Why Understanding Financial Jargon Matters

Many purpose driven organisations come from passion-driven, non-financial backgrounds. You started your organisation to create positive change – not to get lost in spreadsheets and technical finance terms!

However, not understanding financial language can be a real barrier to growth and sustainability. It can lead to:
❌ Confusion when reading financial reports.
❌ Difficulty communicating with funders, trustees, or accountants.
❌ Missed opportunities due to financial mismanagement.
❌ Increased stress over compliance and governance requirements.

By learning key finance terms, you’ll gain confidence in managing your organisation’s finances, making smarter decisions, and presenting a strong case for funding and investment.

Key Financial Terms Explained in Plain English

Here’s a breakdown of common finance terms that every social enterprise should know:

1️⃣ Cash Flow

💡 What it means: The movement of money in and out of your organisation.
💰 Why it matters: Even if you have money coming in, if it doesn’t arrive in time to cover expenses, you can run into cash flow problems.
📌 Example: If you receive a grant in March but need to pay rent in February, you may have a cash flow shortfall.

2️⃣ Restricted vs. Unrestricted Funds

💡 What it means:
🔹 Restricted funds – Money given for a specific purpose (e.g. a grant to run a community project).
🔹 Unrestricted funds – Money that can be used for any organisational need (e.g. general donations).
💰 Why it matters: Misusing restricted funds can lead to serious legal and financial consequences.

3️⃣ Accruals vs. Cash Accounting

💡 What it means:
🔹 Accrual accounting – Records income and expenses when they are earned or incurred, even if money hasn’t changed hands yet.
🔹 Cash accounting – Records income and expenses only when money is received or spent.
📌 Example: If you invoice a client in December but get paid in January, accrual accounting would count it in December, while cash accounting would count it in January.

4️⃣ Surplus vs. Profit

💡 What it means: Many social enterprises don’t talk about ‘profit’ – instead, they use the term surplus, meaning the money left over after covering all expenses.
💰 Why it matters: Generating a surplus is not about making a profit for shareholders, but about reinvesting into your mission to create more impact.

5️⃣ Reserves

💡 What it means: Savings set aside to cover unexpected costs or future plans.
💰 Why it matters: Having reserves can help your organisation survive funding delays or unexpected expenses.

6️⃣ Balance Sheet

💡 What it means: A financial statement showing what your organisation owns (assets) and owes (liabilities) at a specific point in time.
📌 Example: If you have £10,000 in the bank but owe £5,000 in bills, your net assets are £5,000.

7️⃣ Budget vs. Forecast

💡 What it means:
📌 Budget – A plan for expected income and expenses over a set period.
📌 Forecast – An updated prediction of finances based on real-time data.
💰 Why it matters: Budgets keep you on track, but forecasts help you adapt when circumstances change.

How Understanding Financial Jargon Helps Your Organisation Thrive

📊 Stronger Financial Decision-Making – You’ll be able to read and interpret financial reports with confidence.
📢 Clearer Communication with Funders – Funders expect you to understand and report on your finances accurately.
⚡ Less Stress and More Control – You’ll feel empowered rather than overwhelmed by numbers.

By demystifying financial language, you can use your numbers as a tool for impact rather than something to be afraid of.

Take Action: Download Our Free Jargon-Busting Guide!

📖 Want a quick and easy reference for finance terms? We’ve created a free jargon-busting guide designed specifically for purpose driven organisations.

✅ Download it today and gain confidence in your numbers!

[📥 Download the Free Guide]

📩 Have questions? Book a consultation with our finance expert!

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