11 Most Important Financial Terms You Need to Know in Business

Cost-Volume-Profit diagram, showing Break-Even Point as point where Contribution equals Fixed Costs. 

When you're asking for capital to start or expand your business, it's important to know the key financial terms the financiers use and what these terms actually mean.

I've included a brief summary of these financial terms to help you in your efforts:

1. Financial Statements: Used as a reference for Profit & Loss Statement (which shows revenues and expenses and your income or loss) and the Balance Sheet (which reflects your assets, liabilities, and owner's equity).

Additional financial reports such as Cash Flow, Break Even Analysis, Sources and Uses of Working Capital, and Financial Ratios Analysis are also often included.

2. Debt or Equity Capital: Describes what kind of capital you are seeking. Debt is usually in the form of a loan, promissory note, mortgage or other legal instrument. Equity is an ownership position in the business.

3. Rate of Return (Yield): The primary purpose of investing your money or getting other people's money is to earn a return on capital. This number indicates what profit or interest investors or lenders receive for investing. Prior to approaching any source for funds, you should know what kind of yields they are seeking.

4. Cash Flow: This is the life blood of a company. Cash flow is the generation of funds available to pay expenses and returns to investors or lenders. Cash flow reflects the timing and amount of inflow and outflow of funds.

5. Working Capital: Usually, this figure represents total assets that will be converted to cash within a year minus liabilities that must be paid within a year.

6. Collateral: This is property accepted as a secondary source of repayment of a loan or other obligation.

7. Break Even Analysis: A method of assessing a company's profit potential downside risk. Expenses should be separated into variable costs (i.e. labor, materials, commissions) and fixed costs (i.e. rent, utilities, salaries, insurance, etc.). With these costs and estimated revenues per unit, you can determine how much product/service must be sold to cover costs.

At this volume, your company incurs neither a profit nor loss.The break even analysis is an important tool to illustrate the effects of product price changes, cost increases or a reduction in demand on the company's profitability.

8. Margin: The difference between revenues received and expenses incurred and commonly expressed as a percentage or dollar amount. Gross margin is the difference between total sales revenue and total costs of goods sold. Net margin is the difference between total sales revenue and all costs associated with producing goods, including administration, taxes, and other overhead expenses.

9. Leverage: The ability to borrow a larger amount of money than a company has invested in property or assets.

10. Fixed Cost: A cost that remains unchanged even with variations in output.

11. Variable Cost: The cost of production that vary directly in proportion to the number of units produced.


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Medicare Open Enrollment is Over, but not Obamacare, yet

While the Open Enrollment Period (OEP)was over for most senior citizens on December 7, those who are duo eligible (have both Medicare and Medicaid), or have a chronic illness such as diabetes can change or replace Original Medicare, Medicare Advantage or a Prescription drug plan anytime throughout the year. Also, specific situations, such as moving into a new area of realizing an eligibility change can allow you a Special Enrollment Period (SEP).

However, if you are not yet eligible for Medicare, you are vulnerable to Obamacare, and all of its problems. If you have been able to enroll on healthcare.gov, you are “lucky”. And, if you did enroll you probably discovered that you had an increase in premiums along with a higher deductible and co-payments. Keep in mind that although you have enrolled, you do not have insurance until you have paid the first premium.

Here’s why your premiums have gone up: Obamacare has the requirement that insurance policies has to cover “ten essential health benefits”. Obamacare requires you to pay for these benefits whether or not you want them or need them. For example, a childless person must pay for a plan that includes pediatric services.

Now, here are these ten essential health benefits:
1. Ambulatory patient services
2. Hospitalization
3. Prescription drugs
4. Prevention and wellness care.
5. Emergency services
6. Maternity and newborn care.
7. Rehabilitation services
8. Laboratory services
9. Mental health services
10. Pediatric services

If you voted for Obama, you got what you voted for. Always remember, elections have consequences. Another election is coming up in November 2016. Research the candidate’s position on the issues that matters to you. Keep in mind that a vote for Hillary Clinton is a vote for a 4 year extension of Obama's policies, including Obamacare.

Consider if the candidates positions become law, how would it impact you, your, family and your bank account.  Know their past voting records, and then decide who would be the best candidate for your vote. Don’t vote on superficial qualities and then have buyer’s remorse.


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Quick Guide to Buying Long Term Care Insurance

It is important to remember that when planning for long -term care, the focus should not be on the cost of care currently, but what care will cost when it is most likely needed. That may be 10 years, 20 years, 30 years, or longer.

Now let's consider five essentials regarding long term care insurance.

1. There are different types of provisions in long term care insurance. The type of long term care that is provided depends on the patient's medical necessity, psychosocial needs, and financial situation. Types of long term care include: skilled nursing, intermediate, custodial home-based and hospice care.

2. Policyholders must meet certain conditions to receive benefits.
Long term care benefits begin when policyholders meet certain conditions. A licensed professional performs an assessment to determine if there is a medical necessity for long term care. Medical necessity is generally defined as an inability to perform daily activities, such as bathing, dressing, or eating, due to severe physical limitations or cognitive impairments.

3. The type of policy and the needs of the individual determine the cost of long term care insurance.
Annual premiums can vary significantly depending on your age, health, and the type of policy, but policies can run as high as $5,000 or more per year, However, you do not have to pay that much. Your premium could be reduced by choosing a shorter benefit period, buying at a younger age, sharing care, choosing a longer elimination period, reducing the daily benefits, and including inflation protection.

4. A typical policy pays for care either in a nursing facility or at home
You may fiercely resist living out the rest of your life in a nursing home and would prefer to live at home. These benefits include homemaker/home helper service and home health services which would cover both non-medical and medical services in the home. Today's best long term care policies are designed to provide for this.

5. Your premiums may be tax deductible

There are tax advantages to acquiring long term insurance. Whether you buy it as an individual, a sole proprietor or as a corporation, the premiums can be treated as a tax deductible medical expense. Your tax adviser can update you on the current federal and state rules and limits.


Choosing a Long Term Care Insurance can be complicated. Leave me an e-mail at bwillbar@gmail.com if you have any questions. and, don't forget a Final Expense Plan.

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