25 Key Terms
Key Terms
- accounting
- system of recording and classifying a company’s financial transactions and summarizing and communicating those transactions in the form of financial statements
- accounting equation
- assets = liabilities + equity
- accounts payable
- account that includes vendors that the company owes money to
- accounts receivable
- account that includes customers that owe the business money
- angel investor
- wealthy, private individual seeking investment options with a greater potential return than is generally available with traditional publicly traded stocks
- assets
- items a business owns and derives future use from
- balance sheet
- financial statement that summarizes a company’s financial condition according to the accounting equation
- bartering
- exchanging goods or services for other goods or services instead of for cash
- bootstrapping
- funding strategy that seeks to optimize use of personal funds and other creative strategies (such as bartering) to minimize cash outflows
- breakeven point
- level of operations that results in exactly enough revenue to cover costs
- burn rate
- rate at which cash outflow exceeds cash inflow
- charitable organization
- nonprofit company founded for altruistic purposes
- collateral
- something of value pledged to secure a loan
- contribution margin
- gross profit from a single item sold
- cost of goods sold
- cost required to produce the product or service
- credit
- lending of funds in exchange for a promise to repay
- crowdfunding
- financing with investments of small amounts of money from a large number of people
- debt financing
- borrowing funds that must be repaid, usually with interest
- donation
- financial gift intended to support an organization’s general operations
- early stage
- company lifecycle stage in which the product or service has begun development
- equity
- owner’s interest in the assets of the business
- equity financing
- funds provided in exchange for a share of ownership in a business
- expenses
- costs incurred in the normal course of business operations
- financial statement
- output of an accounting system that is used to make financial decisions
- financial viability
- long-term financial sustainability of an organization to fulfill its mission
- financing
- raising money to fund the startup and operation of a business
- financing activities
- section of the statement of cash flows that shows where new infusions of cash are coming from
- fixed assets
- major purchases with a long life, such as buildings, land, and so on
- fixed costs
- costs that do not change, regardless of the amount of sales
- funds
- financial resources for acquiring assets
- grant
- financial gift intended to fund a specific goal or project
- gross profit
- selling price of a product or service minus its direct costs
- income (profit-and-loss) statement
- financial statement that describes how much a company earned while the business was operating and what costs were incurred to generate those revenues
- initial public offering (IPO)
- process by which a company lists its ownership shares on a public stock exchange
- investing activities
- section of the statement of cash flows that shows major purchases of equipment or facilities
- liability
- company’s debt to another party
- mature stage
- company lifecycle stage in which the business has reached commercial viability
- moonlighting
- earning income from a source outside of one’s primary employ
- net income
- revenue minus expenses
- operating activities
- section of the statement of cash flows that shows day-to-day activities of the business, such as purchasing supplies, paying rent, and receiving cash from customers
- profit margin
- amount by which revenue exceeds costs, typically described as a percent
- program services
- basic offerings that a nonprofit provides to generate a portion of its revenue to sustain operations
- projection
- forecast of the future operations of a business
- revenue
- amount a business earns through product sales or providing a service
- run rate
- cost of running a business over a specified period of time
- seed stage
- company lifecycle stage in which the business is largely still an idea
- statement of cash flows
- financial statement that explains the sources and uses of the company’s cash
- sustainable strategy
- strategy that can maintain an organization’s financial stability
- tax-exempt status
- treatment under U.S. tax law that removes the burden of taxes from nonprofit organizations
- valuation
- estimate of a company’s worth
- variable costs
- costs that fluctuate with the level of revenue
- venture capitalist
- individual or investment firm that specializes in funding startup companies
- working capital
- funds available for day-to-day operations
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