Accountant – A professional who maintains financial records, tax affairs and payroll services for businesses and individuals as well as offering financial advice to preserve the fiscal health of their clients.
Accounts Payable – All invoices, less than 12 months old, for goods and services, utility bills and liabilities like tax payments are kept on record as accounts payable.
Accounts Receivable – All expected payments, less than 12 months old, from goods or services already rendered but not yet paid for are recorded as accounts receivable.
Adverse Credit – The term used when an individual has recent poor repayment history or, for example, a CCJ has been registered against their name.
Amortisation – The gradual reduction of a debt via regular payments.
Annual Accounts – the set of official records that show the financial situation of a company and what it has spent, received, borrowed, etc. during its accounting year.
APN – Accelerated Payment Notice. A notice from HMRC stating that the recipient has wilfully partaken in a tax avoidance scheme and must pay the amount of wrongfully avoided tax within 90 days.
APR – Annual Percentage Rate. The APR gives an indication of the overall cost of a loan, including any set up costs and interest charged, and is communicated to you by a lender prior to signing an agreement.
Arrears – A person is said to be in arrears if they have missed a payment on a loan.
Asset Finance – A form of lending which provides access to business assets such as vehicles or machinery.
Bad Debt – Money owed that is unlikely to be recovered.
Balance Sheet – A statement detailing the assets, liabilities and capital of a business on a specific date.
Balloon Payment – The final outstanding balance owed on a loan; interest only having been paid up to this point.
Bankrupt – A person is declared bankrupt when they are unable to meet their debts and fail to secure an agreement with their creditors.
Bookkeeping – The process of recording transactions such as purchases, sales, receipts and payments of a business.
Borrower – a person or organisation that takes out a loan from a lender under an agreement to pay it back later, typically with interest.
Bridge Loan – A short term loan taken out for a period of 2 weeks to 3 years until larger or longer-term financing can be sourced.
Broker Fee – The fee charged by a broker for sourcing the best deal for you. It is usually but not always a percentage of the transaction value.
Business Loan – A loan specifically intended for business purposes to be repaid over a specified time with added interest.
Capital – Money or assets owned by a person or organisation.
Capital Cost – A fixed, one-time expense used for the purchase of substantial physical items such as land, machinery or buildings.
Capital Gains Tax – A tax owed on the increase in value of an asset. There is an annual allowance for CGT, and you will only pay on any gain over that amount.
Cash flow – The movement of cash or cash-equivalents in and out of a business.
CCJs – Stands for County Court Judgement. If you fail to repay monies owed and the creditor takes court action, the county court will issue a CCJ.
Consolidation loan – This involves taking out a new loan in order to combine multiple debts into one larger payment.
Commission – A payment made to a financial advisor for services rendered, usually based on the percentage of the value of investment. Often you will not pay a broker fee if they charge commission.
Corporation Tax – A direct tax that all limited companies must pay on the profits of their business annually.
Credit Reference Agency – An independent organisation that collects and maintains consumer credit information.
Credit Check – Also known as a Credit Search, is when a lender pays to access the information a Credit Reference Agency holds about an individual’s financial behaviour and uncover any adverse credit.
Creditor – A person or enterprise that is owed money by another party.
Current Asset – An item on a company’s balance sheet that is expected to be exhausted, sold or converted into cash within the fiscal year.
Current Liability – An obligation that must be repaid within the fiscal year.
Debenture – A charge on property or assets placed by a lender as collateral for a loan facility being arranged.
Debt – An amount of money, goods or services owed by a debtor to a creditor.
Debtor – A person or enterprise that owes money to another party.
Default – A failure to meet a loan obligation.
Depreciation – The measure of the monetary decrease in value of an asset over time, due in part to wear and tear or obsolescence.
Direct Debits – An instruction to your bank to allow a third party to withdraw funds from your account on an agreed date. They are usually set up to pay bills.
Disbursements – A payment made by a company on behalf of a client to a third party with re-imbursement sought from the client.
Drawings – Personal expenses paid for from a business account.
EBITDA – Earnings Before Interest, Taxes, Depreciation and Amortization – a measure of a companies’ profitability.
Equity – This is the amount of money each shareholder would be paid if all assets were liquidated and debt paid off. It’s calculated by deducting liabilities from assets.
Equity Finance – Finance raised through the sale of shares in a business i.e. money invested in the business in return for equity.
ERC – Early Repayment Charge is charge levied if you repay early or before an agreed date.
Facility – A facility is an agreement between a business or corporation and a lender that allows them to borrow an amount of money for a set term. Types of facilities include short-term loans, revolving credit or long-term loans.
FCA – the Financial Conduct Authority is an independently run financial regulatory body. It focusses on the conduct of financial services firms to promote competition and protect consumers rights.
Finance – The process of providing funding or capital to a business.
Financial Statement – A record of the financial performance and activities of a business over a period and usually includes the following three statements:
- Balance Sheet
- Cash Flow Statement
- Profit and Loss Statement
Fixed Asset – Property or equipment owned and used by the firm in the running of the business.
Fixed Cost – A cost that remains constant despite business activities or goods produced i.e rent.
Fixed Interest Rate – An interest rate which will not change for the entirety of an agreed period.
Flat Rate of Interest – the percentage of interest charged on the initial loan amount of every year you have the loan for.
Good Credit – A good credit score indicates the borrower is a trustworthy applicant for a loan and is more likely to get approved.
Gross Income – For businesses gross income is total revenue minus the cost of goods sold.
Gross profit – Also known as gross margin it is a company’s profit before operating expenses, interest payments and taxes.
Guarantor – A person who will fulfil the loan repayments and pledge their own assets in the event the original debtor cannot pay.
Hard Asset – An asset or resource that a company owns with the intention to generate future value.
Hire-Purchase – An agreement whereby the buyer purchases a good through an initial down payment, with the balance paid in instalments plus interest charges until it is fully paid off, at which point title of ownership transfers to the purchaser.
HMO’s – Stands for House in Multiple Occupation and is a property rented out to 3 or more people, not from the same family, who share facilities like the bathroom or kitchen. An example would be student housing.
HMRC – HM Revenue and Customs is the tax authority in the UK responsible for collection of taxes, paying some benefits, like child support, and regulating the national minimum wage.
IPO – Initial Public Offering is when the shares of a company are available to the general public to purchase for the first time.
Insolvent – A term used for when an individual or business can no longer meet its debts.
Intangible Assets – An asset such as goodwill or brand recognition that holds value for the company but is not physical in nature.
Interest – The cost of borrowing money.
Interest Rate – A percentage to calculate the cost of borrowing the money.
Investment – An asset purchased for the sole purpose of generated income or accruing value.
Lender – Could be a bank, building society, individual, public or private group and is the entity that is making the funds available with the expectation that they will be repaid, plus interest.
Liability – The sum of money a company or organisation owes.
Limited Company – A business entity which limits the liability of shareholders to the extent of their investment. Limited companies come in 3 common types:
• Private Limited Company (LTD)
• Limited Liability Partnership (LLP)
• Public Limited Company (PLC)
Almost always when somebody describes or refers to a Limited company, they are referring to a Private Limited Company (Ltd)
Limited Liability Partnership (LLP) – a legal partnership providing limited liability to the partners in the business whereby the limits of liability for each partner get capped at the amount each has invested into the business.
Liquidation – The process of bringing a business to a close and selling its assets for cash to distribute to claimants, usually only occurring when a company is insolvent.
Loan – An agreement between two parties whereby money or other material goods are exchanged for repayment in instalments over an agreed period.
Loan To Value (LTV) Ratio – the ratio of a loan to the value of an asset purchased. The higher the LTV ratio, the riskier the loan is for a lender.
Margin – The difference between the cost of goods and the selling price. It is usually displayed as a percentage of net sales revenue.
Market Leader – A company, product or brand that has the highest percentage of total sales revenue in a particular market.
Management Accounts – Summarised accounting data (balance sheet, cash flow, and income statement) typically prepared and presented on a monthly basis, specifically for a firm’s management.
Mortgage – A loan used to buy property. If you cannot keep up with repayments the property may be repossessed.
Net Assets – Calculated by subtracting total liabilities from total assets.
NI Contributions – Payments made by employers and employees to the UK government. It is deducted directly from pay for the employed and on profit for the self-employed.
Negative Equity – Occurs when the value of a property falls below the amount still owed on the mortgage.
Net Income – usually measured as the profitability of a business, the total money earned after expenses (tax and other deductions etc)
Net Profit – Gross profit minus all business expenses.
Overdraft – An extension of credit allowing an account to continue withdrawing funds after it reaches zero. Interest is charged on the loan and a fee applied each time the account is ‘overdrawn’.
Overheads – Ongoing fixed business expenses that do not directly generate profit but provide ongoing business support. For instance, insurance, rent and utilities.
Personal Guarantee – This is a promise made by a person (usually a director or shareholder) or an organisation to cover the cost of a loan repayment should the company fail to re-pay the debt.
Plant and equipment – The fixed assets of a business used to produce goods. The machinery in a factory, vehicles and furniture would all fall into this category.
Profit – Total revenue minus total expenses.
Profit and Loss statement – A financial statement summarizing the revenue, costs and expenses of a company over a specified period. It is used to work out the profitability of a business.
Receipt – A written acknowledgment of the transfer of goods or services.
Refinance – The re-evaluation of a business or individuals’ loan agreement. It often involves the revision of interest rates, payment schedule and terms of a previous loan.
Repossess – When the asset or property of an individual is recovered in order to cover an unpaid debt.
Return on Investment (ROI) – A measure of the benefits (return) gained on the money invested into the business or asset.
ROI = (Current value of investment – cost of investment) / Cost of investment
Searches – Checks carried out by a solicitor on behalf of the buyer of a property. They will look for subsidence, planning applications and other factors that may affect the property such as flooding in the area.
Start-up – A company in the first stages of operations.
Stock – the physical goods a company is holding ‘on hand’
Stamp Duty – The tax levied on the transfer of property, calculated as a percentage of the property price.
Term – The maximum period of the loan.
Turnover – Most commonly measured the amount of business that a company does in a period of time.
Variable Interest Rate – An interest rate that moves in conjunction with the market or along with an index.
Working Capital – Current cash in the business. The difference between current assets and inventories of raw materials.
Yield – A measure of return on the money invested in a security.