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10 common Finance & Accounting terms (and what they really mean)


common Finance & Accounting terms

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There are many terms but those are the most common in Finance and Accounting


1️⃣ Closing the Books


Closing the books means you’re signing off (not legally) on the financial statements being accurate through a specific period.


It typically involves classifying & reconciling all transactions, and booking all necessary adjustments


2️⃣ Cash Burn


This represents the net cash change (often times negative) from one period to another - without including any financing activities


Financing activities are activities related to equity / debt…both cash in and cash out…


3️⃣ Runway


Runway means the stage that you model & walk on at board meetings…


Just kidding 😅 it means how many months you have left till you run out of cash


4️⃣ It ties / it’s reconciled


Accountants typically confirm their numbers by comparing one source of information to another


That can be something “reconciling” to a bank statement…


Or something “tying” from the balance sheet to the workpapers


5️⃣ Accruals


Accruals get recorded whenever an expense takes place (like a legal fee)…


But you either haven’t paid it yet or haven’t received the bill


It’s like placing an override (read: journal entry) on your financial statements


6️⃣ Margins


Margins represent the profit, but expressed as a % compared to income


The general formula is Profit / income


That can vary to many types of margins…like


▪️ Profit Margin (Gross profit / Revenue)


▪️ Operating Margin (Net operating Income / Revenue)


▪️ EBITDA Margin (EBITDA / Revenue)


▪️ Unit Margin (Gross profit in units / Gross revenue in units)


7️⃣ The Financials


These are important - and they are:


▪️ Your Income Statement


▪️ Your Balance Sheet


▪️ Your Statement of Cash Flows


8️⃣ Revenue run rate


This refers to your revenue in the most recent month, and multiplied by 12


This gives you a picture of what your business could be doing in terms of revenue if it kept up it’s current level of monthly revenue


Don’t mistake this for Annual Recurring Revenue!


9️⃣ Audited financials


When you hire an auditing firm, they take a look at tons and tons of your financial data, and ultimately provide a sign of approval on the accuracy of your books


This is a lot more common for larger companies, and is a requirement for public companies


🔟 Churn


Churn represents what your business lost - usually referred to with customers, or revenue (IE lost revenue from existing customers)


That’s my take on 10 common Finance & Accounting terms that you may hear.

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