Financial Jargon and How to Explore It Like a City
In this episode of the Numbers Knowhow podcast, "Financial Jargon and How to Explore It Like a City", we're going on a quick trip away to demystifying those intimidating financial terms that often leave business owners feeling lost and out of control.
Hi, I'm Mahmood Reza.
Imagine stepping off a plane in a foreign country without knowing the language – that’s what it’s like diving into financial statements if you’re not familiar with the terminology.
But fear not, just as you’d pick up a few key phrases to survive in a new place, we’ll equip you with the essential financial jargon to help you steer your business with confidence.
You’re going to learn the meaning and importance of fundamental financial terms like revenue, profit, liquidity, assets, liabilities, and ROI (Return on Investment).
These aren’t just abstract concepts but crucial elements that determine how well your business performs.
I'll be breaking these down with some relatable analogies, making it easier for you to grasp and remember.
Once you’ve listened to this episode, you’ll be better equipped to understand your business’s financial health, make informed decisions, and feel more in control of your financial affairs.
You’ll have a grasp of key financial terms that will empower you to have more meaningful conversations with investors, lenders, or even your accountant.
No longer will terms like ROI or liquidity leave you scratching your head – instead, you’ll know exactly what they mean and why they matter.
So, take the time to give this episode a listen and invest in your understanding of financial jargon – it’s a journey worth taking for the future of your business.
If you've not yet joined the community, it's time to elevate your financial prowess and Plan It, Do It, PROFIT!
Timestamped summary
[00:00:00] - How understanding financial jargon's like exploring a foreign country without knowing the language.
[00:01:00] - The frustration of encountering terms like equity, ROI, and liquidity for the first time!
[00:01:41] - The feeling of vulnerability and uncertainty when trying to understand financial statements or negotiate with professionals.
[00:02:23] - How sometimes, not knowing the language can lead to creative solutions and innovation.
[00:02:57] - The importance of understanding basic financial terms.
[00:03:35] - Breaking down key financial terms: revenue, profit, liquidity, assets, liabilities, and ROI, using easy-to-understand analogies.
[00:05:49] - The importance of engaging with financial jargon and the empowerment that comes with understanding the basics, making your business journey smoother.
Transcript
Navigating financial jargon is like traveling to an
Speaker:overseas country without knowing the language or understanding
Speaker:it.
Speaker:Welcome to today's episode where we're going to go on a journey
Speaker:together. Now imagine stepping off a plane in a foreign country, but as
Speaker:a catch, you don't speak the language.
Speaker:And that's what navigating financial jargon in business can feel
Speaker:like. And today we're going to explore the joys and the
Speaker:downsides of not understanding the language of finance and
Speaker:how you can become fluent. To make your business journey
Speaker:smoother, picture this.
Speaker:You've landed in this vibrant city, the streets are alive with
Speaker:energy, people are chatting, and everything feels new and
Speaker:exhilarating. But as you try and order a coffee, you
Speaker:realize you have no idea what the menu says. You're pointing
Speaker:at pictures, hoping for the best. But that's what it's like when you
Speaker:encounter financial jargon for the first time. Terms like
Speaker:equity, RoI and liquidity can feel like they're
Speaker:being written in a completely different Alphabet. You might be
Speaker:guessing, hoping you're making the right choices, but there's always that
Speaker:element of uncertainty. The thrill of being in a new place can
Speaker:quickly turn into frustration. Imagine trying to ask for
Speaker:directions, but not knowing the words for left or right. In
Speaker:business, it's similar when you're trying to understand your financial statements
Speaker:or negotiate with lenders, negotiate with investors. You know what
Speaker:you want to say, but you're not quite sure how to say it. Or at
Speaker:worst, you're not sure how to understand what's being said to
Speaker:you. And this can leave you feeling out of control, even vulnerable,
Speaker:and feeling a little bit unknowledgeable. But let's not get too discouraged
Speaker:just yet. Not knowing the language has
Speaker:its moments of unexpected joy. Imagine stumbling
Speaker:across a hidden cafe that locals love, and all because
Speaker:you got lost. And sometimes in business, not understanding financial
Speaker:jargon can lead to creative problem solving. When you're forced to
Speaker:think outside the box, you might discover there are new ways to manage
Speaker:your business or come up with ideas that a financial expert might
Speaker:overlook. Ignorance, in this case, can sometimes lead to
Speaker:innovation. However, just like in travel, theres a limit
Speaker:to how much you can wing it. If youre running a business, you dont want
Speaker:to be constantly guessing what the financial terms mean. Its like trying to
Speaker:navigate a foreign country with a map you cant read. Eventually, you might
Speaker:end up somewhere you didnt intend to go. Understanding the basics of
Speaker:financial jargon is like learning key phrases in a
Speaker:new language.
Speaker:You dont need to be fluent but knowing the essentials, knowing the basics can
Speaker:help you get by. Avoid misunderstandings. Make smarter
Speaker:decisions. Let's break down some of those key phrases.
Speaker:Imagine you're in a foreign country and you've learned how to say, where is
Speaker:the bathroom? How much does this cost? These are survival
Speaker:phrases that make your trip much smoother. And in business, your
Speaker:survival phrases may include understanding what revenue means. It's
Speaker:the total amount of money, by the way, what your business brings in. It's what
Speaker:you generate from selling goods and services. Think of it as the money
Speaker:you earn from selling souvenirs during your trip.
Speaker:Next, we have profit. Profit is what's left over
Speaker:after you offset all your expenses against your
Speaker:revenue. Just like your hotels, your meals, and the last minute shopping
Speaker:spree is what you actually get to take home after the trip.
Speaker:It's the reason you're in business in the first place. You want a
Speaker:business, not a hobby. Another crucial term
Speaker:is liquidity. Now think of liquidity as the cash in your
Speaker:pocket when you're traveling. It's the money you can easily access
Speaker:to pay for a taxi, grab a quick
Speaker:snack. And in business, liquidity refers to how quickly you can
Speaker:turn your assets into cash. The more liquid your business, the
Speaker:easier it's going to be to handle unexpected expenses, like
Speaker:that sudden urge to buy an overpriced souvenir, because you just can't
Speaker:resist it. Let's not forget about assets and liabilities.
Speaker:Assets are like the valuables you bring back from your trip,
Speaker:artwork, clothing, memories, even something quite
Speaker:gaudy. They hold value to you and can be enjoyed
Speaker:or even sold later. And in business, assets are things your
Speaker:company owns that has a monetary value, just
Speaker:like equipment or inventory. Liabilities, on the other hand, are like
Speaker:the credit card bill waiting for you when you get home.
Speaker:They're the debts or obligation your business owes. And just as
Speaker:you wouldn't want to max out your credit card without a plan to pay it
Speaker:off, you don't want to let those liabilities pile up in your business
Speaker:without a strategy to manage them. The final phrase on
Speaker:this list is ROI, or return on
Speaker:investment. Think of ROI like the value you get from your
Speaker:trip. You spent money on flights, hotels and meals, but what
Speaker:did you gain? Maybe it's those unforgettable experiences, the
Speaker:knowledge of a new culture, the connections you made, the people you
Speaker:meet. And in business, ROI measures the
Speaker:benefit you receive from an investment compared to what you
Speaker:spend. You invest money in assets. You invest money in the
Speaker:business. What do you get back? A high ROI
Speaker:means your investment was worth it. Just like a trip leaves you with
Speaker:lifelong memories. So
Speaker:what's the takeaway from our journey today? Navigating financial
Speaker:jargon in business can feel like traveling to a foreign country
Speaker:where you don't speak the language. It can be confusing,
Speaker:frustrating, and athlete times. A little bit scary.
Speaker:But just as we travel, the more you learn and the more familiar
Speaker:you become with the language, the more confidence grows and
Speaker:more empowered you will feel. You don't need to be a financial expert, but
Speaker:knowing the basics can make all the difference in your business journey.
Speaker:Folks, thanks for joining me on this trip today. Remember, learning the language of
Speaker:finance isn't just about becoming fluent overnight, it's about
Speaker:picking up the phrases you need to get by. Enjoy the journey and
Speaker:make the most of your business adventure. Until next time, save
Speaker:travels on your financial journey and keep exploring.
