Hiring a good, small business accountant is important. They will help you to set up and maintain your books, help you with tax issues, and set up your accounting procedures. They stay on top of all the laws and issues that impact small businesses like yours.
While you can rely heavily on your accountant it IS important to know the small business “money lingo”.
If you aren’t familiar with the term lingo, it’s an “insider’s” language, terms that, when used, show others that you are part of their group. (Think of poker – with it’s lingo like “big bind” and “cold deck” or in the online marketing world with it’s lingo like “Pay per click” – often called “PPC”)
As a business owner, you will hear “money lingo” from fellow solopreneurs and mentors. They’ll throw around terms like “monthly nut” and “burn rate”. How you react determines how you “fit in” with them. When you know these terms you let others to know you are part of their community, a real player, committed to your business.
Because this is the language of accountants, knowing the money lingo makes it easier to talk with your accountant.
You don’t need to know it all – but it really helps to know even a few key terms.
- In the red – (aka “red ink”) the amount of money you are “short” after you deduct all of your expenses, including cost of goods sold from your revenue (money you have received from sales)
- Revenue – Money you have received from sales
- Income – Money you receive from all sources. (Sales, loans, investments)
- Operating Expenses – all costs to operate your business EXCEPT cost of goods sold
- Variable Expenses -costs that change, often with sales numbers (i.e. marketing, equipment purchases, temporary employees)
- Monthly Nut – The amount of money you spend each and every month regardless of sales (rent, insurance, utilities, administrative salaries)
- Burn rate – how much money you are going through each month (all expenses added together for the month)
- Cost of Goods Sold – the amount of money you have spent to purchase the items you sell, or for the raw materials to manufacture them
- Profit – your income minus expenses. Surplus is a profit, negative numbers are a loss
- Gross Profit – your income minus your cost of goods sold and commissions paid
- Net Profit – your income minus all expenses
- Net Loss – amount of money you are short after deducting your expenses from your income
- Bottom Line – a neutral way to describe net profit/loss
Become familiar with the words on this list, and when someone uses lingo you aren’t familiar with don’t be afraid to ask what it means. When you use the lingo of Solopreneurs you feel like part of the community and that feeling will help you to adopt the mindset of success.