Glossary

Cash flow — Money in vs money out over time.

Why it matters: healthy cash buys time and options.

13-week cash forecast — A simple 3-month view of expected ins/outs by week.

Why it matters: shows pinch points before they hurt.

Working capital — Cash tied up in stock and debtors (customers who owe you), minus creditors (suppliers you owe).

Why it matters: the lower it is (sensibly), the faster your cash cycle.

DSO (Days Sales Outstanding) — Average days customers take to pay.

Why it matters: lower DSO = faster cash in.

DPO (Days Payables Outstanding) — Average days you take to pay suppliers.

Why it matters: fair, longer DPO keeps cash with you.

DIO (Days Inventory Outstanding) — Average days stock sits before it’s sold/used.

Why it matters: lower DIO = less cash on shelves.

CCC (Cash Conversion Cycle) — DSO + DIO − DPO.

Why it matters: shrink this and cash flow improves.

Revenue / Sales — What customers pay you (ex-VAT).

Why it matters: top of the story—everything else explains how much you keep.

COGS (Cost of Goods Sold) — Direct costs to make what you sell (materials, direct labour, factory consumables).

Why it matters: Sales − COGS = gross profit.

Gross margin — (Sales − COGS) ÷ Sales, as a %.

Why it matters: core measure of pricing + production health.

Markup vs Margin — Markup adds % on cost; margin is % kept from selling price.

Why it matters: don’t mix them—pricing errors follow.

Contribution margin — Sales − variable costs (per unit/job).

Why it matters: shows what each job contributes to overheads and profit.

Overheads (O/H) — Costs to run the business (rent, admin, management, energy not tied to a job).

Why it matters: must be covered by contribution.

Overhead absorption — How overhead is spread into product/job costs (e.g., £/machine-hr).

Why it matters: the method affects reported margins.

Standard costing — Pre-set costs; differences show as variances.

Why it matters: great for control—investigate variances.

ABC (Activity-Based Costing) — Shares overhead based on activities that drive cost.

Why it matters: fairer costs when overheads are big.

Break-even — Sales level where profit = £0.

Why it matters: know the line; plan to stay above it.

Inventory / Stock — Raw materials, WIP, finished goods.

Why it matters: it’s cash in another form—manage it.

WIP (Work-in-Progress) — Jobs started but not finished.

Why it matters: needs valuing monthly so margins are real.

BOM (Bill of Materials) — Parts list and quantities for a product.

Why it matters: drives ordering and margin.

SKU (Stock Keeping Unit) — A unique product code.

Why it matters: clean SKUs = clean reporting.

FIFO / Weighted average — Stock valuation methods (UK).

Why it matters: affects reported profit and stock value.

Cycle count / Stocktake — Small regular counts vs big annual count.

Why it matters: keeps records honest without shutdowns.

Routing / Operation — Steps and timings to make a part.

Why it matters: informs labour/machine time and capacity.

Lead time — Time from order to ready.

Why it matters: long lead times = earlier cash out.

Management pack — Monthly P&L (Profit & Loss), Balance Sheet, Cash Flow + plain-English notes.

Why it matters: everyone reads the same story—fast.

Board pack — A beefed-up management pack with risks, actions, investment updates.

Why it matters: keeps decisions calm and consistent.

P&L (Profit & Loss) — Sales, costs and profit for the period.

Why it matters: shows if the month made money.

Balance Sheet — What you own (assets) and owe (liabilities), and equity.

Why it matters: shows health and resilience.

Cash Flow Statement — Where cash actually moved (operations, investing, financing).

Why it matters: explains cash when profit looks fine (or not).

Accruals & Prepayments — Move costs/income into the right month (timing tidy-ups).

Why it matters: keeps results fair and comparable.

KPIs (Key Performance Indicators) — The handful of numbers that matter.

Why it matters: focus effort; spot change early.

Variance analysis — Planned vs actual — and why.

Why it matters: turns surprises into improvements.

Capex (Capital Expenditure) — Spend on long-life assets (machines, lines, vehicles, ERP).

Why it matters: big cash moves; needs a case.

Opex (Operating Expenditure) — Day-to-day running costs.

Why it matters: hits profit immediately.

NPV (Net Present Value) — Today’s value of future cash flows (after timing/discounting).

Why it matters: green light if NPV > 0 under sensible assumptions.

IRR (Internal Rate of Return) — Annualised return of a project.

Why it matters: compare investments on one scale.

Payback — Time until an investment repays itself in cash.

Why it matters: fast sanity check for risk.

Buy vs Lease / HP (Hire Purchase) — Own it now vs pay over time/use it.

Why it matters: trade cash flow, tax and flexibility.

Covenant — A promise to a lender (e.g., debt cover).

Why it matters: keep packs ready; avoid breaches.

VAT (Value Added Tax) — Sales tax on most goods/services; you collect and pay the difference to HMRC.

Why it matters: cash timing and filings.

MTD (Making Tax Digital) — HMRC’s digital record-keeping/filing rules.

Why it matters: needs the right software setup.

Corporation Tax & CT600 — Company tax and the annual return to HMRC.

Why it matters: plan payments; avoid penalties.

Companies House filings — Annual accounts, confirmation statement, director changes.

Why it matters: legal must-dos; public record.

PAYE & NI (Pay As You Earn & National Insurance) — Payroll tax and contributions.

Why it matters: pay on time; keep staff and HMRC happy.

Capital allowances (AIA / full expensing) — Tax relief on qualifying plant & machinery.

Why it matters: reduces taxable profit; plan purchases.

R&D relief (Research & Development) — Tax relief for qualifying innovation spend.

Why it matters: can be valuable—evidence is key.

ERP (Enterprise Resource Planning) — System linking jobs, stock, purchasing, sales, accounts.

Why it matters: one source of truth beats spreadsheets.

Bank feed — Secure live import of bank transactions into accounts software.

Why it matters: faster, cleaner bookkeeping.

Reconciliation — Matching records to reality (bank to ledger, stock to shelf).

Why it matters: trustworthy numbers, fewer mysteries.

PO / GRN (Purchase Order / Goods Received Note) — The order you place and the proof it arrived.

Why it matters: controls spend and stock.