Come the end of every financial year, many small business operators reach for the dictionary. If you have the opportunity, it can be useful to test your financial literacy. For those time-poor individuals (which is virtually everyone operating a small business!), here is a quick introduction to some of main terms you should be aware of for EOFY.
Amortisation: This involves expensing for intangible assets, the primary one for most small businesses being intellectual property. What you expense will be unique to your own business, and as such it is an issue best discussed with your accountant.
Bad debts: Outstanding invoices that are unlikely to be paid.
Balloon payment: The final lump-sum payment for a loan.
Bootstrapping: This refers to the process of companies solely using personal funds and profit reinvestment to finance growth.
CGT: An abbreviation of capital gains tax, which applies to the profits made on the sale of assets and investments.
Crowdfunding: A relatively new way of raising capital by way of collective donations from the public, usually done through a dedicated website.
Depreciation: This is the process of expensing business assets over their expected lifetime.
Encumbered asset: An asset that is being used as security against a loan.
EOFY: An abbreviation of end of financial year.
FBT: An abbreviation of fringe benefits tax, which applies to non-monetary benefits, such as cars, computers and entertainment.
Goodwill: The term used to define the value of a company’s reputation in the marketplace, as an intangible asset.
Insolvency: Being unable to pay expenses when they become due.
Liquidate: Quickly selling goods or assets to access their inherent cash value.
Margin: The difference between the selling price and the profit achieved.
Net: This can be used to describe cash, assets, income, etc. and means the total amount less tax/expenses/liabilities incurred.
Overheads: Fixed business costs, such as rent, utilities.
ROI: An abbreviation of return on investment, which is a calculation of how well the business generates profits from the capital it invests.
Stocktaking: Counting merchandise and supplies held to check against business records.
Write-offs/Write-downs: Removing the value of outstanding invoices (bad debts) from business financial records.
You’ll save yourself a lot of hassle come tax time if you’re clued up on the various accounting terms relevant to your business. For a full breakdown of business accounting terminology, see the government’s glossary of financial terms.