30 Finance Basics Every Business Owner Should Know

To run a successful business, you need to understand money.

It helps you make smart choices, grow your company, and stay secure.

This guide explains 30 important finance terms that you should know.

Table of Contents

Measuring Profitability

This section is about how you figure out if you’re making or losing money.

Revenue: The total income generated from business activities.
Cost of Goods Sold: The direct costs incurred in producing goods sold by a business.
Gross Margin: The difference between revenue and the cost of goods sold.
Net Profit: The amount of money left after all expenses and taxes are deducted.
Break-Even Point: The point where total revenue equals total expenses, resulting in no profit or loss.

This shows what your business owns and what it owes at one point in time.

Balance Sheet: A financial statement showing assets, liabilities, and equity.
Assets: Resources owned by the business that have value.
Liabilities: What the business owes to others.
Equity: The owner’s share in the business after liabilities are deducted from assets.

Profit and cash are different. Knowing how cash moves in and out is key to keeping your business running.

Cash Flow: The movement of money in and out of your business.
Cash Flow Statement: A report showing the cash inflows and outflows over a given period.

These are the terms for managing your business’s daily cash needs.

Accounts Receivable: Money owed to the business by customers for goods or services provided.
Accounts Payable: Amounts the business owes to suppliers or vendors.
Accounts Payable Days: The average time it takes to pay suppliers.
Working Capital: The difference between current assets & current liabilities, indicating short-term financial health.
Working Capital Cycle: The time it takes for a business to convert its assets into cash.

Your business assets can lose value over time. It’s important to account for this.

Depreciation: The reduction in value of an asset over time due to wear and tear.
Amortization: The gradual reduction of an intangible asset’s value over time.

Finance helps you plan for the future, not just track the past.

Budgets: A financial plan that estimates income & expenses over a specific period.
Tax Planning: The process of organizing finances to minimize tax liabilities.
Investment Strategies: Approaches to investing business profits for growth.
Risk Management: Identifying, assessing, and controlling financial risks.
Dividends: Profit payments made to shareholders from a business’s earnings.

This is about how you get money for your business and manage any debt.

Capital Structure: The way a business finances its operations through debt or equity.
Debt Management: Strategies for handling and reducing business debt.
Debt-to-Equity Ratio: Compares liabilities to equity, showing business risk.

These are the rules that make sure your financial information is correct and trustworthy.

Accrual Accounting: Recording transactions when they occur, not when cash is exchanged.
Revenue Recognition: The process of recognizing income when it is earned, not when it is received.
Internal Controls: Systems & procedures used to safeguard assets & ensure accurate financial reporting.
Financial Ratios: Key metrics used to evaluate a business’s financial performance.

Knowing these 30 money terms is very important for any business owner.

When you understand them, you can check if your business is doing well, talk clearly about its finances, and make better decisions.

Start by looking at your own business numbers today to take charge of your company’s future.