How many times have you heard a finance person use an endless array of acronyms and abbreviations and just pretended you knew what they were talking about? You are not alone, and this post is for you.
Finance folks LOVE acronyms, and for some reason, most never stop to think that NON-FINANCE folks don’t know what they stand for, let alone what they mean. I’m here to tell you, at long last, what they stand for and what they mean in plain old English.
I’m going to start with the most obvious, considering the name of my company, which a friend kept calling “I Heart Ibiza,” before I started explaining this stuff. Here are my alphabet soup recipes, in no particular order:
EBITDA: Earnings Before Interest, Taxes, Depreciation, and Amortization
EBITDA (pronounced: EEE-BIT-DAH) is one of the key measurements of the health of your business.
KPI: Key Performance Indicator
Companies use KPIs to measure the important factors that contribute to the success of their business. There’s more to it, though. Learn all about KPIs here.
Oh wait, you already knew that one? Let’s keep going. It’s not limited to finance anyway.
Also sometimes used to abbreviate Balance Sheet, one of the main Financial Statements you should get familiar with, more on those here.
GAAP: Generally Accepted Accounting Principles
GAAP is a set of accounting rules that sets out to standardize how people look at their financial statements. You are not expected to know GAAP, but you are expected to hire someone who does.
COGS: Cost of Goods Sold
COGS are the expenses that relate directly to the product or service you’re selling.
OpEx: Operational Expenses
OpEx are costs associated with running a business but not directly related to the product you sell. Confused, about the difference between COGS & OpEx? You’re not alone, read more here.
CapEx: Capital Expenditures
CapEx are investments in physical assets, such as PP&E.
PP&E: Property, Plant & Equipment
Not to be confused with COVID-19’s PPP (Paycheck Protection Program), PP&E are generally long-term, tangible assets that a company owns like property, plant and equipment.
P&L: Profit & Loss
Remember the time when you first heard the phrase, “intents and purposes” and you thought it was “intensive purposes.”? Me too. And I’ve had more than a few people think P&L is spelled P-E-E-N-A-I-L. But your P&L is short for Profit & Loss and is the same as your income statement.
PEO: Professional Employer Organization
Just as you can outsource strategic finance to a fractional CFO, you can use a PEO for human resources. Learn more about PEOs here.
CPA: Certified Public Accountant
Likely you knew what CPA stands for, but do you know what it actually means? The word “public” throws a lot of people off, and in fairness, it’s kind of weird. A CPA is a designation awarded to become a licensed accounting professional. And because they are licensed, they’re signaling knowledge and a skillset. You can be an accountant and not a CPA, and you don’t have to be a CPA to file taxes. But consider this, in order to maintain their license, a CPA has to stay up-to-date with all new laws and regulations and tax codes change ALL. THE. TIME. For instance, there was a very aggressive change in the lease accounting standards that happened at the end of last year. I’m not saying an accountant wouldn’t be aware of it, but a CPA would be required to be aware of it.
If my alphabet soup has piqued your curiosity, or there are other acronyms you’ve not probed in the past because you were embarrassed or whatever, hit me up! I love explaining this stuff.