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Financial Glossary for the Children of Business Owners: 15 Must-Know Terms

Our children have many opportunities to learn about business on TV. Kids love to watch Shark Tank but there is so much that is never defined and they don't get as valuable of a lesson as they might. I love to watch "The Prophet" with my kids because it gets more in depth about the businesses and specific strategies.

If you own a business it's a great idea to start teaching your children early about how to communicate in the business world. Knowing the financial terms behind business ownership can be fun for children. As with anything, teaching your children about work, money and business can be achieved with some upfront work. This involves educating your children on a regular basis. The following are some basic terms that you can review with your kids between cannon balls in the pool and trips to the freezer for a  popsicle.

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 a 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 , minus any expenses that been 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. The main thing to remember is that depreciation usually reduces taxes. 

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

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.

This content is developed from sources believed to be providing accurate information, and provided by Twenty Over Ten. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.

Any opinions expressed in this forum are not the opinion or view of American Portfolios Financial Services, Inc. (APFS) or American Portfolios Advisors, Inc.(APA) and have not been reviewed by the firm for completeness or accuracy. These opinions are subject to change at any time without notice. Any comments or postings are provided for informational purposes only and do not constitute an offer or a recommendation to buy or sell securities or other financial instruments. Readers should conduct their own review and exercise judgment prior to investing. Investments are not guaranteed, involve risk and may result in a loss of principal. Past performance does not guarantee future results. Investments are not suitable for all types of investors.

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