So you can walk the walk in business, but can you talk the talk? This glossary is for small business owners, entrepreneurs, solopreneurs, and even side hustlers. It will ensure you can correctly use accounting terms and business lingo. Throw these around anytime you want your language to reflect your business savvy.
How Can Knowing Business Lingo Help Me?
Here’s the reality: Most small business owners don’t have an MBA.
They have to pick up business and accounting terms along the way. Even if you actually know what you’re doing in business, not knowing the right words can deplete your confidence. And if you’re new to entrepreneurship or business, learning these words and their meanings will provide a foundation of business concepts to grow from.
Understanding these terms empowers you as a small business owner to interpret your financial data, make informed decisions, and effectively communicate about your business’s performance. This is important in a variety of circumstances and business scenarios, including:
- Applying for a loan
- Buying a business
- Selling your business
- Attracting investors
- Bringing on a business partner
- Changing your business entity type
- Selling a prepaid or expensive service that relies on your business’s long-term viability
- And more
This list is perfect if you’re just starting out or if you want to brush up on terminology for an event or presentation. We organized the terms by topic:
- Business Finance Terminology
- Profitability & Revenue
- Accounting & Bookkeeping Terms
- Financial Statements
- Legal & Funding
Business Finance Terminology
Break-Even Point
The point at which total costs and total revenues are equal, meaning there is no net loss or gain, and all costs have been recovered.
Budget
A financial plan that estimates revenues and expenses over a future period, used to guide spending and track performance.
Burn Rate:
The rate at which a company is losing money; often used for startups and refers to negative cash flow.
Cash Flow
The net amount of cash and cash equivalents being transferred into and out of a business. Positive cash flow means more money is coming in than going out.
Fixed Costs
Expenses that do not change regardless of the level of goods or services produced (e.g., rent, salaries of administrative staff). (For the opposite, see Variable Costs below)
Forecasting
The process of estimating future financial outcomes (e.g., sales, expenses, cash flow) based on historical data and various assumptions.
Gross Profit
Revenue minus Cost of Goods Sold (COGS).
Liquidity
The ease with which an asset can be converted into cash without affecting its market price. A highly liquid company has enough cash or easily convertible assets to meet its short-term obligations.
Return on Investment (ROI): A performance measure used to evaluate the efficiency of an investment or to compare the efficiency of several different investments. ROI = (Net Profit / Cost of Investment) x 100.
Solvency
The ability of a company to meet its long-term financial obligations. A solvent company has more assets than liabilities.
Variable Costs
Expenses that change in proportion to the level of goods or services produced (e.g., raw materials, production labor). (For the opposite, see Fixed Costs above)
Working Capital
The difference between current assets and current liabilities. It indicates a company’s short-term liquidity. (Working Capital = Current Assets – Current Liabilities).
Profitability & Revenue Language
It’s extremely important to understand the difference between revenue and profit and to track both closely. Your profitability is the most important indicator of your business’s success. That’s why we put these terms in their own section. They’re that important.
Profitability
The ability of a business to generate a profit. Measured by various profit margins (Gross Profit Margin, Operating Profit Margin, Net Profit Margin).
Profit (may also be called Net Income)
What’s left from revenue after all expenses are paid.
Revenue
The total amount of money generated from the sale of goods or services before any expenses are deducted.
Accounting & Bookkeeping Terms
Accounting Types
Accrual Basis Accounting: Revenues and expenses are recorded when they are earned or incurred, regardless of when cash is exchanged.
Assets
What a company owns (e.g., cash, accounts receivable, inventory, property, equipment).
Cash Basis Accounting
Revenues and expenses are recorded only when cash is actually received or paid out.
Accounts Payable (A/P)
Money the business owes to its suppliers or vendors for goods or services received.
Accounts Receivable (A/R)
Money owed to the business by customers for goods or services already delivered.
Amortization
Similar to depreciation but applies to intangible assets (e.g., patents, copyrights) over their useful life.
Chart of Accounts
A comprehensive list of all the asset, liability, equity, revenue, and expense accounts used by a business to record transactions. This is one of the first items we evaluate when we do a Business Financial Health Check.
Cost of Goods Sold (COGS)
The direct costs attributable to the production of goods or services sold by a company. (Differs from Operating Expenses, see below)
Depreciation
The systematic expensing of a tangible asset’s cost over its useful life, reflecting its wear and tear or obsolescence. Usually only applied to assets that cost $2,500 or more.
General Ledger
The main set of accounting records where all financial transactions are posted, organized by account.
Liabilities
What a company owes to others (e.g., accounts payable, loans, unearned revenue).
Operating Expenses
Expenses incurred in the course of normal business operations, excluding COGS (e.g., rent, salaries, marketing). (Differs from COGS, see above)
Reconciliation
The process of ensuring that two sets of records (e.g., bank statements and internal cash records) match. See this 90-second educational IG post about why reconciliation matters.
Financial Statements You Should Know
Balance Sheet
A snapshot of a business’s financial health at a specific point in time, showing what it owns (assets), what it owes (liabilities), and the owner’s ownership stake (equity).
Income Statement (also called a Profit & Loss Statement or P & L)
Summarizes a business’s revenues, costs, and expenses over a period (e.g., month, quarter, year) to show net profit or loss.
Cash Flow Statement
Shows the movement of cash into and out of a business over a period, categorized by operating, investing, and financing activities. Essential for understanding a business’s liquidity.
Legal & Funding Language
Bootstrapping
The practice of starting and growing a company using only existing resources, primarily personal savings, the revenue generated from initial sales, and extreme cost-cutting, rather than relying on external funding like venture capital, angel investors, or traditional bank loans.
Business Credit Score
A score that assesses your business’s creditworthiness, separate from your personal credit score.
Capital Expenditure (CapEx)
Funds used by a company to acquire, upgrade, and maintain physical assets such as property, plants, buildings, technology, or equipment.
Debt Financing
Raising capital by borrowing money that must be repaid, usually with interest (e.g., bank loans, lines of credit).
Employer Identification Number (EIN)
A nine-digit number assigned by the IRS to identify a business entity for tax purposes.
Equity Financing
Raising capital by selling ownership stakes in the company (e.g., to investors, venture capitalists).
Line of Credit
A flexible loan from a financial institution that allows a business to draw funds up to a certain limit, repay it, and then borrow again.
Venture Capital
A form of private equity financing provided by firms or funds to early-stage, high-growth potential companies (startups) in exchange for an ownership stake (equity).
The Bottom Line for Business Lingo
We want you to sound and feel brilliant, of course. More than anything, though, we want you to understand how your business and finances function so you can succeed. We put together this list of common bookkeeping and finance terms and business vocab to empower you. This glossary is just one way Gutsy Money shows up as the ultimate financial ally of women business owners.
Visit The Bottom Line to read more of the latest and greatest entrepreneurial and business finance articles.
