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Financial Glossary for Retired Military Business Owners: 15 Must-Know Terms Thumbnail

Financial Glossary for Retired Military Business Owners: 15 Must-Know Terms

Managing Your Finances

A lot of retired military officers and NCO's decide to go into the consulting business. When you're a consultant, you're a business owner. There is a whole new world waiting for you. Understanding the language (just like when you were on Active Duty) is critical to success. Here are 15 terms you should know to operate in the business "battle-space".

1. Accounts Receivable

While this term sounds complicated, it’s actually rather simple. Accounts receivable is the amount of money people owe your business. It’s important to keep this number in mind as you plan ahead for future business expenses.

2. Accounts Payable

The opposite of accounts receivable, accounts payable is the amount of money you owe creditors, suppliers and others. In some ways, this number is more important than your accounts receivable as you are the one who is in charge of paying off the debt.

3. Assets

Assets can include both cash and inventory, which are categorized as current (or short-term) assets. Equipment and land, on the other hand, are fixed (or long-term) assets. 

4. Liabilities

Tying in with accounts payable, liabilities are your company’s cumulative debts. A loan is a long-term debt, while money owed to a supplier is a short-term debt. 

5. Expenses

From utilities to inventory, business expenses are incredibly important to track as you grow and expand your company. If you’re self-employed, some of your expenses may be tax-deductible.

6. Revenue

Quite possibly a business owner’s favorite term, revenue is your company’s total income. Keep in mind, this number does not include your expenses.

7. Net profit

You may have heard the term “bottom line,” and that’s exactly what your net profit is. This number is your total revenue, minus any expenses you have incurred over time. 

8. Net loss

The opposite of net profit is net loss. This happens when your total expenses are more than your company’s revenue, resulting in zero profit.

9. Profit margin

There are three categories of profit margin: gross, operating and net. In short, your profit margin is how much money you keep in your pocket when compared to your total amount of sales. 

10. Cash flow

Cash flow can be negative or positive. If you have more expenses than income, you have negative cash flow. In contrast, if your income outweighs your expenses, you have positive cash flow.

11. Depreciation

In simple terms, depreciation is when an asset’s value is reduced over time. This can be caused by everyday wear and tear. As a basic example, as soon as you drive a new car out of a dealer’s lot, it depreciates. 

12. Liquidity

Can you turn an asset into cash? If so, that asset is liquid. With liquidity comes more financial flexibility, so it’s always a good idea to have at least a few liquid assets on hand in case you unexpectedly need a large amount of cash.

13. Annual Percentage Rate

As a business owner, you will most likely need to get a loan at some point to cover startup costs associated with owning your own firm. That’s why it’s important to know the term APR — or annual percentage rate — which is the total loan cost, including any interest and fees. 

14. Appraisal

If you have ever bought a house, you may be familiar with the term appraisal. The three types of appraisals include real estate, equipment and business value. All three involve the evaluation of an asset’s true market value.

15. Collateral

Collateral is what you use as security when applying for a loan. Many lenders will require you to have collateral in case you stop making loan payments.

If you liked this article, you might enjoy the following blog posts:

Starting a Business After Retiring from the Military

Top 6 Bookkeeping Tips for Retired Military Business Owners

6 Estate Planning Tips for Retired Military Business Owners

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