Financial Poise
Share this...
  • Home »
  • EBITDA and Other Scary Words – By Yesenia Cardona, Charles Saydek and William Ryan

EBITDA and Other Scary Words – By Yesenia Cardona, Charles Saydek and William Ryan

A Financial Poise column dedicated to the reality that if you don’t understand your numbers, you don’t understand your business.

EBITDA and Other Scary Words

Scary Word(s) No. 12 – “The Deferreds”

By definition, the word “defer” means “to put off or postpone.” How exactly does this apply to the accounting for your business? Well, “The Deferreds” refer to the deferred assets and liabilities you may need to record under GAAP. There are several common categories of deferred liabilities: Deferred revenue, Deferred rent, Deferred compensation, and Deferred tax.

EBITDA and Other Scary Words

Scary Word(s) No. 11 – Debt, Collateral, Covenants, Guarantees and More

If you ever read (and I mean read, not just signed) a bank loan or revolving credit agreement, then you know the document can be a little overwhelming.

Scary Word(s) No. 10 – Commitments and Contingencies

Many balance sheets have a line called “Commitments and Contingencies” between the liability and equity sections. The strange part is there are no dollar amounts listed. So, what the heck are commitments and contingencies? Let’s start with the first one – commitments. We all have commitments. Some of them are easy—like promising to call your grandmother on her birthday or committing to a diet.

Scary Word(s) No. 9 – Accrued Expenses

Accrued expenses, sometimes called accrued liabilities, are costs incurred by the business without an invoice. Transactions like these are not recorded right away.

Scary Word(s) No. 8 – Accounts Payable

AP can be broken down into two categories – trade payables and expense payables. Trade payables are generally for the purchase of goods that are included in inventory and subsequently sold (liquor and beer). Expense payables include goods or services that are expensed such as supplies, utilities and cleaning services.

EBITDA and Other Scary Words

Scary Word(s) No. 7 – ‘Intangible’ Assets

An intangible asset is an asset that is not physical in nature. Examples include non-compete agreements, customer lists, goodwill, and corporate intellectual property such as patents, trademarks, copyrights, trade secrets and domain names.

EBITDA and Other Scary Words

Scary Word(s) No. 6 – PP&E

PP&E, or Property, Plant and Equipment (okay, this is definitely more than one word), is a vital component in the operation of your business. And for many businesses, PP&E can be one of the largest numbers on the balance sheet. PP&E may consist of land, building, equipment, furniture, computers… the list can (and does) go on and on. So what do you need to know about PP&E? Well, you need these fixed assets, so you buy them…the end. Oh, if it was only that simple.

EBITDA and Other Scary Words

Scary Word(s) No. 5 – Inventory

Managing inventory will determine if the your business is profitable or will soon be going out of business. The goal is to find a balance between having too much inventory (you’re renting extra space just to store the inventory and now you have no cash for payroll) versus not having enough inventory and missing out on valuable sales.

EBITDA and Other Scary Words

Scary Word(s) No. 4 – Accounts Receivable

A guy walks into a bar and asks the bartender for a drink. The bartender gives him the drink and tells him how much he owes him and the guy says, “Put it on my tab.” And this brings us to our next scary word: “Accounts Receivable” (wait; that’s two words). Accounts Receivable or “AR” (now it’s one word and not so scary) is exactly that, “the tab.” It is the money owed to a business by its customers in exchange for goods received or services provided.

Scary Word(s) No. 3 – Cash

Scary Word No. 3: Cash – Well, it is only scary if you don’t have any. If you find yourself with a large amount of money at certain points during the month and then trying to make payroll the following week, when your cash position is at a much lower point, maybe we can offer some advice to get control over your cash. Hopefully, we may even help you improve your cash gap. Wait a second; that seems like a scary word. What is cash gap?