Financial Glossary
Plain-English definitions of the financial terms that matter. No accounting degree required. Each one links to the tool that helps you act on it.
13-Week Cash Flow
A rolling weekly forecast of cash in and out for the next 13 weeks (one quarter). The single most important financial tool for any business owner. Build it, update it daily, report it weekly.
Try the related tool →Accounts Payable (AP)
Money you owe to vendors and suppliers for things you've already received. Managing AP timing is a key working capital lever — pay on time, not early.
Accounts Receivable (AR)
Money your customers owe you for work you've already done or products you've already delivered. It shows up as an asset on your balance sheet, but it's not cash until they pay.
Try the related tool →Balance Sheet
A snapshot of what your business owns (assets), owes (liabilities), and is worth (equity) at a specific point in time. The P&L tells you what happened. The balance sheet tells you where you stand.
Break-Even Point
The revenue level where you stop losing money. Below it, you're in the red. Above it, every dollar is profit. Knowing this number is foundational.
Try the related tool →Burn Rate
How fast you're spending cash per month. If you have $100K in the bank and burn $25K/month, you have 4 months of runway.
Try the related tool →Cash Flow
The actual movement of money in and out of your business. Revenue is not cash. Profit is not cash. Cash is cash — what's in your bank account.
Try the related tool →COGS (Cost of Goods Sold)
The direct costs of producing what you sell — materials, direct labor, subcontractors. Everything else is overhead. Getting this right is essential for knowing your true margins.
Try the related tool →Days Sales Outstanding (DSO)
Average number of days it takes to collect payment after invoicing. Under 30 is great. Over 45 means customers are borrowing from you for free.
Try the related tool →Gross Margin
Revenue minus COGS, expressed as a percentage of revenue. If you sell $100 of work and the direct costs are $60, your gross margin is 40%. This is the money available to cover overhead and profit.
Try the related tool →Gross Profit
Revenue minus cost of goods sold. The dollars (not percentage) left after paying for direct costs. This has to cover all your overhead before there's any profit.
Try the related tool →Markup vs. Margin
Markup: what you ADD to cost (cost × 1.35 = 35% markup). Margin: what you KEEP from sell price (sell price × 0.35 = 35% margin). A 35% markup = 25.9% margin. Most businesses confuse them and underprice by 10-15%.
Try the related tool →Net Income
Revenue minus ALL expenses (COGS + overhead + interest + taxes). This is what's left for the owner. Also called the 'bottom line.'
Net Margin
Net income as a percentage of revenue. A healthy business targets 10-15% net margin. Under 5% means you're one bad month from losing money.
Try the related tool →Overhead
Costs that don't directly tie to a specific job or product — rent, admin salaries, insurance, software, utilities. The invisible cost that erodes margins when unmanaged.
Try the related tool →P&L (Profit & Loss Statement)
Shows revenue, costs, and profit over a period (usually monthly). Also called an income statement. The P&L tells you what happened — but it's a result of the balance sheet, not the other way around.
Revenue Recognition
When you record revenue in your books. This matters more than most people think — percent complete, contract complete, or point of sale each show a completely different financial picture.
Runway
How many months you can operate before running out of cash at current burn rate. Cash in bank ÷ monthly burn = runway. Know this number cold.
Try the related tool →WIP (Work in Progress)
Work you've completed but haven't billed yet. Common in construction, consulting, and project-based businesses. Unbilled WIP is cash trapped in your balance sheet.
Working Capital
Current assets minus current liabilities. In plain English: cash trapped in the process of running your business. Lower working capital (while staying healthy) means more cash in the bank.
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