An introduction to the most common financial terms

If you’re a sole trader, the owner of a business or rarely involved in business and finance, some of the terms used in that sector can be difficult to understand for those outside of the sector.

We recognise this at Chamberlain & Co, which is why we always aim to make it easier for people to understand terminology used in connection with personal and company financial situations.

So, here is an introduction to some of the most common financial terms you are likely to encounter when acting on behalf of a business or dealing with financial experts:

Assets

Tangible or intangible property or resources that are owned by a person, party or business. These can include stock, products, sub-brands, intellectual property, office furniture, equipment and anything that can be deemed as having value to the person or company. An asset can be sold in the event of experiencing difficult financial times.

Creditor

The person, party or business to which money or debts are owed. The opposite is a debtor.

Cash Flow

The receipt of income, payment of expenses and general payments made in and out of a person’s, party’s or business’s account(s) each month. This can be affected by delayed payments, 90-day payments and mismanagement of expenses.

Debtor

The person, party or business that owes money, assets or debts to a creditor.

Deflation

The opposite of inflation and referring to a general decrease in the overall cost of goods. Where businesses are able to improve productivity to the point where more goods are being made more cheaply, this can allow prices to decrease.

Deflation becomes an issue when customer spending on such goods is delayed until the prices become cheaper. This results in a huge loss of profit for the producing business and makes it more difficult for the business to manage its cash flow as regular or predictable custom becomes more difficult to manage. A business may therefore have to make cuts elsewhere which can impact the productivity and quality of goods or service produced with a resultant decrease in customer demand and profit. In these circumstances, the cycle of cuts to jobs and facilities can continue until eventually the business is unable to pay its debts. Historical experience has shown that once deflation sets in, it is incredibly hard to shake off.

Dividend

Those who have shares in a company or firm are entitled to receive payments from the retained profits of that company; this is called a dividend. A dividend can only be paid if sufficient retained profits are available. If insufficient retained profits are available, the dividend is likely to be deemed illegal and could be reclaimed from the shareholder in the event of the subsequent insolvency of the company.

Hopefully, this has been a simple introductory lesson to some of the terms you are likely to come across when dealing with finance. Admittedly, it can sound like another language. That’s why we have tried to translate it, to make it much simpler for everyone to understand.

If you would like more advice or help understanding how to maintain a business, stay up to date with Michael Chamberlain via LinkedIn for regular updates.

Alternatively, to speak with one of our financial experts regarding the business recovery options available at Chamberlain & Co, call us on 0113 868 1203.