Common Finance Terms Used In Small Business Explained

Have you ever noticed how business seems to have its own language? Even small business owners seem to speak with a language that is all their own, and if you are new to the world of commerce, all that jargon can be daunting.

One of the biggest issues for small business owners, when it comes to incomprehensible terminology, is the jargon that is used to describe common finance terms. If you do not know your profit from your turnover, however, read on! In this article, I will give you a simple explanation for each of the common finance terms used in small business, and an idea of why they are important. Many of these terms are a part of my own formula for business success, so they are well worth understanding.

First, let us look at overheads. Every business, whether it is run from a home office, or from an office suite, or a huge building, has expenses. Those expenses, in the business world, are known as overheads. Overheads can be fixed (like your mortgage or rental, or the cost of equipment rental every month) or they can be variable (such as consumable items like stationary, or utility bills, or salaries for your staff.) In an ideal world, your overheads would only increase when your turnover and profits (that we will look at a little later in this article) do, but sometimes, that is not the case.

Next, there is your customer’s average dollar spend. In a nutshell, this is the amount of money your business makes, divided by the number of customers you have. So, for instance, if you make $2000 from twenty customers, their average dollar spend is $100. This is another common finance term that you will find in my business formula, and it is one of the things you can change if you want to make more profit from your business.

Another important term, both in my business success formula, and business itself, is turnover. This is one of those common finance terms that is often misunderstood – it is not the profit that your business makes, but rather, the total amount of money or revenue that you have brought in, before your overheads and expenses are deducted.

This brings us to margins and profit. Margins are essentially, the profit that your business makes, expressed in a percentage form. So, for instance, if your business has a 10% margin, your profit on $100 000 turnover would be $10 000. In order to make more money off your business, you need to increase your profit margins, either by increasing the cost of your products or services to your customers, or by reducing your costs or overheads.

Once you see common finance terms used in business like that, it’s a lot easier to understand what they mean, isn’t it? It is also easier to see how you can manipulate the various financial factors involved in financial success to increase your business’s profitability.

Let us assume that your business consistently makes $100 000 in turnover, but that your overheads are $50 000. That leaves 50%, or $50 000 as profit, which is pretty healthy. However, if you could find ways to reduce your overheads by 5%, your profits would increase to $55 000, without you having to sell any more of your products or services to your clients.

On the other hand, if your business is already operating on the minimum, in terms of overheads, then you will need to look at your turnover, if you want to increase your profitability. Adding another 5% to your turnover, bringing it to $105 000 in this instance would have the same effect as reducing your overheads and expenses, but it may cost you more money to find more customers.

The important thing, when it comes to business success, is to understand the basics when it comes to common finance terms used in business, and how to manipulate them to your advantage.

I teach my clients that there is a formula to success, and that formula is based on simple terms like these. My view is that if you understand how the basic financial ideas work in business, you can sit down and figure out where you can cut costs, and where you can increase turnover. If you can do both of those, and perhaps increase your number of sales, or average dollar spend, then you can make more money, without necessarily doing more work.

In business, it’s often not about how hard you work, but about how well you understand how business works that makes the difference. So don’t be scared of terminology like this – it is not as complicated as it seems, is it? Rather spend some time learning, and you should find that it becomes a lot easier to be more successful.

Steps to Starting a Small Business

When most of us think about starting a small business, we think it is a fairly straightforward process. We believe that we go from idea to business in a blur of activity, and that we suddenly wake up owning our own company. That is not strictly true however, and no matter what type of business you plan to start, there are several steps to starting a small business that you should bear in mind.

The very first step, for most, is the idea. Whether your small business will be a completely new and innovative venture, or a franchise, you still have to have the idea to start it before anything else can happen.

Next, usually, there is a period of weighing the pros and cons. This is a critical step, as it allows you to decide whether you are truly passionate about your business, and if you are, gives you the reason to carry on with what is sometimes an arduous process.

The next step in starting a small business is to learn. Even if you know the business you are starting intimately as an employee, there is still a lot to learn about running a business, and it is usually a good idea to get some sort of training.

Next, as you are working through the steps to starting a small business, you will have to craft a business plan. This need not be a complicated or difficult to create document, but it helps you to collect your thoughts, and get them all on paper, so that you have a clear plan to get from where you are now, to where you want to be. It also helps you to figure out how much money you will need to start your business, and during the first months of your start up phase, when you are unlikely to be earning a large amount.

This brings us to the next of the steps in starting a small business – finding funding. Unless you have the money to invest in your business yourself, you will have to find financing somewhere, whether it is a bank loan or an angel investor who funds your start up.

There are several other things you will have to do before you can open your small business’s doors. You will need to legally register the business, if you need to. You will need bank accounts and other administrative registrations and facilities. You will need to find premises if you need them, and secure deals with your suppliers. You will also need to register for tax, and if you are going to need to have specific permits, you will need to apply for them. Then there are things like interviewing and hiring staff, if you will need them, buying furniture and equipment, setting up your company website and developing marketing materials.

All in all, when you consider the steps to starting a small business, you will probably find that you are as busy during the pre start up phase as you would be once your company is running, and this is a good thing! It helps you to get a feel for your business, and builds the excitement you are undoubtedly feeling at the prospect of being your own boss! It also helps to ensure that you are really ready for business – this can be a somewhat thankless phase of your business, and if you are willing to put the effort into your company now, you are far more likely to have the staying power you will need during the gruelling first months of your business!

It is clear, when you look at the steps to starting a small business in this context, that there is a lot that happens between your big idea, and the day that your doors first open for business!

The good news is that this process is one of the most valuable assets to a small business owner. Working through the process steps to starting a small business gives you the time and the hands on experience, to switch from an employee mindset to that of a business owner.

Writing down your plans, and indeed, working through the red tape and other hurdles that often face the small business owner also allows you to clarify what it means to be a business owner in your mind, and to realise that while business is rewarding, it’s often not as simple as you’d like to think.

Some of the most successful businesses I know of did not happen overnight. Their owners took time and energy to make sure that when they did open their doors, they had a clear plan to succeed, and the tools, capital and systems they needed to get to that point of success.

So if you are ready to take the leap, and go from employee to business owner, remember that the steps to starting a small business are not something that should frustrate you, or cause you to ‘throw in the towel.’ Think of them as a challenge – they will test your resolve, but they will also ensure that you are ready to hit the ground running when you do open your doors for the first time. Do not cut corners. Address everything that needs to be addressed now, before you’re so busy running your business that you don’t have the time and energy, and give yourself the very best chance of success!

Merchant Cash Advances: Small Business Loan – How Important Is Accepting Credit/Debit Cards?

To secure a small business loan for your company how important is accepting Credit/Debit Cards?

The ability to secure “Working Capital” when we need it is one of the greatest challenges facing business owners today! Getting cash advances or cash in advance for businesses is becoming more difficult even for businesses with long-term banking relationships.

Is there any additional benefit to the issue of accepting credit cards as payment for your good/services when it comes to small business loans and funding?

Credit cards, just about everybody today uses them and those who don’t (because of less than perfect credit) will usually have a debit card. In other words, more people today use “plastic” instead of “paper money or checks” than ever before. So what does this mean to you, the merchant? It means as far as you doing business – there is literally no option except that you HAVE to accept credit cards as payment, whether you like it or not.

In most small businesses “plastic” accounts for as much as 75% of their business so if they did not take credit cards they probably would not stay in business long. While true that many entrepreneurs and business owners don’t like the processing fees associated with taking credit cards, they really don’t have a choice. In fact there are petitions in Congress to regulate or stop the overcharges associated with Interchange fees, also known as “swipe fees”. Even with that, businesses still must take credit cards as payment.

The fact is credit card processing is essential for all businesses for a number of reasons. For instance:

The ease of use and simplicity for customers makes it advisable for all companies to accept credit and debit cards. When there is a dispute that could result from a lost or misplaced check then that issue can be resolved with the credit card statement or through the credit card issuer.

Payment processing by credit cards is faster and easier. There is no delay and the business providing products/services receives the payment instantly.

Paying for goods/services when placing orders by phones involves ease for the customer and additional business for the merchants without the need for face-to-face transaction or being present to give cash or checks. Business can and is being transacted globally and can be conducted by the consumer from anywhere in the world.

Processing can be provided via a virtual terminal for the credit card payments to be made enabling companies operating via the Internet to receive payments from customers around the world instantly.

But for small business loans there is one tremendous benefit when it comes to financing business growth for companies that have accepted credit cards. And that brings us to the topic of this article: How important is accepting Credit/Debit Cards to securing a small business loan for your business?

For many small business owners the first few years in business are usually the most difficult. Most owners have poured their savings, maybe even mortgaged their home to fund the business often having to rob Peter-to-pay-Paul and credit ratings take a hit, so banks are not willing to lend to businesses in the first 2-3 years. So to get a cash advance or business line of credit where does a “growing” business turn for short-term “working capital”?

For small business owners that accept credit cards as payment here is good news. Merchant Cash Advance, Credit Card Receivable Financing or Business Cash Advance is a great and readily available resource.

The growing increase in credit card use has spurned a segment of the financial and lending industry that funds businesses based on their “Credit Card Sales History”. For Cash Advances and cash in advance or cash in advance for business, there are solutions. Not unlike, “Accounts Receivable Financing” of “Purchase Order Financing” small businesses that accept credit cards can benefit from “CREDIT CARD RECEIVABLE FINANCING”, which is a loan against future Visa/MC sales or another form of funding that has been used for a longer period of time called Merchant Cash Advance (or Business Cash Advance or Cash Advances). The business only needs:

To have been in business at least 1 year (No start-ups)

Has a minimum FICO score of 540

Has accepted Visa/MC for the past 6 months

Has processed as least $3000 per month for the past 6 months

Has at least 1 year remaining on their current business lease or owns the property

Has no open liens, foreclosures or bankruptcies (Liens with payment plans are OK)

The great thing for small business owners is based on their monthly credit card sales average they can be pre-approved in 24-48 hours and have funds wired into their business bank account in as little as 5 days.
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