Monthly Archives: November 2016

How to Know These Key Financial Terms

There’s no shortage of small business advice about marketing, social media and inspiration to not give up, However, the small business owner must pay attention to the financial nuts and bolts of business operations. It’s the best way to make the wisest business decisions. You may encounter terms on business websites or when working with an accountant with which you are unfamiliar. Don’t skip over them. They can be crucial in your thinking as a business owner. Here is a core glossary of financial terms every small business owner should know.

Key Financial Terms You Should Know

P and L — or “profit and loss” sheet is a report statement on how much profit (or loss) your business has made over a given period. Calculate P and L at the end of every month so you can spot trends early on.

Flash Report — in effect, an executive summary of your business fiances, or a daily P and L report.

Balance Sheet — this shows the balance between your company’s assets and its liability. A balance sheet is a valuable financial snapshot that can assist in meaningful decision-making, especially if it is regularly tracked.

Assets — are all those things your small business owns in order to support operations. Assets include cash, real estate, land, equipment, tools, computers and furniture.

Liabilities — are all those debts your small business owes. Examples of liabilities include loans outstanding, bonds, and even the monthly bills your business owes.

Equity — is the money you (and any other owners) have invested into your business. In a sole proprietorship, equity is recorded in a capital account. If your company is incorporated, equity is expressed in terms of what percentage of the shares of stock are owned and their total value.

Bottom Line — may refer to net earnings or net income, depending on context. This term got its name from the typical location of the net earnings or income figure at the bottom of a company’s income statement.
Markup — is how much is added onto a business’s cost price of goods in order to cover overhead expenses and generate a profit.

Gross Margin — also known as “total cost of sales,” gross margin is the difference between total sales revenues and total cost of goods sold. It may be expressed on a per-unit basis, in dollars, or as a percentage. Higher gross margin means a company keeps more of each dollar generated by sales.

Gross Profit — is your sales figure minus your cost of sales. “Cost of sales” comprises the costs directly attributable to sales, such as materials, labor, and delivery.

Net Profit — is your total profit after all costs (e.g., including overhead, materials, wages) have been considered, but before dividends and taxation are calculated. Net profit is how much actual profit is being generated.

COGS — stands for “cost of goods sold.” It is the cost of the material and production of the goods a business sells. For manufacturers, COGS comprises materials, labor and overhead. For retailers, it is the cost to purchase inventory sold to customers.

CAPEX — stands for “capital expenditures,” which is the expense incurred to acquire any assets (e.g., machinery, office equipment) your business purchases to create future benefits. It is the expense of purchased assets that will be useful to the business beyond the tax year they’re purchased.

EBIT — means “earnings before interest and taxes,” and is self-defining.

EBITDA — means earnings before interest, taxes, depreciation and amortization. To calculate, take the gross margin and subtract total operating expenses, plus depreciation and amortization. While EBITDA subtracts all expenses, EBIT subtracts everything except depreciation and amortization.

GAAP — means “generally accepted accounting principles” and refers to rules and conventions for how financial information should be reported. It is a standardization of financial statements to ensure consistent reporting.

Revenue — refers to all the money your business collects from selling goods and services. A business may also amass revenue in other ways, like selling assets or interest and returns on investments.

Cost of Sales — is analogous to COGS for companies that sell services rather than goods. For a consulting company, the cost of sales includes compensation to consultants, research and administrative expenses, and costs for producing presentations and reports.

Retained Earnings — are company profits that are reinvested rather than paid out to the company owners.

ROI — is “return on investment,” represents a measure of profitability in relation to the money you have invested elsewhere. The calculation is (profits – investment) / investment.

ROA — “return on assets” is profit gained from a capital investment divided by the CAPEX cost. If you invested $1,000 on a piece of equipment, and it resulted in $1,250 in additional profits, you have an ROA of (1,250 – 1,000) ÷ 1,000 = 0.25, or 25%.

ROE — is “return on equity,” which is similar to the ROA and ROI calculations, except that your equity is the denominator.
Few things are as satisfying to the entrepreneurial spirit as thinking over small business ideas. For those ideas to come to fruition, attention must also be paid to the many finances to make sure your small business in not just an expensive hobby.

Protect You and Clients from Financial Fraud

The predicament unfolding at Wells Fargo where 5,300 employees were fired due to phony bank accounts opened to “boost their sales figures and make more money” is not new in the financial world.
Unscrupulous practices have occurred for years in varying degrees.
In 1985, a just-fired employee at a New York-based commercial bank stood in front of his former co-workers to explain how he siphoned money from several bank accounts to which he had access.

The explanation was not to teach other employees how to do the same, but rather, done while the former employee was flanked on either side by his former supervisor and a security guard, it was a warning to workers that such theft would not go unpunished.

Working alongside those employees as a management assistant gave me front-seat access to a situation I did not know was possible until hearing the details.
Wells Fargo’s dilemma provides small business owners with vital lessons to keep financial accounts secure and relationships with clients strong.
Financial Fraud Protection Tips and Tricks

For You
1. Make time each month to reconcile your financial accounts. Even if an accountant is privy to your records, it’s imperative that you personally review statements in a timely manner.
2. Access your credit report every year through the free service, or through another preference. Such review won’t help you detect fraud that occurs between yearly audits. However, you will still see details that may negatively impact finances.
3. Set up alerts through mobile banking, and that includes a password on your cellphone that prohibits access to financial records if your phone is lost, misplaced or scanned.
4. Install apps such as Dasheroo and PowerWallet on your cellphone to know what’s coming in and going out of your bank accounts. Most apps are accessible on your computer and tablet so there’s no excuse for not taking action at a moment’s notice.

For Clients
1. Send a letter of assurance by mail and email whenever mismanagement occurs in your industry. You’ll receive praise for reaching out in times of crisis whether it’s stated verbally or acknowledged silently. Send the notice in both formats to ensure notification.
2. Call clients by phone to back up mail and email notices as additional security to strengthen client trust and value in your service.
3. Save notifications that you receive from other industries to re-structure alerts sent to clients. This is helpful if you have difficulty writing copy and do not have staff or an on-call writer to create the content.
4. Become an ally by notifying clients each time disruptions come to light in industries that impact them. For example, if you are not in the financial industry, notification about Wells Fargo and pointing clients to an online article that helps them detect fraud positions you as a valuable and reliable connection.

Some Resources for Women Entrepreneursto looking for funding

The number of women-owned businesses has risen dramatically in recent years, a healthy sign for those who value greater diversity in the nation’s economy.
Between 2002 and 2012, the number of women-owned firms increased at a rate 2½ times the national average (52 percent vs. 20 percent) and employment at women-owned firms grew at a rate 4½ times that of all firms (18 percent vs. 4 percent). In 2015, for the first time, the government met its goal of awarding five percent of federal contracts to women-owned small businesses.

But such gains must be put in perspective. For example:
Women-owned firms make up about one-third of all businesses in the U.S., but they receive less than five percent of all available loan dollars, according to a 2014 report by members of the Senate Committee on Small Business and Entrepreneurship.

Women-owned businesses are smaller than average, employing only seven percent of the private-sector workforce. More than 9 out of 10 women-owned firms have no employees other than the owner.
You know the outrage you feel when you hear that women earn 83 cents for every dollar that men earn? Well, women business owners make only 25 cents for every dollar their male counterparts earn.

Tips for Women Entrepreneurs
Here are some places female business owners can turn to for capital:
U.S. Small Business Administration
Loans for women from the U.S. Small Business Administration were up 18 percent in fiscal 2015 over the previous year. Some experts consider SBA loans the best option, as they come with flexible terms and low rates. The downside is the application process can be exhausting and frustrating and take weeks, even months, to complete.
The SBA doesn’t issue the loans itself, but backs loans issued by participating lenders, usually banks. The agency can guarantee up to 85 percent of loans under $150,000 and 75 percent of loans for more than $150,000.
The agency also recently set up a tool to match borrowers with approved lenders. The banks follow SBA guidelines but use their own underwriting criteria.

Money won is sweeter than money borrowed, and so before taking out a small business loan, female entrepreneurs should look into available grants. There aren’t many of these, but they are worth investigating. is a database of all federally sponsored grants. In addition, economic development agencies at the state level, as well as many local governments, offer services to help new and established businesses succeed.
Funds may be available, too, from private groups. Here are two to get started with:
– The Eileen Fisher Women-Owned Business Grant Program awards 10 grants annually to women-owned businesses committed to social consciousness, sustainability and innovation.
– The Amber Grant Foundation each month gives $500 to a different woman-owned business, and at the end of the year one of the dozen winners is awarded a further $1,000.

Business Credit Cards or Your Bank
Often, a woman-owned business in need of financing will have to turn to business credit cards or or a small-business loan. Choices will depend on your creditworthiness and situation. Take your time and check out your options.
The data show women-owned businesses making significant strides, which is cause for optimism. But there’s still plenty of opportunity for growth.