses – what you spend
Gross Income – Total revenue minus COGS
Gross Margin – same as gross income
Income Statement – a financial statement that keeps track of revenue, expenses, and profit.
Income Statement Formula – Revenue minus expenses equals net income. (R – E = NI)
IPO – initial public offering, selling part of your company on the stock market in exchange for investment capital in your business
Liability – something you owe for
Net Income – same as net profit
Net Profit – Total revenue minus total expenses
Option pool – a percentage ownership in your company set aside at founding for those who may come aboard later.
Owners’ Equity – The value of what the shareholders/owners have put into a company
Revenue – what you earn
Venture Capital – investment money raised from firms that invest in high potential ventures in exchange for percentage ownership in a company
Vesting – earning equity over time instead of all at once
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