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Glossary
The Finance Fix
A
Accounting
The process of recording and summarizing financial transactions to provide relevant information to stakeholders through financial statements, for use in decision-making.
Accounts Payable (AP)
Any amount your business owes to an outside vendor, creditor, investor, or customer.
Accounts Receivable (AR)
Refers to a balance of money that is owed to a business for goods or services that have already been delivered but have not been paid for by customers. The product or service has been delivered or provided based on credit and an invoice was created to indicate payment is still owed. Accounts receivable is considered an asset when listed on your balance sheet and can be used as collateral for asset-based loans..
Angel Investments
An angel investor is essentially a person with great personal wealth who provides the capital required to start a business. In return, they require the debt to be repaid with various amounts of interest or require ownership equity and stock options.
Annualized Cost of Capital
This is the level of return you have to exceed within the next year to make it “worth it” (i.e. profitable) for you to borrow money from someone.
Annual Recurring Revenue (ARR)
Annual recurring revenue is an accounting metric measuring the total money coming in each year during the life of a subscription or contract. Unlike traditional one-off sales, annual recurring revenue is predictable and stable. You can rely on ARR at regularly scheduled periods throughout the duration of the contract with a high level of certainty. Annual recurring revenue is important for expanding businesses because it entices investors or lenders into providing additional funding. Recurring revenue illustrates a constant and consistent stream of revenue that provides a stable baseline for expected profit.
Annual Percentage Rate (APR)
An Annual Percentage Rate (“APR”) is the cost that one will pay over the course of 12 months in exchange for borrowing money. APRs are typically expressed as a percent (%).
Assets
Anything owned by a business that creates monetary value in one form or another, either in the present or future.
Asset-Based Lending
Asset-based lending is a business agreement where you secure a loan or line of credit with collateral. This collateral can be any asset that your company possesses including its inventory, property, equipment, or accounts receivable.
Automatic Payments
Automatic payments are arrangements made between a vendor and a customer that allow the vendor to automatically withdraw money from the customer’s account to pay a bill when it becomes due. In most cases, the customer grants the vendor access to withdraw the money from their checking or savings account, but it’s possible to use a credit card or an alternative line of credit as well. These agreements are used for paying monthly recurring bills such as a mortgage, utility bill, car loan, or credit card.
Automatic Clearing House Payment (ACH) Payment
A type of electronic funds transfer (EFT) used to make payments and transfer money between accounts at different banks, typically used for recurring payments such as direct deposit of paychecks, automatic bill payments and vendor payments.
Average Order Value (AOV)
A metric that helps provide insight into its customers’ purchasing habits. You calculate AOV by dividing the amount of revenue brought in during a specific time range by the total number of orders placed during the same period. For example, if the total revenue in July was $15,000 and customers placed 800 orders, then the AOV for July was $18.75.
B
Balance Sheet
A balance sheet provides a snapshot of a company’s financial position at a specific point in time. It lists the company’s assets, liabilities, and equity.
Bootstrapping
Tapping into your own money to finance your business and its growth.
C
Credit Line
A type of revolving credit account that allows you to borrow money when you need it up to a borrowing limit. This bank account operates similarly to a credit card, with a few key differences.
Creditor
An entity that gives another entity permission to borrow money from them to be repaid in the future.
Collateral
The term collateral refers to an asset offered to a lender as security for a loan. These assets include physical items of value, vehicles, houses, and property. The asset is offered by the loan borrower as assurance that the loan will be repaid. If the borrower defaults on the loan, the lender can legally seize the asset and sell it to recoup the losses of the loan.
Corporate Accounting
A branch of a company that handles its various accounting tasks and issues. Some tasks include: Preparing accounts, creating cash flow statements, analyzing financial reports, consolidating balance sheets, and researching the benefits of potential absorption or amalgamation.
Cost of Capital
Your cost of capital is the level of return you have to exceed within the next year to make it “worth it” (i.e. profitable) for you to take money from someone.
Crowdfunding
Gathering small amounts of capital investments from a large number of people, in other words, a crowd.
D
Days of Sales Inventory (DSI)
DSI is an important metric to help you understand when you should expect to restock your inventory. It is calculated as: DSI = days in the year (365) ÷ inventory turnover ratio.
Brands typically want to target the lowest DSI possible while keeping a sufficient flow of product running through their supply chain. Similar to the Inventory Turnover Ratio, this will vary by industry and margin profile, where higher-margin products have more leniency. A lower DSI will improve the efficiency of your storage costs, a frequently overlooked expense that can stretch your dollar further if spent effectively.’
Debt Financing
Is an umbrella term for ways to fund your business by borrowing money and agreeing to pay it back (with interest) at fixed payment terms.
E
Electronic Funds Transfer (EFT)
A type of electronic payment system that enables the transfer of funds from one bank account to another without the need for paper transactions. This can include ACH payments, wire transfers, and online banking transfers.
Email Marketing
A form of direct marketing to communicate with potential and existing consumers to promote your brand or product.
Equity
Refers to the ownership interest of shareholders in a company, represented by stock. It can also refer to the difference between a company's assets and liabilities, which represents the net worth of the company.
F
First-Party Data
When users directly submit their personal information to a brand’s marketing initiatives. This could include preference center data, purchase intentions, and demographic information. Since this information is provided by the consumer, it’s super reliable and relevant to each consumer.
Fixed Costs
Costs that a business incurs regardless of its level of production or sales, such as rent, salaries, and insurance. These costs do not change with an increase or decrease in production or sales and should be budgeted for and planned for in the long term.
G
Grants
Grants are given out by the federal, state, or local government to provide financial assistance to a new business. A grant is essentially a scholarship for a business, meaning that it is awarded and not borrowed.
Growth Line of Credit
A non-dilutive capital solution with unlimited draws and no fees outside of a single APR. The line of credit is consistently underwritten to increase as your revenue grows.
I
Income Statement
An income statement shows a company’s revenues and expenses over a specific period of time, typically a quarter or a year. It begins with a company’s revenues, which are the amounts earned from the sale of goods or services. Expenses, such as salaries, rent, and marketing expenses, are then subtracted from revenues to arrive at the company’s net income.
Indirect Costs
These costs cannot be specifically linked to producing a product. Some examples are utilities or administrative expenses.
Inflation
A sustained increase in the general price level of goods and services in an economy over a period of time.
Internal Rate of Return(IRR)
Is an example of asset-based financing and is usually a revolving line of credit or a short-term loan. A business takes these additional funds when purchasing products that are intended for future sales. The business can then repay debts with the profits from these anticipated sales.
Inventory Financing
The interest rate at which the net present value of all cash inflows from an investment equals the initial cost of the investment. It is a measure of the profitability of an investment and is expressed as a percentage. A higher IRR indicates a more profitable investment, while a lower IRR indicates a less profitable investment.
One potential risk of inventory financing is that the purchased products function as collateral for the funding. This means you’ll forfeit the products if the business fails to repay the funds or violates any part of the financing agreement.
Inventory Management
The control and monitoring of the flow of goods within an organization to balance inventory costs and ensure customer orders are fulfilled on time by tracking stock levels, forecasting demand, and determining efficient policies.
Inventory Turnover Ratio
Your inventory turnover ratio will tell you how many times you sell through your inventory each year. This is calculated as: Inventory Turnover Ratio = Cost of Goods Sold (COGs) ÷ Inventory Value Most demand planning experts view six to twelve months as a desirable ratio, however, this changes dramatically by industry. Low-margin products should target higher inventory turnover ratios, while high-margin products have more wiggle room to achieve success at lower turnover rates. Intuit recommends using the following formula to determine effective inventory management. Inventory Turnover Ratio x Gross Profit Margin (%) < 100%
L
Liabilities
Anything that a business owes to an outside individual, group, business, or government.
Leverage
The use of borrowed money to increase the potential return on an investment.
N
Neobanks
Are digital challenger banks aimed at disrupting traditional, small business banks. These banks are designed to be used online, so they often forego brick-and-mortar locations to save operating costs. While neobanks offer a full suite of banking services, specific offerings can vary depending on your chosen provider.
O
Open Banking
A concept of banking where financial institutions open up access to their data and services to third-party providers, allowing for greater competition and innovation in the financial services sector. This can include allowing businesses to share their financial data with other providers to access better deals and services.
Open Finance
A financial system that uses technology such as blockchain and AI to make financial services and data more open, transparent, and accessible to all. It enables new forms of financial innovation and allows for greater access to financial services for businesses.
Operating Costs
The daily costs of operating your business. These costs include any combination of variable, direct, fixed, or indirect costs necessary for a business to function properly. Examples of operating costs include: salaries and wages, rent, utilities, insurance, supplies, marketing and advertising, and depreciation.
P
Paid Social Media
Displayed sponsored content or messaging on social media platforms to targeted audiences. Brands utilize paid social to target, convert, and retain users to boost acquisition, retention, and customer lifetime value (LTV).
Peer To Peer (P2P) Lending
A method of borrowing and lending money without the use of a traditional financial intermediary such as a bank. Instead, individuals can borrow and lend money directly to one another through online platforms.
Pixel Data
A piece of code you can place on your website that tracks and collects visitor data and behaviors. This includes tracking conversions, building audiences, remarketing, and ad optimizations.
Q
Quarterly Business Review (QBR)
A periodic, structured meeting between a company and its key stakeholders to review and discuss the current business performance, progress towards goals, and identify areas for improvement. It provides a regular opportunity to align on strategy, assess progress, and make decisions to drive the business forward.
Quickbooks (QBO)
A cloud-based accounting software used by businesses to manage their finances, including invoicing, expenses, and financial reporting. It allows for real-time access to financial data and can integrate with other business systems and apps.
S
Shelf Life
The length of time that a product can be stored and still remain safe, usable, and of acceptable quality. This term is especially important in the Food & Beverage industry as the FDA has regulations on how long a product can be stored, affecting inventory planning and the maximum inventory holding time (DSI) before needing to be turned over or disposed of.
Statement of Cash Flows
Statement of cash flows provides information about a company’s inflows and outflows of cash during a specific period. It is divided into three sections: operating activities, investing activities, and financing activities.
T
Tech-enabled third-party logistics (3PL)
Companies that provide an alternative to off-the-shelf software that consolidates and manages shipping data. When paired with an ERP, a tech-enabled 3PL has streamlined shipping and fulfillment solutions, such as warehousing, specifically for businesses with an online presence. They also have software that integrates data from multiple sources so businesses have a full view of an order’s lifecycle.
Traditional Banks
Are domestic banks with a significant physical presence that aim to provide a smooth in-person experience to serve general small businesses; some examples include Chase, Bank of America, and Wells Fargo. These national banks have multiple branches across most cities and offer a full range of banking services.
U
Underwriting
The process of evaluating the creditworthiness of a borrower in order to determine the terms and pricing of a loan or security.
V
Variable Costs
Costs that change with an increase or decrease in production or sales, such as raw materials and direct labor. These costs can fluctuate based on production levels and should be closely monitored by businesses to make sure they are staying within budget.
Venture Capital
Investment in start-up companies or small businesses with high growth potential in exchange for an equity stake. These funds can provide the necessary capital for businesses to grow and scale their operations.
Venture Debt
A type of debt financing provided to start-ups and early-stage companies that are not yet able to access traditional debt financing, often with the expectation of a high return on investment. This type of financing can provide businesses with the necessary capital to grow without giving up equity.
W
Warehouse Management System (WMS)
Helps manage the operations of a warehouse or distribution center. Combining these systems automates stock locating, labor management, order picking, replenishment, packing, and shipping.
Working Capital
Is the amount of leftover money a business has left over once you subtract your current liabilities from your existing assets.
Y
Yield
The income return on an investment typically expressed as a percentage of the investment's cost
Z
Zero-Party Data
Is information a consumer intentionally and proactively shares with a brand such as purchase intentions, communication preferences, and how they want the brand to recognize them.