Understanding startup business terms

Know your Cash Flow Statement from your Corporation Tax? Your pension contributions from your private equity? Don’t worry – you will by the end of our guide to business terms and startup business jargon.

Off we go then:-

Accounts receivable: The money owed to your company by customers who’ve received goods or services from you but not yet paid you for them. Nice to have but even better if the money is in your bank.

Accounts payable: This is the money you owe. Not nice to have but at least the money to pay for them is earning interest in your bank account and not theirs.

Angel: An angel, angel investor or business angel is someone who invests money in your business. Usually the term refers to someone either with large white fluffy wings or who is reasonably well off. An angel is someone who invests privately in small or new companies, probably in return for a share of the business. As well as providing funds, they should be able to share their experience and knowledge with you to help your business succeed. Think Dragons Den.

Asset: Something your business owns, for example, a building or a car.

Auto-enrolment or automatic enrolment: The compulsory system whereby UK employers are required to enrol every employee into a company pension scheme to which both employer and employee contribute. You generally don’t have to enrol someone who earns less than £10,000 or is under 22.

Balance sheet: A financial statement that reports a company’s assets and liabilities (what the company owes) at a particular point in time. For a company, this generally equates to the shareholders’ equity (the value of the shares they own).

Bookkeeping: The maintaining of financial records – so essentially keeping detailed records of all your incomings and outgoings. Bookkeeping is part of accounting but accounting also involves analysing and interpreting that information.

Business plan: A document setting out your intentions for your business – its objectives, how you are going to achieve them and how you predict the business is going to perform. You’ll usually need a business plan to secure investment or a bank loan. You can see some templates at www.gov.uk/write-business-plan.

Cash flow: The total amount of cash coming into and going out of your business. Managing your cash flow is crucial because even if your profits are good, you’re in trouble if the money isn’t actually there when you need it. A cash flow statement records your cash flow and a cash flow forecast predicts it.

Cloud computing: A program which uses secure online servers to store information and files instead of storing them on your own internal IT systems.

Using cloud servers allows you and multiple other people to log in at the same time from different locations (you can access the servers from any internet device) and see the same up-to-date information. Google Docs is an example of a cloud-based system.

Companies House: The Government department which maintains the register of Limited Companies and Limited Liability Partnerships (LLPs).

So, if you want to set up a Limited Company or LLP, you need to register it with Companies House and provide information such as the names of directors and shareholders. This information is published for all to see on the Companies House website. Companies House can also dissolve a company, either at the request of the directors, or off its own bat if there are irregularities.

Corporation tax: A tax on the profits of a Limited Company which business owners have to pay. The rate at the time of writing is 25 per cent on profits.

Credit control: The process you employ to ensure that you get paid by customers who don’t pay at the time of purchase.

Crowdfunding: Raising money for a project through donations.

Employers’ liability insurance: Insurance which covers you if an employee suffers illness or injury through work and claims compensation. With a couple of exceptions, having this in place is a legal requirement if you employ anyone.

Equity: An ownership share of a business. Someone who has a 25 per cent equity share in your business owns a quarter of your business.

HMRC: Her Majesty’s Revenue and Customs, aka the taxman.

Peer lending: A type of crowdfunded loan where a large number of people club together to lend money to a business in return for interest.

Profit and Loss Account: A financial statement usually prepared by your accountant which shows the amount of profit or loss made by your business for a given period. Your Profit or Loss is broadly calculated by subtracting your expenses from your income.

Public liability insurance: Insurance which covers you if a third party – a client or member of the public – suffers injury or damage to their property as a result of something done by your business. It isn’t strictly a legal requirement but your industry regulator or professional body may require you to have it – as indeed may your clients.

Turnover: The amount your business sells. This is different from your profit, which is the amount of money you have left after you have paid out all your costs – materials, wages, rent, utilities, etc. Turnover and profit are also sometimes referred to as the top line (turnover) and bottom line (total profit, or unfortunately sometimes total loss) respectively.

Profit margin is a figure that shows how much profit you make per pound of goods or services that you sell. It’s usually expressed as a percentage.

You may also come across Gross Profit, Net Profit and EBITDA.

  • Gross Profit is your turnover minus the direct costs of producing the things you sell such as the cost of the good you have sold.
  • Net Profit is your Gross Profit minus all your other overhead costs, such as taxes, insurance costs, publicity, rent, administrative wages etc.
  • EBITDA stands for earnings before interest, taxes, depreciation and amortisation and is your turnover minus your production and operating costs, adjusted to exclude depreciation and amortisation (business assets losing value). Told you it was complicated!

These three figures are measures which finance professionals use to assess your startup business. EBITDA is especially complicated.

What matters to you as the owner of a startup business though, is your net profit – are you earning money? – and your cashflow – is that money coming in?

VAT: A tax paid by consumers when they buy goods and services.

If your business turnover is less than £90,000, VAT is not something you have to get involved with unless you wish to voluntarily or have overseas sales.

If it’s more than this, you will need to charge your customers VAT by adding it to your sales prices. At the time of writing the standard rate is 20 per cent.

You don’t get to keep this VAT, you are collecting it on behalf of the government, so you have to fill in a VAT return every three months and pay it over – but at least you are allowed to deduct the VAT you’ve paid out yourself to other businesses.

Venture capital: Money invested in a startup business or an expanding business in exchange for an ownership share in that business.

At THP Chartered Accountants, we make it our mission not just to help you balance the books but to understand what they mean.

We take the time to go through everything with you so you’re completely clear on every aspect of your finances – and have all the information and understanding you need to keep your business moving forward.

We have four offices in ChelmsfordSuttonWanstead and Saffron Walden  – call us on 020 8989 5147 to chat about how we can help.

Need further advice on any of the topics being discussed? Get in touch and see how we can help.

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    About Mark Boulter

    Mark Boulter is responsible for the efficient running of the firm’s infrastructure, and ensuring that THP delivers the best client service. Promoting the vision and culture across all branches, people are the key: “I like people who have a fresh approach and I’m happy for them to run with their ideas,” he says.

    Communication across departments is crucial and Mark pioneers this. He ensure that people and departments not only talk to each other, but that they share ideas– whether they’re about marketing, finance, sales, strategy or any other topic that can result in us offering a better service. “I think helping to develop the next generation of THP people is essential to our success,” Mark adds. “We’ve a lot of talented people and our way of doing things increasingly attracts ambitious newcomers who are looking for a fresh approach. That’s good for us and even better news for our clients.”

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