🎯 In 30 seconds: Short, plain definitions of the words that show up in your bank’s loan papers, your landlord’s lease, your CPA’s questions and your own reports. Each one says what it means for you in practice.
A to D
- Accounts payable (AP): bills you owe suppliers but haven’t paid yet.
- Accounts receivable (AR): money customers owe you for work already done.
- Accrual basis: recording income when earned and expenses when incurred, whatever the cash timing.
- Add-back: an expense added to profit when valuing a business because a new owner wouldn’t have it.
- Additional insured: a person or company your insurance also protects, often your landlord or a big customer.
- Balance sheet: what the business owns, owes and the owner’s stake, on one date.
- BOP (business owner’s policy): a bundle of general liability and property insurance.
- Break-even: the sales level where profit is zero. Fixed costs ÷ gross margin per unit.
- CAM: common area maintenance charges a tenant pays in many commercial leases.
- Cash basis: recording income when cash arrives and expenses when paid.
- Cash flow: money actually moving in and out. Profit and cash flow often differ.
- CDFI: a Community Development Financial Institution, a Treasury-certified lender serving underserved areas.
- COGS (cost of goods sold): the direct cost of what you sold: materials, inventory, sometimes direct labor.
- COI (certificate of insurance): a one-page summary proving your coverage and limits.
- DBA (“doing business as”): a registered trade name different from your legal name.
- Depreciation: spreading an asset’s cost over its useful life for accounting and tax.
- Due diligence: checking a business’s records and claims before buying it.
E to L
- EIN: Employer Identification Number, the business’s federal tax ID. Free from irs.gov.
- Enrolled agent (EA): an IRS-credentialed tax professional who can represent you before the IRS.
- Equity: the owner’s stake: assets minus liabilities. Also money an owner puts in.
- Escalation clause: lease terms that raise rent on a schedule.
- Estimated tax: quarterly payments of income and self-employment tax when nothing is withheld.
- Factor rate: how merchant cash advances state cost. 1.4 on $20,000 means repaying $28,000.
- Fixed costs: costs that don’t change with sales: rent, insurance, software.
- FUTA: federal unemployment tax paid by employers.
- General liability: insurance for injury or property damage you cause to others.
- Gross margin: (revenue − COGS) ÷ revenue, as a percentage.
- Gross profit: revenue minus COGS, in dollars.
- Labor burden: payroll taxes, workers’ comp and benefits on top of wages.
- LLC: a limited liability company, a state-formed entity that separates business debts from personal assets.
- Letter of intent (LOI): a mostly non-binding outline of a deal’s price and terms before the final contract.
- Lien: a lender’s legal claim on an asset until the debt is paid.
M to R
- Markup: profit as a percentage of cost. 100% markup is a 50% margin.
- Merchant cash advance (MCA): a lump sum repaid from a cut of future card sales, usually at a very high cost.
- Nexus: enough connection to a state that you must collect its sales tax or pay its taxes.
- Net 30: invoice terms meaning payment is due 30 days after the invoice date.
- Net profit: what’s left after all expenses.
- NNN (triple net) lease: the tenant pays base rent plus a share of property taxes, insurance and maintenance.
- Owner’s draw: money a sole proprietor or partner takes out. Not a deductible expense.
- P&L (profit and loss): revenue minus expenses over a period. Also called the income statement.
- Personal guarantee: your promise to pay the business’s debt personally if it can’t.
- QBI deduction: a federal deduction of up to 20% of qualified business income for pass-through owners.
- Reasonable compensation: the market-level salary an S corp must pay an owner who works in it.
- Reconciliation: matching your books to the bank statement, line by line.
- Runway: months of cash left at the current rate of spending.
S to Z
- S corporation: a tax election that passes profit to owners and limits payroll tax to salary.
- SDE (seller’s discretionary earnings): profit plus owner pay, perks and non-cash items. The base for most small-business prices.
- Self-employment tax: Social Security and Medicare tax on your own business earnings, 15.3% before the cap.
- Seller financing: the seller lets the buyer pay part of the price over time.
- Seller’s permit: state registration that lets you collect sales tax.
- Sole proprietorship: one owner, no separate entity, no liability shield.
- Tenant improvement allowance: landlord money toward building out your space.
- UCC filing: a public notice of a lender’s lien on business assets.
- Variable costs: costs that rise with each sale: materials, card fees, commissions.
- Workers’ compensation: state-required insurance covering employees’ work injuries.
- Working capital: current assets minus current liabilities. The cushion that pays this month’s bills.
One worked example ties five terms together
A shop sells $30,000 in a month with $12,000 COGS: gross profit $18,000, gross margin 60%. Fixed costs are $14,500, so break-even revenue is $14,500 ÷ 0.60 ≈ $24,200. With $9,000 cash and $15,000 of monthly spending, runway is about 0.6 months, which is why working capital matters more than the profit line.
More context: Main Street Business and Business Startup.