Starting a business can be incredibly overwhelming. There’s so much to do, so much to learn and every day seems to hold new challenges that you and you alone need to solve in order to survive. It’s a steep learning curve.That is why I put together this glossary of the most common business terms and phrases you’ll need to know while building your startup and running your business.
Don’t worry about learning everything upfront. Think of it as an encyclopedia reference guide for whenever you get stuck or have a question about a specific term or metric in your business.
Jump to Business Glossary Terms by Topic:
- Business Finance Terms
- Business Funding, Credit and Loan Terms
- Business Operations Terms
- Common Business Models
- Business Strategy and Branding Terms
- Sales & Marketing Business Terms
Business Finance Terms
Not an accountant but want to know a thing or two about accounting and finance? You’ve come to the right place.
1. BALANCE SHEET
A company’s balance sheet documents the company’s financial situation at specific points in time (usually at the end of the quarter or fiscal year) and includes all of the company’s assets, liabilities and equity with the following formula:
Assets = liabilities + equity.
The left side is what you own, the right side shows what you owe. Which makes your assets equal to your liabilities and equity.
Assets are any resources the company owns and expects to generate future cash flow. This can include anything from inventory, equipment, land, real estate, IP etc…
Liabilities are debts (usually money) that your business owes to someone. Like expenses payable to suppliers, accounts payable, loans, venture debt etc…
Every founder knows all about equity. Equity, aka. Shareholders’ Equity (SE) is meant to represent the company’s net value, i.e. the net of liquidating assets to pay off debts.
Shareholders’ equity = total assets − total liabilities
5. INCOME STATEMENT
A company’s income statement is a high-level overview of a business’s performance over a specific period, say a quarter or a year, which shows revenues, expenses and the company’s profit or loss. For most startups, you start in the red (unprofitable) and work toward entering the black (profitable).
Bookkeeping is a simple method of accounting that involves recording all the financial transactions of the business. If there is money going in or money going out, take note – you’ll regret it later if you don’t once tax season comes around.
When it comes to bookkeeping, there are two different accounting methods to keep track of things: Accrual Basis and Cash Basis
7. ACCRUAL BASIS
The accrual-based accounting means recording income and expenses right when they actually occur and is the more common and simple approach for maintaining your books
Accruals are expenses that have already been incurred but haven’t been recorded in the books yet – think wages and payroll taxes.
SHOW ME THE MONEY!
Revenue is any income generated by the business through operations, services and activities, sales etc…. The easiest way to calculate revenue is typically multiplying the cost of a product or service by the number of “units” sold.
Any money that your company spends on pretty much anything (utilities, salaries, products, services, legal, office space, raw materials etc…) makes up your company’s expenses.
This is somewhere where funded startups can learn a thing or two from bootstrapped ones in being “cash efficient” and cutting back on unneeded expenses like nice offices etc…
Gross simply means the total BEFORE any other deductions or expenses are added. Gross is almost always larger than net as it does not reflect the costs associated with your business/product etc…
While net simply means the total AFTER any other deductions or expenses are added.
13. PROFIT / NET INCOME / BOTTOM LINE
It’s not just about the money you make, but the money you actually bring home. That’s why profit trumps revenue (unless you’re pitching and just want to show J-curve growth 🙂
Profit = total revenue – total expenses
14. NET LOSS
Opposite of net profit. If your business lost money and you are “in the red,” it means you had a net loss.
15. CASH FLOW
While revenue and profit, cash flow is often king (which I didn’t understand when running my ecommerce company and led to one of my biggest failures). Cash flow refers to the net amount of money in vs money out over a given period of time (typically monthly).
16. GROSS PROFIT
Gross profit can be thought of as your total sales before taking into account costs such as raw materials, manufacturing expenses, labor, marketing and transportation etc…
17. PROFIT MARGIN
There are three types of profit margin: gross profit, net profit and operating profit margin. You can calculate your company’s profit margin by dividing profit by revenue. This is a valuable metric as it shows your company’s ability to grow and gives a concrete answer to how much of each dollar you generate turns into profit.
Profit margin = (profit / revenue) x 100%
NOTE: This concept was apparently quite complicated for many DTC companies like Blue Apron, Uber and others who drove revenues up without worrying about actual profit, which almost always comes back to bite you in the end.
18. RETURN ON INVESTMENT (ROI)
Return on Investment, or ROI, measures the efficiency of how much your company spends to how much it actually takes home in profit.
ROI = (net profit / total investment) x 100%
19. VARIABLE COSTS
Variable costs refer to costs that change proportionally to production – like raw materials and shipping when selling physical products or commissions when dealing with a referral partner.
Because in software, there are almost no variable costs, that means Instagram can serve 5000 people or 5B, and the costs are almost the same (which is why software and tech companies have such incredibly high margins and lucrative valuations).
That’s where the old adage/joke “we’ll make it up with scale” comes from.
20. FIXED COSTS
The opposite of variable costs – anything that stays the same regardless of any changes in the business like production quantities, number of customers served etc… An example would be the office space or hosting costs you pay each month.
Liquidity is a representation of how quickly any asset (stocks, bonds, real estate etc…) can be turned into cash for its full market value. Generally speaking, more liquid assets like stocks and cash are valued more highly than less liquid ones like real estate or art, but also often appreciate less quickly.
22. ACCOUNTS PAYABLE
This is basically just a record noting the money your business owes to any other 3rd parties involved with the creation of your product or service.
23. ACCOUNTS RECEIVABLE
And the opposite, a record of any money that others owe you for having purchased a product or service.
While capital usually just refers to money, it can actually be used to refer to anything your business owns and needs to function, i.e. equipment, vehicles, buildings, land, etc.
25. WORKING CAPITAL
Not to be confused with fixed capital, working capital basically means all of the financial resources needed for the day-to-day operations of the business – which more or less means money in the bank.
26. HUMAN CAPITAL
While machines, factories and products are important, so too are your people. Think of them as an investment into the future of your business, your human capital so to speak. This is often MUCH more valuable than the tangible assets of your business.
27. BURN RATE
Most startups start out losing money while struggling to find product-market fit. The rate at which you’re losing money before breaking even is often called your burn rate or your burn and reflects the total number of dollars you spend per month. It is important to note, as with most financial metrics there are two types of burn rate: gross burn rate which refers to total spend each month, and net burn rate which refers to the difference between cash in vs cash out.
NOTE: It is critical to always know your burn rate and number of months of runway (see below). When fundraising, it’s generally advised to raise at least 18 months of runway (for more on why, see our Ultimate Guide to Startup Fundraising).
Like a plane preparing for takeoff, your runway is how long your business can continue to sustain itself before running out of money.
To calculate runway, just divide your cash on hand (bank account) by your net burn rate to get the number of months your company can survive at current expense levels before running out of money.
Business Funding, Credit and Loan Terms
Considering raising money or taking out a loan for your business? Then this section is for you.
PS. Want to learn more about startup fundraising and venture capital terms? See this post instead.
29. DEBT FINANCING / TERM LOAN
Taking out a loan, aka debt financing is when you borrow money from a lender (generally a bank, credit card company or financial institution) with the agreement to repay the principal plus interest in sets of regular payments over a specified period of time. If you are building a business that is not venture scaleable, i.e., not interested in investors, this is probably your only option for acquiring working capital for your business.
30. CREDIT LIMIT / LINE OF CREDIT
A line of credit allows you to borrow up to a set amount of money whenever you need it (like a credit card), which is very helpful for businesses that are either very cash intensive (think physical product businesses with high upfront costs and long lead times – like the ecommerce company I built), if your business is seasonal (i.e. holiday surges in demand and cash constraints) or if your revenues are very unpredictable (think large consulting projects).
31. EQUITY FINANCING
Rather than seeking out loans, many startups opt for seeking venture money from friends, family, angels and VCs, sacrificing a share of the company for a cash injection to grow the business. This is your typical startup fundraise, which most of you should be familiar with. For more on equity financing and how to structure your startup’s fundraise, seemy 5-part series on The Ultimate Guide to Startup Fundraising.
32. BOOTSTRAPPING / SELF-FUNDING
If you are not raising money from investors or seeking a loan or line of credit to build your business, you’re bootstrapping – using your own money to get things off the ground and reinvesting profits into growth and expansion. Which is how I’ve built the majority of businesses I’ve run.
Some businesses need venture capital while others are better off being self-funded. Not sure which is right for you? Here’s a guide to help you decide.
33. INTEREST RATE
In exchange for letting you borrow money (take out a loan), most lenders will charge you an interest rate – a percentage of the principal (the amount of money they are lending you) – in exchange for using their money.
There are two different types of interest rates you should be aware of: fixed interest and floating interest rates.
34. FIXED INTEREST RATE
Fixed interest rates are definitely the simpler of the two in that the interest rate that is set at the beginning does not change for the life of the loan – making it much easier to understand and to forecast your costs and expenses and budget for the future.
35. FLOATING / VARIABLE INTEREST RATE
In contrast to fixed rate loans, floating interest rates change with fluctuations in the market. With these variable rates, it’s important to note that they may often start out lower than the fixed rate percentages but have the risk of increasing over time.
36. ANNUAL PERCENTAGE RATE (APR)
APR represents the total yearly cost of taking a loan, including all interest and fees. NOTE: This can get a little bit complicated calculating exactly how much you will owe and what your payments will be, so I recommend using a loan calculator like this one.
37. BALLOON LOAN
A loan that is structured so that the small business owner makes regular repayments on a predetermined schedule and one much larger payment, or balloon payment, at the end. These can be attractive to new businesses because the payments are smaller at the outset when the business is more likely to be facing strict financial constraints. However, be sure that your business will be capable of making that last balloon payment since it will be a large one.
While Bankruptcy laws depend upon jurisdiction, in general “going bankrupt” basically means running out of money. The legal designation is used by businesses or individuals who would otherwise not be able to pay back outstanding debts by providing a plan for the reduction and repayment of debts over time or even the possibility to totally eliminate most of the outstanding debts. That said, a word of warning: bankruptcy should be a last resort no matter what because it will have major lasting negative effects on your business credit score.
If someone is lending you money, chances are they are going to want something in return to make sure you don’t run away with the money and that they get paid. This is collateral, something the bank gets to keep/seize in case you default on your loan (fail to pay it back). Often, this is your house or your car.
NOTE: Please please please do not put your house on the line for your business. There is almost always another way. And if you do decide to take out a loan on your house, make darn sure your business is guaranteed to succeed before you do!
Business Operations Terms
Had enough of the finance and funding terminology? Let’s get down to business.
40. ARTICLES OF INCORPORATION
This is essentially the “birth certificate” of your business, a legal document with all of the details of the business’s creation such as name, type of business, business entity structure etc… This is generally step one when “officially” starting your business.
41. BEST PRACTICES
There are two areas where the term best practices generally comes into play.
- The playbook you give you employees for how things are done in your business, often know and the standard operating procedures
- The industry standard for “how things are done.” For example, for an ecommerce company with complicated products, it’s probably best practice to have both dedicated call and chat-based customer service options for addressing customer concerns.
42. DECK / PITCH DECK
Depending on whether or not you are in the startup world, a deck is either a) just another name for a Powerpoint presentation or b) a presentation geared at pitching investors to raise outside funding. For more on pitch decks and pitching investors, see my 5-part series: The Ultimate Guide to Startup Fundraising here.
A deliverable is literally just the final product you present to the client at the end of a project. This can include anything such as decks / pitch decks, research, reports, financial models etc…
44. SWOT ANALYSIS
SWOT is an acronym that stands for Strengths, Weaknesses, Opportunities, and Threats and is an analysis technique for assessing the cores of your business. For more and how to do a SWOT analysis, see this link.
A performance review is a process by which a manager evaluates each member of his or her team. During the performance review, the manager provides feedback and helps the employee see how they can improve.
Able to be changed in size.
Common Business Models
47. BUSINESS TO BUSINESS (B2B)
B2B businesses serve other business customers, as opposed to general consumers. B2B businesses, while less sexy or exciting, are often the better of the two business models as revenue from businesses is much more reliable, generally more price elastic and leads to less customer service requests.
48. BUSINESS TO CONSUMER (B2C)
Think any ecommerce company, app, grocery store etc… Any business or transaction to end user consumers like you and me.
49. DIRECT TO CONSUMER (DTC)
DTC businesses are a special form of B2C where the business controls all aspects of the supply and distribution chain. This means you buy your Caspar mattress directly from their site, they produce it in their factories and they ship it directly to you, no middleman required – which generally results in better prices for consumers and better margins for businesses.
NOTE: DTC isn’t always as easy as it sounds. For more on why,see my article on the future of ecommerce.
Same deal, but business-to-government. You can probably group NGOs here as well.
Most apps and software today operate on a freemium business model. The user gets certain features or functionality for free but needs to upgrade if they want to unlock premium/power features.
52. SOFTWARE AS A SERVICE (SaaS)
Rather than selling a product, service or app for a large upfront payment, most businesses these days operate on a recurring revenue SaaS model where they charge customers for monthly access to the product. Generally speaking, this is much better for businesses as it smoothes out previous revenue spikes and valleys and brings a level of consistency and certainty to the business going forward.
Business Strategy and Branding Terms
These are the things that make your business your business. It’s who you are, what you do and which consumers you serve.
53. UNIQUE SELLING PROPOSITION (USP)
Your USP or unique selling proposition is what makes your product or business special. Why would customers choose you over the competition? What is your special sauce that makes you stand out? This can be things like cost, quality, reliability, technology etc…, but it needs to be something significant because otherwise you’re just like every other generic competitor.
54. ELEVATOR PITCH
A 30-second pitch you could give someone while riding an elevator that quickly tells them who you are, what you do, which customers you serve and why they should be excited about your product or service.
For more on elevator pitches and crafting the perfect one for your business,see this post.
Your niche is the segment of the market and demographic you own. It is how you break in and differentiate yourself from the competition.
- Kmart – Low quality, cheap products
- Walmart – Decent quality, good deals
- Target – Better quality, slightly more expensive
- Dillards/Harrods – Fancy products, high prices, tailored service
56. CUSTOMER PERSONA / IDEAL CUSTOMER
Who is the perfect customer for your product or service? How old are they? Where do they live/shop/work? Are they educated? What do they earn? What do they do in their free time?
Everything. An overall picture of your ideal buyer. It is helpful from a marketing and strategy perspective to create 3-5 customer personas of the various customer segments that most benefit from your product or service.
57. CUSTOMER DEMOGRAPHICS
Demographics refer to any relevant information used to describe your ideal customer, such as age, sex, geography, political affiliation, education status, family status, income etc…
58. BRAND / BRANDING
Your brand is what people think of your product and company. It is the image, slogan, identity etc… that they associate with you and it is the thing that separates you from the competition. Brand is arguably the most popular of all network effects/moats, hence why Apple can charge such obscene prices.
59. MARKET RESEARCH
Gathering information about customer needs and preferences, the market size, competitive landscape etc… so you can decide whether or not to enter a market and how to position your product or brand.
60. MARKET PENETRATION
Most startup pitch decks include a TAM, SAM and SOM corresponding to the size of their total, serviceable and addressable markets – usually showing as big of a number as possible to get investors interested (for more on constructing your pitch deck and what to include to wow VCs, see this post).
That said, the market penetration is just the extent of your product’s sales volume relative to the total sales of all of your competitors, i.e., what percentage of the market do you own?
61. LEAN STARTUP
First popularized by Eric Ries, the lean startup model of business is built around the ultra-efficient concept of a short “build-measure-learn” feedback loop that involves building an MVP to test a particular hypothesis or solve a problem, testing the MVP and hypotheses with potential customers, analyzing the results and making adjustments to your product or business hypotheses based upon the data.
62. MINIMUM VIABLE PRODUCT (MVP)
An MVP or minimum viable product is the basic version of your product or service that contains only the most necessary features for testing customer interest in the product. Basically, the idea is to be as lazy as possible while also validating your business concept in a learn or fail model that keeps you progressing forward quickly.
63. PROOF OF CONCEPT (POC)
This is pretty much exactly what it sounds like, i.e., a process to determine the feasibility and viability of a business or product idea through simple experimentation or testing – again, meant to save time and money with the least amount of effort possible to validate the concept.
64. PRODUCT-MARKET FIT
Marc Andreessen of the infamous Andreessen Horowitz venture firm and co-founder of Netscape and the Mosaic internet browser first coined the term “Product/market fit,” calling it “being in a good market with a product that can satisfy that market.”
As an addendum to this well-respected definition, I would probably add that Product-Market Fit means having a product that pretty much sells itself. People see it, use it, love it and share it with others… that is product-market fit. It means you’ve built something so beloved by the market, that your job is pretty done.
65. ALPHA TEST
An alpha test is the very first test phase of a product or service to see how it functions with a very select group of individuals. Often alpha tests are used by dev teams to figure out some of the bugs and to see how potential users react to their initial product/service/app. Once your “app” has been beta tested with a small group and any changes have been made, it is ready for beta testers.
66. BETA TEST
Beta testing is the last “official” phase of product testing in a relatively controlled environment before launching the product “into the wild.” Beta tests are further used to validate the product’s features and functionality, usability, compatibility and to seek out bugs. Dev teams typically solicit feedback from users to help with final adjustments before shipping the product.
Sales & Marketing Business Terms
Arguably the biggest part of business comes down to sales and marketing. Here is the sales and marketing lingo you need to know if you want to grow.
67. INBOUND MARKETING
Inbound is anything that your business does to attract customers to you, i.e., not direct sales. That could be common methods of digital marketing like blogs / content marketing, podcasts, video creation, email marketing, social media etc…
68. A/B TESTING
Specifically testing two different variations of a product/service/button/webpage etc… to see which performs better.
As they say, the numbers never lie. That’s why analytics are so important in every business. Because we all have gut instincts, but unless you can back things up with data and cold hard facts, how will you ever know if a marketing or sales effort is successful?
70. BOUNCE RATE
Bounce rate refers to how often visitors visit your website and then leave again without clicking on anything. Minimizing bounce rate is incredibly important, not only because you want to avoid missing out on customers/users, but also because Google punishes websites with high bounce rates by showing them lower in the search rankings.
71. CLICK THROUGH RATE (CTR)
You can think about click through rate as the process of how people move through your website toward a specific end goal – for instance, buying a product or downloading an app.
72. CHURN RATE
Churn refers to the number of subscription customers you lose after signing them up for your product or service. And your churn rate is the percentage of customers that leave your product or service every month, i.e., the leaky holes in your recurring revenue empire.
For more on churn and how to reduce it, see The 15 Step Guide to Acquiring Customers and Reducing Churn.
CMS is short for Content Management System and refers to a program (usually some piece of software) that manages the creation of digital content. For most blogs and websites, this is WordPress or more template type builders like Wix and Squarespace.
74. CONVERSION RATE (CR)
This is the percentage of people who achieve some end goal you may have, like selling a product or booking a coaching session 🙂
Sales teams live in their CRM and rely on it to help organize their marketing campaigns and activities. Common CRMs include Hubspot, Zoho, Pipedrive etc…
76. DIGITAL MARKETING
Anything that Don Draper couldn’t do to attract new customers. One main advantage of digital marketing over traditional real world marketing is that digital marketing is almost completely measurable and that that gets measured, gets managed.
77. EVERGREEN CONTENT
Articles, videos or podcasts that, rather than relating to the news and trends of the day, are valuable to a consumer regardless of when they consume it – now or 10 years from now.
Anything that stands in the way of your ideal prospect becoming a customer. This can be things like a bad or slow website, multi-page checkout, unclear pricing, inventory stock outs etc… Basically, you want to make it as easy as possible for people to buy what you’re selling.
If a picture is worth a thousand words, an infographic is worth ten times that, combining Content words and images to make seemingly complex information easy to understand (and to share). Infographics make great clickbait.
80. PPC (Pay Per Click)
Paid advertising where you only pay when someone clicks on your ad – which is typically a FAcebook or a Google ad. (Interested in acquiring customers without wasting a fortune on paid ads?That’s what specialize in helping companies with – let’s talk).
81. SEO (Search Engine Optimization)
Anything you can do or optimize on your website to game Google’s algorithms and rank higher in search results. When it comes to SEO, there is White Hat, Black Hat and Gray Hat SEO. White Hat refers to being by the book, optimizing your tags and content and hoping Google rewards you for your efforts. Black Hat takes things a bit farther, pushing the boundaries on Google’s rules and best practices to manipulate search engines in your favor. And of course Gray Hat sits somewhere between the two.
82. FUNNEL / SALES FUNNEL
The A-to-Z journey of how an individual ends up becoming a consumer of your product or service. You can think of this literally like a funnel where the further along someone goes, the more likely they are to become a customer.
83. TOP OF THE FUNNEL
Top Of The Funnel is the first stage in any sales process where the consumer somehow becomes aware of your product or service. This can be a blog post, social media, billboard or podcast ads… whatever gets your name and brand in front of the consumer.
84. LEAD MAGNET
A product, resource or piece of content offered to site visitors in exchange for adding their email and subscribing to a newsletter.
For my site, that’s my free growth and fundraising guides I send you for joining my newsletter here.
85. LANDING PAGE / SQUEEZE PAGE
A landing page is where marketers often funnel new visitors in order to get them to take a specific action – often subscribing to a newsletter in exchange for the lead magnet.
86. USER EXPERIENCE (UX)
Think of your product like a total experience or journey. The UX encompasses everything from purchase to use to possibly even disposal of your product.
87. USER INTERFACE (UI)
Often spoken in the context of UX, your UI is now what the customer does or experiences, but how. What is it like using your app or product? What about how the website or checkout page functions? All of this goes into a product’s UI (which can be engineered to promote the virality of your product).
88. NET PROMOTER SCORE (NPS)
Net Promoter Score or NPS is a measure of how much your customers love you/your product. It is literally a measure of how likely (on a scale from 1-10) customers are to refer your product/brand to a friend. An average NPS of 6 or less means customers are disappointed in you/your product. A 7 or 8, and customers are okay with the quality but not all that impressed. And a 9 or 10 means people love your product and would refer it to their friends.
Having a high NPS is not only needed to differentiate yourself from the competition, but critical to creating virality and word of mouth marketing –here’s how.
89. CASH COW / RAINMAKER
If any product, service or salesperson brings in the majority of your revenues and profits (think 80/20 Pareto Principle), that product or person is often called the cash cow. For example, Apple’s cash cow for the past decade has been the iPhone, surpassing any other product in history in terms of its overall impact on the company.
NOTE: Were you looking for more startup fundraising and venture capital terms? Then be sure to see this post instead.
As an entrepreneur or business owner, you are always learning things you never knew you never knew. It often pays to have a bit of a bird’s eye view ahead of time, to see the obstacles and challenges in your way and to know which to steer clear of and which to power through.
This guide is meant to serve as that guidepost, giving you just enough business and accounting acumen to understand the ins and outs of your business and “be dangerous,” without overwhelming you or slowing you down with needless accounting certifications and bookkeeping jargon that could keep you from executing on building your business. I hope it has been helpful.
But you can’t learn your way into building a great business. It is done by doing. And if you’ve read your way through even a third of this article, it’s high time you got back to doing.
Your job is to build your business. No one else is going to do it for you!
That said, if you’d like help and guidance on how to grow and scale faster, how to boost profitability and efficiency, how to reduce your workload and optimize operations or even how to raise your next round, I’d love to help. I’m pretty busy at the moment, but if you are serious about building something meaningful and willing to put in the work to make it happen, apply here to work together and set up your free strategy call today.
PS. Wondering why I took so long to write such a boring article?
Well, how did you find this article? Probably Googling some obscure business finance or marketing term, right? Talk about easy SEO hacks… And that is the kind of thing I help companies with – building their organic growth, marketing and virality efforts by identifying simple and/or unique ways to grow their business. If you’d like to explore your own growth hacks and scale your startup or business faster, I’d love to work together.
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