Plain-English business and financial glossary for owner-operators

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Business & Financial Glossary

A curated glossary of financial and operational terms that matter for owner-operators. Each definition explains the concept plainly and shows what it means in practice.

Most financial concepts are simpler than the jargon makes them sound. This glossary covers terms that come up in real client conversations — not textbook definitions, but what each concept means for an owner-operator making decisions.

Quick index

13-Week Cash Flow Forecast Accrual Accounting Burn Rate Cash Conversion Cycle (CCC)Chart of Accounts Days Sales Outstanding (DSO)Deferred Revenue EBITDA Gross Margin Job Costing Line of Credit (LOC)Owner Add-Backs Pass-Through Entity Tax (PTET)Reasonable Compensation S-Corp Election SALT Deduction Cap Tax Resolution WIP Accounting (Work in Progress)Working Capital

13-Week Cash Flow Forecast: A rolling, week-by-week projection of every dollar expected to come in and go out over the next 91 days. The most widely used short-term liquidity management tool — used by turnaround consultants, lenders, and CFOs to identify cash gaps before they become crises.
Accrual Accounting: Recording revenue when earned and expenses when incurred — not when cash moves. Gives a more accurate picture of financial performance than cash basis. Required by banks, investors, and buyers for meaningful financial statements.
Burn Rate: The rate at which a business is spending its cash, typically expressed as a monthly figure. Net burn rate is the difference between cash outflows and inflows. Runway = current cash ÷ monthly net burn rate.
Cash Conversion Cycle (CCC): Measures the number of days between when a business spends cash and when it receives cash from customers. Calculated as: Days Inventory Outstanding + Days Sales Outstanding − Days Payable Outstanding. A long CCC strains liquidity; shortening it is one of the highest-leverage improvements available.
Chart of Accounts: The complete, organized list of every account a business uses to record transactions — assets, liabilities, equity, revenue, and expenses. A poorly structured COA is one of the most common and expensive problems in small business accounting.
Days Sales Outstanding (DSO): The average number of days it takes to collect payment after completing a sale or service. Calculated as: (Accounts Receivable ÷ Total Revenue) × Number of Days. Reducing DSO by 10 days on $3M in revenue frees up approximately $82K in cash.
Deferred Revenue: Cash received before the service is delivered — recorded as a liability, not income. Recognized as revenue only as the service is performed. Misclassifying it as income overstates profitability.
EBITDA: Earnings Before Interest, Taxes, Depreciation, and Amortization. Calculated by taking net income and adding back interest, taxes, depreciation, and amortization. Used as the basis for business valuation multiples — "4x EBITDA" is common valuation language.
Gross Margin: Revenue minus direct costs (COGS), expressed as a percentage: (Revenue − COGS) ÷ Revenue × 100. Represents profit available to cover overhead and generate net income. More fundamental to business health than revenue growth.
Job Costing: Tracking all revenue, direct labor, materials, subcontractor costs, and overhead allocations for each individual job or project. Without it, you manage on averages — and averages hide unprofitable work.
Line of Credit (LOC): A revolving credit facility allowing a business to borrow up to a pre-approved limit, repay it, and borrow again as needed. You only pay interest on what you've drawn. Most important: you need to get it before you need it.
Owner Add-Backs: Personal or non-recurring expenses run through the business that don't reflect a new owner's costs — owner salary above market, personal vehicle expenses, family salaries, one-time legal fees. Directly increase business valuation when documented correctly.
Pass-Through Entity Tax (PTET): A state-level tax election allowing S-Corps and partnerships to pay state income tax at the entity level, where it's fully deductible as a business expense — effectively bypassing the federal SALT deduction cap.
Reasonable Compensation: The IRS-required salary an S-Corp owner must pay themselves for services rendered. Must be comparable to what an unrelated employee would be paid for the same role. Setting it too low invites audit; too high wastes payroll taxes.
S-Corp Election: A tax election (IRS Form 2553) that allows a business to be taxed as an S-Corporation. The owner pays themselves a reasonable salary (subject to payroll taxes) and takes additional profit as a distribution (not subject to SE tax). Can save $10,000–$20,000+ annually when structured correctly.
SALT Deduction Cap: The federal limit of $10,000 on deducting state and local taxes combined. For business owners in high-tax states, this cap significantly increases effective federal tax rate. The PTET election is the primary workaround.
Tax Resolution: The process of resolving outstanding tax debt with the IRS or state tax authorities. Includes installment agreements, Offers in Compromise, Currently Not Collectible status, penalty abatement, and innocent spouse relief. Early action with professional representation produces better outcomes.
WIP Accounting (Work in Progress): The method of recognizing revenue and costs on long-term contracts as work is performed, rather than when complete or cash is received. Essential for construction and project-based businesses. Requires calculating percentage of completion based on costs incurred.
Working Capital: Current assets minus current liabilities — the liquid resources available to fund day-to-day operations. Positive working capital means the business can meet short-term obligations; it's the most direct measure of short-term financial health.

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