1. Depreciation: The Story of the $10,000 Truck
Imagine you buy a truck for your business for $10,000. You plan to use it for 10 years. Instead of thinking of it as a huge one-time expense, you spread the cost over its 10-year lifespan, which means $1,000 each year. This is called depreciation—it helps you see how the value of something decreases over time. Just like how your phone might get old and slow after a few years, your truck “wears out” a little each year, so the value drops.
2. Fixed Interest: The Steady Payment Plan
You take out a loan to buy a house. The bank says you’ll pay 5% interest every year for 30 years. That 5% doesn’t change, no matter what happens to the economy. This is fixed interest—it’s steady and predictable. It’s like agreeing on a fixed price for pizza delivery—no matter what happens to the price of cheese, you’ll pay the same amount for your pizza every time.
3. Variable Interest: The Rate that Can Change
Now, let’s say you take another loan, but this time the bank tells you the interest rate can change every year. Some years it might be 4%, others it could be 6%. This is variable interest—it goes up or down depending on what’s happening in the financial world. It’s a bit like the price of gas; sometimes it’s cheaper, sometimes it’s more expensive, and you can’t always predict it.
4. Capital Expenditures (CapEx): Spending Money to Make Money
Think of capital expenditures like buying new tools for your bakery. You spend money on a new oven that will bake cakes faster, helping you make more sales in the long run. Businesses do the same thing when they buy equipment or property—they invest now to make more money later. It’s like a farmer planting seeds—they pay for the seeds today to harvest crops tomorrow.
5. Total Addressable Market (TAM): The Pie You Want a Slice Of
Imagine you open a pizza shop in a town where everyone loves pizza. Your Total Addressable Market (TAM) is the total number of people in your town who could buy pizza from you. TAM is like the full pizza pie—the bigger the pie, the more slices you could potentially get. It helps businesses understand how much money they could make if they capture the whole market.
6. SBA Loan: The Government-Backed Boost
Let’s say you want to start a business, but the banks aren’t sure about giving you a loan. You go to the Small Business Administration (SBA), which helps by partially backing the loan, making the bank more comfortable lending you money. It’s like having a trustworthy friend co-sign a loan for you, so the bank feels safer knowing someone else has your back.
7. Seller Financing: Paying the Owner Over Time
You want to buy a small bakery, but you don’t have all the money upfront. Instead of going to a bank, the current owner agrees to let you pay them directly in installments, using the profits from the bakery. This is seller financing—the seller acts as your lender. It’s like buying your friend’s bicycle by giving them money every month until it’s fully paid off.
8. Mergers & Acquisitions (M&A): Companies Joining Forces
Imagine two lemonade stands on your street. One sells great lemonade but needs more customers, while the other has lots of customers but wants better lemonade. They decide to merge, combining their strengths to form one super lemonade stand. Or, one might acquire the other by buying it out. Mergers and acquisitions help businesses grow quickly by combining forces.
9. Private Equity: Investing in Hidden Gems
Private equity is like finding a hidden treasure. Private equity firms look for businesses that aren’t on the stock market—small or struggling companies that have potential. They invest in these businesses, help them improve, and then sell them for a profit. It’s like buying an old house, fixing it up, and selling it for a much higher price.
10. Term Sheets and Tear Sheets: The Agreements and Snapshots
When you make a big deal, like selling your business, a term sheet is the first agreement that outlines all the important details. It’s not the final contract, but it helps everyone understand the basics of the deal before they sign anything. Think of it like agreeing on the rules before starting a board game.
A tear sheet, on the other hand, is like a business’s “cheat sheet.” It’s a one-page document that shows all the important info about a company or deal. It’s used when raising money from investors, giving them a quick snapshot of why they should be interested.
