Terms

Amortization

Amortization is an accounting method for spreading the cost of an intangible asset over its useful life, and it also refers to the process of paying off a loan through scheduled installments. For intangible assets like patents or copyrights, the cost is gradually expensed to reflect the asset's consumption over time. In the context of a loan, such as a mortgage, amortization involves making regular payments that cover both principal and interest to systematically reduce the outstanding debt.

Importance of Amortization in Financial Planning

Amortization is a cornerstone of sound financial planning for both businesses and individuals. It provides a clear roadmap for managing the costs of assets and the repayment of debts over time. This systematic approach enhances financial stability and decision-making in several key ways:

  • Budgeting: Provides predictable schedules for expenses and loan payments, aiding in cash flow management.
  • Valuation: Accurately reflects the declining value of assets and aligns costs with revenues for a clearer financial picture.
  • Taxes: Creates deductible expenses that can lower a company's taxable income and overall tax liability.
  • Debt: Structures loan repayment, offering transparency into how principal and interest are paid down over time.

Common Amortization Schedules

Amortization schedules can be structured in various ways to suit different financial situations and asset types. The method of calculating payments can vary significantly, designed to accommodate different cash flow needs for borrowers or accounting standards for businesses.

  • Straight-Line: Spreads the cost of an asset evenly over its useful life.
  • French Method: Features constant payments, with interest being higher in the initial installments.
  • Increasing Balance: Involves payments that start small and grow larger over the loan's term.
  • Declining Balance: Requires larger initial payments that decrease over time, reducing overall interest.
  • Balloon: Includes smaller regular payments followed by a large lump-sum payment at the end.

Amortization vs. Depreciation

While both amortization and depreciation allocate an asset's cost over time, they apply to different asset types and follow distinct accounting rules.

  • Amortization applies to intangible assets like patents and copyrights. It typically uses a simple straight-line method, spreading the cost evenly over the asset's useful life without a salvage value. This method is required for intangibles, offering predictability for enterprises managing intellectual property costs.
  • Depreciation is used for tangible assets such as buildings and equipment. It offers more flexibility with methods like accelerated depreciation, which can provide greater tax benefits early on. Companies use it to account for wear and tear and an asset's salvage value, matching expenses to actual usage.

Impact of Amortization on Cash Flow

Amortization of intangible assets impacts cash flow indirectly by affecting taxable income and reported earnings.

  • Non-cash: A charge that reduces net income without an actual cash outlay.
  • Taxes: Lowers taxable income, which can increase after-tax cash flow.
  • Reporting: Added back to net income on the statement of cash flows.

Amortization in Different Industries

In business, amortization is used to systematically write down the value of intangible assets. Industries like technology and media heavily rely on this to expense patents, copyrights, and trademarks over their useful lives. The straight-line method is the standard practice, ensuring a consistent expense is recorded each year.

Conversely, in the financial sector, amortization structures loan repayments. Schedules for mortgages or commercial loans show how each payment reduces both principal and interest. This provides clarity for lenders and borrowers on the gradual payoff of debt.

Frequently Asked Questions about Amortization

Can an amortization schedule be changed?

Yes, loan amortization schedules can be altered through refinancing. For intangible assets, the amortization period can be adjusted if the asset's estimated useful life changes, though this requires proper accounting justification and disclosure to reflect the new economic reality accurately.

How is goodwill amortization handled differently?

Under US GAAP, public companies test goodwill for impairment annually rather than amortizing it, though private companies may elect to. IFRS strictly prohibits goodwill amortization, mandating only annual impairment tests. This distinction is crucial for financial reporting and valuation analysis.

What happens if an intangible asset is sold before being fully amortized?

If an intangible asset is sold, the company calculates a gain or loss by comparing the sale price to the asset's book value, which is its cost less accumulated amortization. This gain or loss is then recognized on the income statement for that period.

Other terms

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Enrichment

Enrichment is the process of adding third-party data to your existing customer profiles to get a more complete picture of your leads.

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Sales Development

Sales development is the process of identifying and qualifying potential customers to create a pipeline of sales-ready leads for closers.

Sales Development

Messaging Strategy

A messaging strategy defines what your brand says, how it says it, and where it says it to connect effectively with your target audience.

Messaging Strategy

Sales Compensation

Sales compensation is the total pay a salesperson receives, including salary, commissions, and bonuses, structured to motivate performance.

Sales Compensation

Sales Key Performance Indicators

Sales Key Performance Indicators (KPIs) are quantifiable metrics used to measure how effectively a sales team is achieving its key objectives.

Sales Key Performance Indicators

Nurture Campaign

A nurture campaign is a series of automated messages designed to build relationships with potential customers and guide them toward a purchase.

Nurture Campaign

Branded Keywords

Learn about branded keywords, including identifying your branded keywords, & strategies for optimizing branded keywords.

Branded Keywords

Lead Routing

Lead routing is the automated process of distributing incoming leads to the right sales reps based on predefined criteria.

Lead Routing

Marketing Mix

The marketing mix is the set of marketing tools a company uses to sell products, defined by the 4Ps: Product, Price, Place, and Promotion.

Marketing Mix

Demographic Segmentation in Marketing

Demographic segmentation divides a market into groups based on traits like age, gender, and income, allowing for more targeted marketing efforts.

Demographic Segmentation in Marketing

Territory Management

Territory management is the process of segmenting customers into groups by geography or other factors to optimize sales efforts and resources.

Territory Management

Sales Velocity

Sales velocity is a key metric measuring the speed at which your company makes money. It shows how fast deals move through your sales pipeline.

Sales Velocity

ClickFunnels

ClickFunnels is a popular online tool that lets entrepreneurs easily build sales funnels to guide potential customers through the buying process.

ClickFunnels

B2B Data Solutions

Learn about B2B data solutions, including unlocking the power of B2B data, & key components of effective B2B data solutions.

B2B Data Solutions

Site Retargeting

Site retargeting is a marketing strategy that shows ads to people who have previously visited your website but left without converting.

Site Retargeting

Account View Through Rate

Account View-Through Rate (AVTR) is the percentage of target accounts that see an ad and later visit your website without clicking on it.

Account View Through Rate

Challenger Sales

The Challenger Sales model is a methodology where reps teach prospects, tailor their pitch, and take control of the sales conversation.

Challenger Sales

Outbound Sales

Outbound sales is when reps proactively contact potential customers through cold calls or emails to generate leads and build a sales pipeline.

Outbound Sales

Account-Based Selling

Account-Based Selling is a B2B strategy where sales and marketing treat high-value accounts as markets of one, using personalized outreach.

Account-Based Selling

Account Development Representative

An Account Development Representative (ADR) identifies and qualifies new business opportunities, creating a pipeline for account executives.

Account Development Representative

Remote Sales

Remote sales is selling from a distance. Reps use digital tools to connect with prospects and close deals without meeting them in person.

Remote Sales

Direct-to-Consumer

Direct-to-Consumer (DTC) is a business model where companies sell products directly to customers, bypassing traditional retail middlemen.

Direct-to-Consumer

Sales Pipeline Management

Sales pipeline management is the process of organizing, tracking, and managing potential deals through every stage of your sales funnel.

Sales Pipeline Management

Below the Line

Learn about below the line, including key strategies for below the line marketing, & distinguishing above and below the line tactics.

Below the Line

Channel Sales

Channel sales is an indirect sales model where a company leverages third-party partners, such as resellers or affiliates, to sell its products.

Channel Sales

SQL

SQL (Structured Query Language) is the standard language for managing and querying data within relational databases.

SQL

Sandboxes

A sandbox is an isolated testing environment where new or untrusted code can be run safely without affecting the host device or network.

Sandboxes

B2B2C

Learn about B2B2C, including benefits of B2B2C model, key strategies for B2B2C success, & B2B2C vs. B2C vs. B2B: understanding the differences.

B2B2C

Needs Assessment

A needs assessment is the process of identifying the gap between a company's current state and its desired future state.

Needs Assessment

Freemium

Freemium is a business model offering a product's basic features for free, while charging for advanced or supplemental features.

Freemium

Sender Policy Framework

Sender Policy Framework (SPF) is an email authentication method that lets you specify which mail servers can send emails on behalf of your domain.

Sender Policy Framework

Affiliate Networks

Affiliate networks are platforms that act as intermediaries between publishers (affiliates) and merchant affiliate programs.

Affiliate Networks

Email Deliverability Rate

Your email deliverability rate is the percentage of sent emails that successfully land in a recipient's inbox, rather than bouncing or going to spam.

Email Deliverability Rate

Service Level Agreement

A Service Level Agreement (SLA) is a contract defining the level of service between a provider and a client, including metrics and penalties.

Service Level Agreement

User Interaction

User interaction is any action a user takes within a digital interface, like clicking a button, scrolling a page, or filling out a form.

User Interaction

Real-time Data

Real-time data is information processed and made available almost instantaneously, enabling immediate analysis and decision-making.

Real-time Data

Rollback Procedures

Rollback procedures are a set of steps to restore a system to a previous, stable version after a failed update, ensuring minimal disruption.

Rollback Procedures

Decision Maker

A decision-maker is an individual with the authority to make significant choices for a company, especially regarding purchases or strategy.

Decision Maker

Zero-Based Budgeting (ZBB)

Zero-based budgeting (ZBB) is a method where all expenses are re-evaluated and must be justified from scratch for each new budget period.

Zero-Based Budgeting (ZBB)

Sales Quota

A sales quota is a time-bound sales goal for a rep or team, measured in revenue or units sold, to be met within a specific period.

Sales Quota

Voice Search Optimization

Voice search optimization is the process of optimizing your content, SEO, and online listings to appear in and rank for voice-based searches.

Voice Search Optimization

Kubernetes

Kubernetes is an open-source system for automating the deployment, scaling, and management of containerized applications.

Kubernetes

Business to customer

Learn about business to customer, including maximizing B2C sales strategies, B2C vs. B2B: unveiling differences, & core principles of B2C success.

Business to customer

Firewall

A firewall is a digital barrier that protects a network by monitoring and controlling traffic, blocking unauthorized access and malicious content.

Firewall

Deal Closing

Deal closing is the final step in a sales cycle. It's when a prospect signs a contract and officially converts into a paying customer.

Deal Closing

Enterprise

An enterprise is a large-scale organization, often a corporation, defined by its complex structure and substantial number of employees.

Enterprise

Consideration Buying Stage

The consideration buying stage is where potential customers have defined their problem and are now actively researching and evaluating solutions.

Consideration Buying Stage

B2B Marketing Channels

Learn about B2B marketing channels, including maximizing B2B channel effectiveness, & exploring digital vs. traditional channels.

B2B Marketing Channels

Workflow Automation

Workflow automation uses rule-based logic to run a sequence of tasks that would otherwise require manual human effort to complete.

Workflow Automation

Business Development Representative

Learn about business development representative, including skills and qualifications for BDRs, & roles and responsibilities of a BDR.

Business Development Representative

Demand Generation

Demand generation is the process of creating awareness and interest in your products to build a pipeline of qualified leads for your sales team.

Demand Generation

Analytical CRM

Analytical CRM analyzes customer data to uncover actionable insights, helping businesses make smarter decisions and improve customer interactions.

Analytical CRM

Closed Won

Closed Won is a CRM status for a sales deal that has been successfully concluded, resulting in a signed contract and a new customer.

Closed Won

Account-Based Advertising

Account-based advertising is a hyper-focused B2B strategy that targets key accounts with personalized ads across multiple channels.

Account-Based Advertising

Sales Territory

A sales territory is a specific group of customers or a geographic area that a salesperson or sales team is responsible for managing.

Sales Territory

Data Enrichment

Data enrichment is the process of enhancing raw data by adding missing information from other sources, making it more complete and actionable.

Data Enrichment

Sales Rep Training

Sales rep training is the process of equipping your sales team with the skills, knowledge, and tools to effectively sell and hit their targets.

Sales Rep Training

Channel Partner

A channel partner is a company that works with a manufacturer or producer to market and sell their products, software, or services to customers.

Channel Partner

Call Analytics

Call analytics is the practice of analyzing phone call data to extract insights, track key metrics, and improve overall business performance.

Call Analytics

ETL

ETL, short for Extract, Transform, Load, is a data integration process for moving raw data from various sources to a central data warehouse.

ETL

Sales Qualified Lead

A Sales Qualified Lead (SQL) is a prospect vetted by marketing and sales, deemed ready for a direct sales pitch after showing intent to buy.

Sales Qualified Lead

Rapport Building

Rapport building is the process of establishing a connection and mutual understanding with someone, creating a foundation of trust and affinity.

Rapport Building

Average Order Value

Average Order Value (AOV) tracks the average dollar amount spent each time a customer places an order on your website or mobile app.

Average Order Value

DMP

A Data Management Platform (DMP) is a tech platform used to collect and manage data, mainly for digital marketing and advertising campaigns.

DMP

Ideal Customer Profile

An Ideal Customer Profile (ICP) is a detailed description of the perfect, hypothetical company that would get the most value from your product.

Ideal Customer Profile

Objection Handling

Objection handling is the process of responding to a prospect's concerns or hesitations about a product or service to move a deal forward.

Objection Handling

Customer Relationship Marketing

Customer relationship marketing is a strategy for building lasting connections with customers to foster long-term loyalty and engagement.

Customer Relationship Marketing

AI Sales Script Generator

An AI sales script generator is a tool that uses artificial intelligence to create personalized sales scripts for any outreach scenario.

AI Sales Script Generator

Sales Champion

A sales champion is your internal advocate at a target company. They believe in your product and help you push the deal forward to close.

Sales Champion

Buyer Behavior

Learn about buyer behavior, including understanding the buyer's journey, influencing factors in buyer behavior, & buyer behavior and marketing strategy.

Buyer Behavior

Sales Plan Template

A sales plan template is a reusable document that outlines your sales strategy, goals, and tactics, providing a clear roadmap for your team.

Sales Plan Template

Kanban

Kanban is a visual project management method that uses a board to visualize workflow, limit work-in-progress, and maximize team efficiency.

Kanban

Net 30

Net 30 is a common payment term where a client has 30 calendar days from the invoice date to pay for goods or services in full.

Net 30

Account-Based Marketing Benchmarks

Account-Based Marketing (ABM) benchmarks are key metrics used to measure the performance and success of your targeted account strategies.

Account-Based Marketing Benchmarks

Sales Workflows

Sales workflows are a set of automated actions that streamline the sales process, helping teams engage leads consistently and close deals faster.

Sales Workflows

Product-Market Fit

Product-market fit is when a product meets the needs of a strong market, leading to high demand, customer satisfaction, and organic growth.

Product-Market Fit

Sales Bundle

A sales bundle groups multiple products or services into a single offering, often at a discounted price to provide greater value to customers.

Sales Bundle

Master Service Agreement

A Master Service Agreement (MSA) is a foundational contract that sets the general terms for an ongoing business relationship between two parties.

Master Service Agreement

Return on Marketing Investment

Return on Marketing Investment (ROMI) measures the revenue generated by a marketing campaign relative to the cost of that campaign.

Return on Marketing Investment

Closed Lost

Closed Lost is a sales term for a deal that didn't go through. The prospect decided not to buy, or the sales team disqualified them.

Closed Lost

B2B Intent Data

Learn about B2B intent data, including how B2B intent data enhances sales strategies, sources of B2B intent data, leveraging B2B intent data for competitiveness.

B2B Intent Data

Soft Sell

A soft sell is a low-pressure sales tactic that uses subtle persuasion and relationship-building to gently guide customers toward a purchase.

Soft Sell

Buying Signal

A buying signal is any action from a prospect that indicates they are interested in making a purchase, helping sales teams prioritize leads.

Buying Signal

Brand Equity

Learn about brand equity, including understanding its importance, building strong brand equity, measuring brand equity, & real-world applications.

Brand Equity

Customer Journey Mapping

Customer journey mapping is the process of creating a visual story of your customers' interactions with your brand across all touchpoints.

Customer Journey Mapping

Forward Revenue

Forward revenue is the total value of all active, committed contracts that are expected to be recognized as revenue in the future.

Forward Revenue

Trusted Advisor

A trusted advisor is an expert who builds a deep client relationship by consistently prioritizing their best interests over any single transaction.

Trusted Advisor

BANT Framework

Learn about BANT framework, including implementing BANT in sales strategy, advantages of the BANT methodology, & BANT vs. other qualification models.

BANT Framework

Customer Experience

Customer experience (CX) is a customer's total perception of your business, based on every interaction across the entire customer lifecycle.

Customer Experience

Account Match Rate

Account match rate is the percentage of target accounts successfully identified and matched against a specific database or data provider.

Account Match Rate

Sales Funnel Metrics

Sales funnel metrics are key data points that track how effectively you're moving potential customers from awareness to a final purchase.

Sales Funnel Metrics

Customer Success

Customer Success is a business strategy focused on proactively helping customers achieve their goals with your product or service.

Customer Success

Customer Data Platform (CDP)

A Customer Data Platform (CDP) centralizes customer data from all sources to create a complete, unified profile for each individual customer.

Customer Data Platform (CDP)

No Spam

“No Spam” is a commitment to sending only relevant, solicited messages. It means avoiding bulk, unwanted emails to respect the recipient's inbox.

No Spam

Elevator Pitch

An elevator pitch is a short, memorable summary of what you do, designed to be delivered in the time it takes to ride an elevator.

Elevator Pitch

Content Management System

A Content Management System (CMS) is software for creating, managing, and modifying website content without needing specialized technical skills.

Content Management System

MOFU

MOFU, or Middle of the Funnel, is the crucial evaluation stage in the buyer's journey where leads compare solutions to their known problem.

MOFU

Consultative Sales

Consultative selling is a sales approach where a salesperson acts as an advisor, focusing on understanding and solving a customer's specific needs.

Consultative Sales

Sales Pipeline Reporting

Sales pipeline reporting is the process of analyzing sales data to track progress, identify bottlenecks, and forecast future revenue.

Sales Pipeline Reporting

Single Sign-On (SSO)

Single Sign-On (SSO) is an authentication method allowing users to access multiple applications with one set of login credentials.

Single Sign-On (SSO)