Unformatted text preview: h implications as clearly as we
should, which is one of the best reasons for proper business planning. We have to manage cash, as
well as proﬁts. Know These Words
You don’t have to be an accountant or an MBA to do a business plan, but you will be better off with
a basic understanding of some essential ﬁnancial terms. Otherwise, you’re doomed to either having
somebody else develop and explain your numbers, or having your numbers be incorrect. This is a
good point to note the advantage of teams in business — if you have somebody on your team who
knows fundamental ﬁnancial estimating, then you don’t have to.
It isn’t that hard, and it’s worth knowing. If you are going to plan your business, you will want to plan
your numbers. So there are some terms to learn. I’m not going to get into formal business or legal
deﬁnitions, and I will use examples:
• Assets: cash, accounts receivable, inventory, land, buildings, vehicles, furniture, and other things
the company owns are assets. Assets can usually be sold to somebody else. One deﬁnition is
anything with monetary value that a business owns. • Liabilities: debts, notes payable, accounts payable, amounts of money owed to be paid back. • Capital (also called equity): ownership, stock, investment, retained earnings. Actually there’s
an iron-clad and never-broken rule of accounting: Assets = Liabilities + Capital. That means
you can subtract liabilities from assets to calculate capital. • Sales: exchanging goods or services for money. Most people understand sales already.Technically,
the sale happens when the goods or services are delivered, whether or not there is immediate
payment. • Cost of Sales (also called Cost of Goods Sold (COGS), Direct Costs, and Unit Costs): the raw
materials and assembly costs, the cost of ﬁnished goods that are then resold, the direct cost of
delivering the service. This is what the bookstore paid for the book you buy, it’s the gasoline
and maintenance costs of a taxi ride, it’s the cost of printing and binding and royalties when a...
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This note was uploaded on 01/26/2014 for the course BUINESS 102 taught by Professor Unknown during the Winter '09 term at University of Phoenix.
- Winter '09