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5 MORE Financial Concepts Every Business Owner Needs To Know

Updated: Apr 5, 2022

This is part two of a three part series. Check out Part one here. Part three can be found here.

1. Revenue

Also known as Gross Sales. Revenue is the total amount of money generated by a business. Usually calculated in weekly, monthly, yearly sums. Sitting right at the top of the profit and loss sheets its also known as the "Top Line".

Revenue is calculated by taking all the money a business turns over before deducting any expenses. Revenue indicates the ability of your business to realise the demand the marketplace has for your product or service.

2. Valuation

A valuation is way of measuring somethings worth in monetary value. In business terms it valuation refers to the estimate valuation of your business. Knowing your own business valuation can be handy to know for a few reasons. Mainly it allows you to present yourself to investors by knowing how much your company is worth, you can accurately quote and explain your asking investment. Its also a must know if you are looking to sell any business.

Most businesses have a different way of calculating a valuation. Here are the most common five ways your business will probably be valued with: Historical Earnings Valuation, Relative Valuation, Asset Valuation, Future Maintainable Earnings Valuation, Discount Cash Flow Valuation.

3. Fiscal/Accounting Year

A Fiscal or accounting year is the 12 month period a business uses for taxing of accounting purposes. They don't follow the same Jan 1st to Dec 31st as the calendar year. Fiscal years differ for every business, depending on its business cycle. University's for example tend to start their accounting year when classes start. Its the 12 month period that governments and tax offices use to calculate your business earnings and necessary taxes.

4. Depreciation

Depreciation is the loss of value of an asset over time. Assets like heavy machinery can have a heavy price tag. Companies can use depreciation to spread the cost of an asset over multiple years, usually its usable lifespan. Spreading out the cost of an asset in this way is used to generate revenue.

5. Amortization

Amortization usually refers to the process of writing down the monetary valuation of a loan or intangible asset. Lenders often use amortization schedules to work out a loan repayment schedule. When applied to an asset, amortization works similarly to depreciation.

There you have it. Five more financial concepts for you to add to your library! Don't forget to check out part one and part three of this series of blogs.


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