Let’s be honest, financial jargon can feel overwhelming. But if you’re a business owner, understanding a few key terms can make a big difference in how confidently you run your business, manage your money, and make decisions.
Here’s a breakdown of essential financial terms every South African entrepreneur should know, no finance degree required:
1. Revenue
Also called turnover, this is the total amount of money your business earns from sales before any costs or expenses are deducted.
Think of it as your top line, it shows how much your business is bringing in.
2. Profit
This is what’s left after all expenses are subtracted from your revenue.
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Gross Profit: Revenue minus the cost of goods sold (COGS)
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Net Profit: What’s left after all expenses (including salaries, rent, and tax) are paid
Net profit = what you actually keep.
3. Cash Flow
Cash flow is the movement of money in and out of your business. Even if you’re profitable on paper, poor cash flow can leave you struggling to pay bills.
Positive cash flow = more money coming in than going out.
4. Cost of Goods Sold (COGS)
This is the direct cost of producing or buying the products you sell. It includes materials and labour, but not things like rent or marketing.
Lowering your COGS can improve your profit margins.
5. Working Capital
This measures your business’s short-term financial health. It’s calculated as:
Current Assets – Current Liabilities = Working Capital
It tells you if you have enough to cover day-to-day expenses.
6. Break-Even Point
This is when your total income equals your total expenses, no profit, no loss. Knowing your break-even helps you set sales targets.
Everything you earn beyond this point is profit.
7. Return on Investment (ROI)
ROI measures how much profit or value you get from an investment, whether it’s a marketing campaign, equipment, or inventory.
A high ROI means you’re getting strong value for what you spend.
8. Equity
Equity is the value of ownership in your business. If your business is worth more than its debts, that difference is your equity.
It’s what you truly own, after all debts are paid.
9. Accounts Receivable
This is the money owed to your business by customers who bought on credit. It’s crucial for cash flow and needs to be tracked closely.
Late payments here can cause major cash flow issues.
10. Accounts Payable
This is the money your business owes to suppliers or service providers. Managing it well keeps your business relationships strong and cash flow healthy.
Don’t forget to track your due dates and avoid late penalties!
11. Asset vs. Liability
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Asset: Anything your business owns that has value (cash, equipment, inventory, etc.)
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Liability: Anything your business owes (loans, accounts payable, tax, etc.)
More assets than liabilities? That’s a good sign of financial health.
12. Depreciation
This is the gradual reduction in the value of an asset over time. For example, computers or vehicles lose value each year.
Understanding depreciation helps with tax planning and asset management.
13. Interest Rate
This is the cost of borrowing money, or the return on investing it. When taking out funding, always check if it’s a fixed or variable rate.
Lower interest rates mean cheaper borrowing.
Why These Terms Matter
Knowing these financial basics puts you in control. It helps you:
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Understand your business’s true financial position
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Communicate confidently with funders, accountants, and stakeholders
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Make smarter decisions that drive growth
Financial terms don’t have to be intimidating. The more you understand them, the more empowered you are to grow your business with confidence and clarity.
And if you’re ever unsure? Ask. Learn. Partner with professionals who can guide you. Because every informed decision starts with a clear understanding of the numbers.
