Demystifying Scary Accounting Terms

Alisa McCabe: [00:00:00] Hello, and welcome to another episode of Financial Snickens. I'm your host, Alisa McCabe, and today we're going to be talking about some spooky terms coming to you. Yes, it's that time of year again. In the mystifying realm of business, There are a few things that strike fear into the hearts of entrepreneurs, quite like accounting terms. It's like stepping into the wizarding world of EBITDA and net profit margin and their cohorts of confounding companions. But fear not, brave souls, for we are about to embark on a whimsical journey through all of this financial jargon. Today, we're going to be talking about all these. Accounting words and why they're not so scary and we're going to have a little bit of fun with them. That will hopefully allow you to remember them when your accountant says them or [00:01:00] someone speaks up and you can remember this podcast and say, Oh, I remember this. The first one we're going to talk about is EBRA. No, it does not stand for earnings before I totally amazed. It's actually the grand daddio. Perplexing terms. It stands for earnings before taxes interest. I'm sorry. stands for Earnings Before Interest, Taxes, and Amortization. I know, it sounds a bit of a mouthful, but fear not. This is the way to figure out how much money your business is making before certain expenses are deducted. So it's the money you make before the government comes and takes their share or your accountant puts on the amortization or the depreciation. So it's that way you can think about it. Our next term. Net profit margin. So net profit margin [00:02:00] might sound like something that's from another realm, but it's a good way to measure the percentage of total income that actually ends up as profit. So you can think of it as it's the, it's the money left over from your sales after you've taken all the expenses out. It's the money you get to take home. Depreciation. We're going to refer to it as the aging potion. Depreciation is like an elixir of aging for the financial realm. So just as we all age gracefully, your assets tend to lose their value over time. So like We would like to do you spread out the aging or the cost of your asset over their useful lifetime. Now we were lucky. We have a long useful lifetime, but some of our assets don't usually last as long as we do. So it allows [00:03:00] you to take the cost of those assets over time, cashflow statement. Now cashflow statement. The crystal ball of finances. So it allows you to predict the future of your finances. That is the magic of the cashflow statement. It reveals how money moves in and out of your business, giving you a glimpse into the future of your finances. And there's no need for a divination class. Just consult your cashflow statements. Liquidity, liquidity. It's the potion of instant gold. Now it really isn't a liquid. It isn't a magical potion, but it's how quickly you can turn your assets into cash. It's like having the power to summon treasure whenever you need it. So make sure that you have liquidity and that you're able to do that. [00:04:00] So I hope you were able to follow along on our adventure of balance sheets, ledgers, and all these arcane spells that can be cast by Ibida, Net Profit Margin, and their whimsical comrades. And remember, That even though these terms might seem intimidating, they are simply the keys that unlock the secrets of your business's financial story. So go forth and embrace the magic and turn those numbers into the heroes of your entrepreneurial saga. Happy Halloween.