Ch 9: Entrepreneurial Finance and Accounting

accounting

system of recording and classifying a company’s financial transactions and summarizing and communicating those transactions in the form of financial statements

accounting equation

assets = liabilities + equity

accounts payable

account that includes vendors that the company owes money to

accounts receivable

account that includes customers that owe the business money

angel investor

wealthy, private individual seeking investment options with a greater potential return than is generally available with traditionally publicly traded stocks

assets

items a business owns and derives future use from

balance sheet

financial statement that summarizes a company’s financial condition according to the accounting equation

bartering

exchanging goodd or services for other goods or services instead of for cash

bootstrapping

funding strategy that seeks to optimize use of personal funds and other creative strategies (such as bartering) to minimize cash outflows

breakeven point

level of operations that results in exactly enough revenue to cover costs

burn rate

rate at which cash outflow exceeds cash inflow

charitable organization

nonprofit company founded for altruistic purposes

collateral

something of value pledged to secure a loan

contribution margin

gross profit from a single item sold

cost of goods sold

cost required to produce the product or service

credit

lending of funds in exchange for a promise to repay

crowdfunding

financing with investments of small amounts of money from a large number of people

debt financing

borrowing funds that must be repaid, usually with interest

donation

financial gift intended to support an organization’s general operations

early stage

company lifecycle stage in which the product or service has begun development

equity

owner’s interest in the assets of the business

equity financing

funds provided in exchange for a share of ownership in a business

expenses

costs incurred in the normal course of business operations

financial statement

output of an accounting system that is used to make financial decisions

financial viability

long-term financial sustainability of an organization’s to fulfill its mission

financing

raising money to fund the startup and operation of a business

financing activities

section of the statement of cash flows that shows where new infusions of cash are coming from

fixed asstes

major purchases with a long life, such as buildings, land, and so on

fixed costs

costs that do not change, regardless of the amount of sales

funds

financial resources for acquiring assets

grant

financial gift intended to find a specific goal or project

gross profit

selling price of a product or service minus its direct costs

income (profit-and-loss) statement

financial statement that describes how much a company earned while the business was operating and what cos to were incurred to generate those revenues

initial public offering (IPO)

process by which a company lists it’s ownership shares on a public stock exchange

investing activities

section of the statement of cash flows that shows major purchases of equipment or facilities

liability

company’s debt to another party

mature stage

company lifecycle stage in which the business has reached commercial visibility

moonlighting

earning income from a source outside of one’s primary employ

net income

revenue minus expenses

operating activities

section of the statement of cash flows that shows day-to-day activities of the business, such as purchasing supplies, paying rent, and receiving cash from customers

profit margin

amount by which revenue exceeds costs, typically described as a percent

program services

basic offerings that a nonprofit provides to generate a portion of its revenue to sustain operations

projection

forecast of the future operations of a business

revenue

amount a business earns through product sales or providing a service

run rate

cost of running a business over a specified period of time

seed stage

company lifecycle stage in which the business is largely still an idea

statement of cash flows

financial statement that explains the sources and uses of the company’s cash

sustainable strategy

strategy that can maintain an organization’s financial stability

tax-exempt status

treatment under U.S. tax law that removed the burden of taxes from nonprofit organizations

valuation

estimate of a company’s worth

variable costs

costs that fluctuate with the level of revenue

venture capitalist

individual or investment firm that specializes in funding startup companies

working capital

funds available for day-to-day operations