Understanding Top Financial Business Terms and Processes

Yes, it’s the busy season, but you should never be too busy to evaluate the health and well-being of your business finances. Your family and your employees rely on you to know, understand and assess numbers to make sound business decisions. Financial mistakes and misunderstandings can have devastating consequences. Review these terms so you can be confident your business is financially stable.

To define and decipher confusing finance terms, we spoke to three experts on the FORVIS (formerly BKD CPAs & Advisors) MyATA service provider team, including:

• Nathan Fitzgerald, director in tax and outsource accounting services
• Dakota Comer, senior associate
• Rane Bateman, outsourcing associate

Let’s see what they had to say.

Terms to Know and Understand

• Profitability (Net Income) Versus Cash Flow

Fitzgerald said new business owners are often unfamiliar with these terms, and veterans can sometimes confuse them. In short, net income is the total profitability of your business. It’s the result of revenues minus expenses, taxes and costs of goods sold. You can determine net income through profit and loss statements. However, not everything that costs money is factored into your net income on the P&L statement. That’s why it’s important to understand cash flow, which is the amount of operating cash that flows through the business. It refers to the cash generated from revenues. Business owners must understand how cash flow differs during slow and busy seasons so they can plan business expenses throughout the year accordingly. For instance, Fitzgerald encourages ATA members to think about bank debt or capital improvements.

“Those things will be assets or liabilities that we’re taking care of with our cash flow but not directly impacting our net income,” he said. “We can be profitable but not feel like we’re growing from a cash perspective. The distinction between those two things is critical for a new operator.”