Glossary: Starting a Business

Successful small business owners know the business terms used in the day-to-day operations of running a business. Understanding these terms helps you respond effectively to business challenges and opportunities as an entrepreneur.

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This glossary will help you learn the basics of:

• Cash flow
• Profit and loss statements
• Legal structures
• Business bank accounts
• Employee management (like taxing and paying your employees correctly)
• Startup costs and business financing
• Business taxes
• Other aspects of running a thriving business

The articles and resources in FindLaw's Starting a Business section provide entrepreneurs with more advice and legal pointers.

Alphabetical Glossary of Business and Financial Terms

Accounts payable. The outstanding bills and invoices a business owes for goods and services received. It represents the short-term liabilities of the business.

Accounts receivable. The outstanding payments customers owe a business for goods or services provided on credit. It represents the short-term assets of the business.

Accrual basis accounting. An accounting method that records sales, expenses, or other events at the time they happen rather than when cash changes hands.

Amortization. The gradual payment of a debt through a schedule of payments.

Angel investor. Investors who support early-stage or startup businesses with high growth potential. Angel investors are typically wealthy people who do not have corporate backing.

Articles of incorporation. A document filed with a state's secretary of state that lays out certain required information about the corporation.

Balance sheet. A listing of a company's assets, liabilities, and net worth at a fixed point.

Board of directors. A group of people (elected by the shareholders of a company) who oversee management of the company.

Bootstrapping. Starting and growing a business with little or no external capital or funding.

Bottom line. Net income or profit after all expenses, taxes, and other financial obligations. This metric reflects the financial health and profitability of a business.

Break-even analysis. Determining the exact point when a company makes neither a profit nor a loss.

Business financing. The process of securing funds to support the operations, growth, and investments of a business.

Business plan. A written document that describes a business's objectives, strategies, market, and financial forecast. A business plan is often used to help secure funding from banks and investors.

Capital. Money invested into a business enterprise.

Cash basis accounting. An accounting method that records sales and expenses during cash transfers.

Cash flow statement. A financial statement that charts the sources and uses of a business's cash.

Certificate of incorporation. A certificate issued by a state's secretary of state. It indicates a company's incorporation status and that the secretary of state has accepted its articles of incorporation for filing.

Collateral. Business or personal property a borrower pledges to a lender as security to ensure repayment of either a personal or business loan.

Corporation. A type of organization created (according to state laws) to run a business. A corporation is separate from the people who own it, making the business its own distinct entity.

Cost of goods sold (COGS). Direct expenses incurred in producing the goods or services a business sells. COGS includes costs like raw materials, labor, and manufacturing.

Current assets. Assets a business can liquidate within a relatively short period.

Current liabilities. Debts a business must pay within a relatively short period (usually one year).

Current ratio. A ratio of a business's assets to its liabilities.

Data analysis. The process of studying and transforming data into useful information for businesses.

Data asset. Any asset comprised of data (like an application, document, web page, or database).

Data dictionary. A centralized collection of a company's data and its attributes.

Data governance. The process of managing business data's availability, reliability, and security. Companies may install new data governance programs to improve their data's reliability, quality, and security.

Data intelligence. The tools and processes companies use to better understand and interpret their data.

Data lineage. Recording and interpreting the journey data takes from its source to its end user.

Data management. The process of creating procedures and policies to manage business data. Data governance is a type of data management.

Data model. A visual representation of a company's data elements.

Data steward. A company employee who manages a business's data quality, procedures, privacy, and safety.

Debt financing. The use of borrowed money to finance a business.

Depreciation. The process of expensing the value of a business asset over its useful life. "Useful life" is the estimated amount of time an asset will provide value to a business.

Equity. The net value of assets minus liabilities.

Equity financing. Securing a monetary investment from an investor in which the investor becomes a part owner of the business.

Expenditures. Money spent on costs necessary for operating and maintaining the business. Expenditures typically include rent, utilities, supplies, marketing, and other business operations and growth essentials.

Financial reports. Reports that show the financial status of a company at a given time.

Financial services. Economic services, such as banking, investing, and insurance.

Financial statement. A statement providing financial information from a business's accounting records. Financial statements include a balance sheet, income statement (or profit and loss statement), and cash flow statement.

Fiscal year. The 12 months established by a business for accounting, planning, and tax purposes.

Fixed costs. Business costs that do not vary with sales volume.

Forecasting. The calculation of reasonable probabilities about a business's financial future.

Goodwill. An intangible asset of a business derived from the perceived value of the business's assets.

Gross profit. Net total sales minus the cost of goods sold.

Guaranty. A promise by a third party to repay a loan in the event the primary borrower fails to do so.

Income statement. A presentation of a business's sales, expenses, and profit or loss periodically.

Incubator. An organization that provides support, resources, and mentorship to startups and early-stage businesses.

Intangible asset. An asset that does not have a physical presence, like goodwill, a patent, or a trademark.

Inventory financing. Getting capital for a business by borrowing money with inventory used as collateral.

Joint venture. An agreement between two or more businesses to mutually achieve a business goal.

Key performance indicators (KPI). Measurable and quantifiable indicators of a company's performance.

Lean startup. An approach to building and growing a startup that emphasizes efficiency, quick cycles, and a focus on customer feedback. Lean startups typically aim to form a sustainable and successful business with minimal resources.

Leverage. Borrowing to increase the ability of a business to conduct its operations.

Limited liability company (LLC). A business structure that combines elements of a C corporation with a general partnership. An LLC protects its owners (known as members) from personal liability for business debts.

Line of credit. A commitment by a lender to lend up to a certain amount of money to a business.

Liquidity. The availability of cash or easily convertible assets a business can use to meet short-term financial obligations. Liquidity reflects a business's ability to cover immediate expenses, like bills and payroll.

Loan or credit agreement. An agreement that a lender may need if a business borrows a large amount of money. This agreement contains extra terms beyond the promissory note or mortgage. It might cover repayment terms, warranties, default terms, and more.

Metadata. Data that describes other business data to catalog it, track its location, and check the data quality.

Minimal viable product (MVP). The simplest product version that allows a business to test its key theories and gather feedback from early adopters. "Early adopters" are customers who are the first to try a new product or technology.

Mortgage. A loan for real property where the real property is the collateral for the loan.

Net income after taxes. A company's net profit before taxes minus federal, state, or local income or franchise taxes.

Net income before taxes. Net sales or total receipts of a business minus all expenses except taxes.

Net sales. Total amount of sales of a business minus discounts, returns, and pricing adjustments.

Net worth. The net value of assets minus liabilities.

Operating expenses. The expenses of a business not directly associated with making a product or providing a service. Operating expenses include administrative, technical, and selling costs.

Partnership. An association of two or more people to carry on as co-owners of a business for profit.

Pitch deck. A presentation that summarizes a business, typically used by entrepreneurs and startups to sell their business ideas to potential investors.

Profit margin. Measures the percentage of revenue that represents a company's profit. It gets calculated by dividing the net profit (profit after expenses) by the total revenue and expressed as a percentage.

Promissory note. A document that records a promise to repay a loan within a specific time frame at a certain interest rate.

Public offering. The sale of shares of a company's stock to the public in the financial market.

Retained earnings. The net profit after taxes a business retains as working capital. "Working capital" is the difference between a business's assets and liabilities.

Return on investment (ROI). The metric calculates an investment's profitability (like an advertising campaign) by comparing the gain or loss from the investment to its cost. It gets expressed as a percentage.

Revenue model. the strategy a business uses to generate income. A revenue model outlines the company's methods to earn money, like sales, subscriptions, licensing, and advertising.

Scalability. The ability of a business to grow and handle increased market demand without a proportional increase in costs or resources.

Securities and Exchange Commission (SEC). The federal regulatory agency that oversees and enforces federal securities laws.

Security agreement. An agreement providing a lender with a security interest in certain personal property (not real estate) as collateral for a loan.

Small Business Administration (SBA). The federal governmental agency that guarantees loans made by banks to small businesses.

Sole proprietorship. A business owned and operated by an individual owner without incorporation or partners. The owner is liable for the business's debts to the full extent of their personal property.

Stakeholder. A person who owns a share or has a financial interest in a business venture.

Subchapter S corporation. A corporation that has elected under Subchapter S of the Internal Revenue Code not to pay any corporate taxes on its earnings and instead to have its shareholders pay taxes on it.

Subject matter expert (SME). A person who is an authoritative source on a particular subject.

Unsecured loan. A loan made with no collateral posted to ensure repayment.

Value proposition. The unique value a product or service offers that sets it apart from competitors.

Variable cost. A cost that varies directly with sales, like raw materials, labor, and sales commissions.

Venture capitalist. A private investor who invests in a business in exchange for an equity share.

Working capital. Current assets minus current liabilities.

Need More Help? Talk to a Business Attorney

Feeling overwhelmed by the financial and business acumen needed to start a small business is natural. If you need help understanding how the various financial and legal terms play out in the everyday operations of your business, you're not alone. Consider consulting a business and commercial law attorney for expert legal advice.

An experienced attorney can guide you through your business formation. They can help you make sound business decisions about financial management, strategic planning, and more.