BBB® Business Tip: 20 business and finance terms you should know

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BBB® Business Tip: 20 business and finance terms you should know

BBB® Business Tip: 20 business and finance terms you should know 

The business world is vast, and it can take a lot of work for small business owners to keep up with all the terminology. Therefore, creating a glossary containing some essential terms is important so you can be prepared for any important conversation about business. 

The team at the BBB has put together a quick go-to resource of some of the most-used terms in business and finance to help you expand your business vocabulary. 

Whether you're just beginning your entrepreneurial journey or are a seasoned professional, it's important to understand the language used in business and finance. 

Here are 20 must-know business and finance terms: 

1. Accounts payable - Accounts payable is a company's debt to its suppliers. Accounts payable can also refer to the department within a company responsible for paying bills and purchasing inventory/equipment. 

2. Accounts receivable - Accounts receivable is the debt owed to the company from its customers. Accounts receivable can also refer to a company's department that collects money from customers. 

3. Asset(s) - An asset is anything of value owned by a company. An asset can include anything from cash to equipment to inventory. 

4. Bankruptcy - Bankruptcy is the legal status of a person or business entity that cannot pay its debts. Bankruptcy is a serious financial situation. In 2024, over 22,000 U.S. businesses filed for bankruptcy. 

5. Bookkeeping - Bookkeeping is recording and tracking a company's financial transactions and maintaining its financial records. Bookkeeping is typically performed by an accountant or financial professional, although nearly 45% of small businesses do not employ a bookkeeper. 

6. Bootstrapping - Bootstrapping is a business starting method without using outside financing. It is often used to keep overhead costs low while getting the business off the ground. 

7. Business plan - A business plan is a formal document outlining a company’s goals and objectives and its strategies to achieve them. Less than half of small businesses have a formal documented business plan. 

8. Capital - Sometimes referred to as funds or cash, capital is the money to start and expand a business. Capital can come from cash, credit, or other financial instruments. 

9. Cash flow - Cash flow is the amount of money that comes into and out of business. Cash flow is an important indicator of a company's financial health, revealing whether a business generates enough revenue to meet its obligations. A lack of cash flow is one of the top reasons brands go out of business, with 82% of small businesses reporting cash flow problems as the reason they shut their doors.   

10. Collateral - Collateral is property or assets that can be used as security for a loan. If the business does not repay its loan, the lender can seize the collateral and use it to pay the debt incurred. 

11. Credit limit - A credit limit is the maximum amount of credit a business can borrow. Business credit lines can be used for various purposes, including inventory purchases, equipment acquisition, and payroll funding.  

12. Employer Identification Number (EIN) - A company’s Employer Identification Number (EIN) is a nine-digit number the IRS assigns. The IRS uses this number to identify business tax accounts. 

13. Financial statements - Financial statements encompass a company's financial data and information about its financial health. The three most important financial statements include a company's income statement, balance sheet, and cash flow statement. 

14. Guarantor - A guarantor is a person who commits to paying a debt if the original borrower does not pay. This is typically a trusted business partner who agrees to pay the debt if the business defaults on the loan. A guarantor is often used when lending to small businesses with a limited credit history. Many new companies apply for new lines of credit each year alone, so having a reliable guarantor is a smart business strategy.  

15. Interest rate - The interest rate is the percentage that a lender charges for the use of capital. Currently, the average interest rate for a business sits between 6.43% to 12.45%. 

16. Liability - A company's liabilities are financial obligations to creditors. Liabilities include loans, mortgages, and credit card debt. A business with high levels of liability may be at risk of going out of business if it is unable to pay its debts. 

17. Lien - A lien is a legal claim against a business's property that prevents the company from selling or transferring the property without the lien holder's permission. When a lien is placed on a business's property, the lienholder can seize and sell the property to pay the debt incurred. The IRS issues nearly 1 million liens each year on businesses. 

18. Loan(s) - A business may take out a loan to use as working capital, to improve the business, or to purchase inventory, equipment, or other business assets. Business loans are issued for a designated purpose and often have a set repayment schedule.       

19. Net worth - A business's net worth is its assets minus its liabilities. Net worth is a significant financial indicator of a business's financial health.    

20. Profit(s) - Profit is the excess revenue remaining after a business pays its expenses. When a company makes a profit, the business has a financial gain.  

For more information: 

For more information to help your small business, check out the BBB business news feed and the BizHQ. 

 

BBB of Southern Piedmont and Western N.C. contributed to this article. 

 

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