Plain-English definitions

Business and Money Glossary

Business talk is full of shorthand. This glossary turns the most common terms into one plain sentence each, so you can read a pitch, a bank form or a founder story without guessing.

Finish with the quiz at the bottom. It is short and scored right in your browser.

Five stacks of coins of increasing height on a table

Stacks of coins: Kevin Schneider, CC0

The glossary

Definitions simplified for learning. Legal and tax terms can have specific meanings in your state.
TermPlain definition
RevenueAll the money that comes in from sales before any costs are taken out.
ProfitWhat is left after subtracting costs from revenue.
Gross profitRevenue minus the direct cost of the goods or services sold.
Net profitWhat remains after every cost, including overhead, interest and taxes.
MarginProfit as a percentage of the selling price.
MarkupProfit as a percentage of the cost.
Fixed costsCosts that stay about the same no matter how much you sell, like rent.
Variable costsCosts that rise and fall with each unit sold, like materials.
Contribution marginPrice minus variable cost: the part of each sale that covers fixed costs.
Break-even pointThe sales level where total revenue equals total costs, so profit is zero.
Cash flowThe timing of money moving in and out of the business.
Working capitalShort-term assets minus short-term debts: the cushion for day-to-day bills.
OverheadOngoing costs of running the business that are not tied to one product.
AssetSomething the business owns that has value, like cash, equipment or inventory.
LiabilityMoney the business owes to someone else.
EquityThe owners' share: assets minus liabilities.
Balance sheetA snapshot of assets, liabilities and equity on one date.
Income statementA report of revenue, costs and profit over a period of time.
InventoryGoods on hand that the business plans to sell.
Accounts receivableMoney customers owe you for things already delivered.
Accounts payableMoney you owe suppliers for things already received.
BootstrappingGrowing a business with your own money and sales instead of outside investors.
ValuationAn estimate of what a whole company is worth.
DilutionWhen new shares are issued and each existing owner's percentage shrinks.
Sole proprietorshipA one-owner business with no legal separation between owner and business.
LLCLimited liability company: a structure that usually shields owners' personal assets from business debts.
EINEmployer Identification Number: a federal tax ID number for a business, issued free by the IRS.
DBADoing business as: a registered trade name that differs from your legal or company name.
APRAnnual percentage rate: the yearly cost of borrowing, including some fees.
Compound interestInterest earned on both your original money and the interest it already earned.
Index fundA fund that tries to match a market index instead of picking individual winners.
DiversificationSpreading money across many investments so one loss hurts less.

Quick quiz

1. An item costs $30 and sells for $50. What is the margin?
2. Using the same item, what is the markup?
3. Which of these is usually a fixed cost?
4. Fixed costs are $2,000, price is $25 and variable cost is $15. How many units to break even?
5. What does equity equal on a balance sheet?
6. How much does the IRS charge for an EIN?
7. Bootstrapping means:
8. Money customers owe you is called:
Score: 0 / 8

Educational content only, not financial, tax or legal advice.

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