Accounting Terms Startups Should Know

by Startacus Admin

Shoaib Aslam, co-founder of Pearl Chartered Accountants, highlights the most basic accounting terms that startups should know..

Startups with owners who are relatively new to the business world are going to have a more uphill climb than startups launched by people who are more business savvy. Yes, there’s all the obvious business stuff to think about, but entrepreneurs launching startups are also expected to know some basic accounting knowledge. This means that there are a few accounting terms you’re going to have to get to grips with if you want to run a startup and get it off the ground.

As accountants for startup businesses, we know all the jargon and terms necessary to help you run your business, breaking the terms down into simple meanings. As is usually the case with industry jargon, the concept behind the words is simpler than it sounds! If you’re struggling with forming your business in addition to the accounting side of things, we here at Pearl also offer a company formations service which may suit you!

Anyway, without further ado, here are the most basic accounting terms that startups should know!

Cash flow from activities

You probably know what cash flow is, but have you stopped to think about the “cash flow from activities” section on your cash flow statement? This can be given different similar names, such as “net cash provided by operating activities” or “cash flow from operations”. This refers to your net income, plus your non-cash expenses, plus/minus the balance of charges for current assets or accounts with liability.

Put simply, cash flow from activities shows startups how much money their company has access to due to its normal everyday operations. This makes it easy for you to see how much money your normal business activities are generating, and the more cash flow you have available, the more you are able to invest and build your business.

Revenue Growth

The more revenue which comes into your startup, the more you can afford to spend on investments and expenses to improve your business. As a result, you should keep an eye on your revenue growth and see how much it is growing or shrinking by every year. Even if your business’s revenue continues to grow every year, it could spell trouble if it’s revenue is growing less and less as the years go by.

Net Income Margin

Put simply, your net income margin refers to your revenue minus all your expenses and sales.

For example, if you sell $1,000 worth of stuff with expenses of $500, your net profit is $500 and your net margin is 50%, meaning that your profit margin is 50%. If you’ve ever talked with accountants for startup businesses, you’ll often hear them talking about profit margins.

This is because these percentages measure the overall efficiency of a business and help startups to estimate their earnings during quiet and busy periods.

So there we have it! If you had trouble with any of these accounting terms or you’re looking for advice on launching your startup successfully, why not try out our company formations service or give one of our accountants for startup businesses a call today? 

Written by...

Shoaib Aslam is the co-founder of Pearl Chartered Accountants, a UK-based chartered accountancy firm that has multiple locations across London. They are experts in helping startups and established businesses with all aspects of growth, strategy, scaling up, accounting and tax planning.

 

 

Subscribe to our newsletter

If you would like to receive our startup themed newsletter, full of the latest startup opportunities, events, news, stories, tips and advice, then sign up here.

• #terms
• #accounting
• #finance

Published on: 8th March 2019