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Making sense of small business finance: a glossary

When you start a small business, the learning curve is steep. Not only do you need to excel at the thing your customers are paying you for, you need to delve into profit and loss statements, balance sheets, Business Activity Statements and a whole lot more.

It’s a new world filled with jargon. And when it comes to jargon, no one does it like the banking industry. Is it any wonder people’s eyes roll back with phrases like, ‘Circle back with action items that we can take offline.’ It can be a language unto itself (or an assault on the King’s English).

But when it comes to business finance for your small business, there are some terms you need to be familiar with. Because the more you understand the terminology, the better equipped you’ll be when choosing the finance that’s right for you.

Here’s a list of popular terms you’re likely to hear in the world of business finance.

Accounts payable

A record of all unpaid short-term liabilities.

Accounts receivable

A record of all short-term accounts from customers who are yet to pay.

Asset

Anything your business owns that has value.

Balance sheet

A balance sheet reports on a company's assets, liabilities and shareholder ownership.

Balloon payment

A lump sum payment that’s due at the end of the loan term. A balloon payment can reduce ongoing monthly repayments but can increase total interest paid over the life of the loan.

Business Activity Statement (BAS)

A BAS is a form business owners regularly lodge with the Australian Tax Office (ATO) outlining their tax obligations.

Business banking

Financial services provided by banks specifically tailored to meet the needs of businesses.

Business expenses

Costs incurred by a business in its day-to-day operations such as rent, utilities, salaries and marketing expenses.

Capital

Total value of a business’s finances calculated by adding up the value of all assets and subtracting the value of all liabilities.

Capital cost

Fixed, one-time expense of physical items, such as property, land or equipment.

Capital gain

The amount gained when an asset sells above its original purchase price.

Capital growth

An increase in the value of an asset.

Cashflow

The movement of money into and out of a business, including income, expenses, and investments. Managing cash flow effectively is a core aspect (and challenge) of running a small business.

Cashflow finance

Borrowing funds against a business’s account receivable to generate cash quickly. Also known as invoice finance.

Collateral

An asset that a borrower uses to secure a loan from a lender. Also known as security.

Debt finance

Borrowing funds that’s paid back with interest within agreed timeframes.

Depreciation

The allocation of the cost of an asset over its useful life. It's an accounting concept used to reflect the decreasing value of assets over time.

Equity finance

Investing your own or other stakeholders' funds into your business in exchange for partial ownership.

Gross profit

The profit generated from sales minus the cost of goods sold over a period of time.

Gross profit margin

The percentage of sales that is gross profit.

Interest

Payment for use of money over time, usually a percentage of the amount borrowed.

Invoice finance

Borrowing funds against a business’s account receivable to generate cash quickly. Also known as cashflow finance.

Liability

Anything you owe to other individuals or businesses.

Loans

Money borrowed from financial institutions. Great Southern Bank offers secured and unsecured business loans to help your business needs.

Negative cashflow

Occurs when there is more cash leaving than entering the business.

Net profit

Net profit is the amount of money left after expenses and tax obligations are paid.

Operating expenses

The cost of production or materials, rent and wages of employees.

Owner’s capital

The money you or partners invest in the business with aim of making profit.

Profit and Loss statement (P&L)

A P&L statement is an overarching view of a business’s performance. It outlines a business's revenue, cost of goods and services sold, expenses, interest, taxes, net income among others.

Security

An asset that a borrower uses to secure a loan from a lender.

Yes, there’s a lot to know when it comes to business finance. The good news is you’re not alone. Great Southern Bank can help you with heaps of resources that make running your business easier. Check out our Business Hub and see what catches your eye.

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