Plain-English definitions of the financial terms that actually matter

1099 designates independent contractors; W-2 designates employees. Misclassification carries significant legal and tax penalties.

A rolling weekly forecast of cash inflows and outflows extending 13 weeks (one quarter) into the future. Updated weekly, it shows the next 13 weeks of expected cash position based on actual A/R, A/P, payroll, and known commitments.

A report categorizing accounts payable by how long bills have been outstanding before payment.

A report categorizing accounts receivable by how long they've been outstanding (current, 1–30 days, 31–60, 61–90, 90+).

An accounting method that records revenue when earned and expenses when incurred — regardless of when cash changes hands. The opposite of cash-basis accounting, which records transactions only when money moves.

The process of matching transactions in your accounting system to the bank statement, identifying discrepancies, and adjusting for timing differences (outstanding checks, pending deposits).

The revenue level at which total revenue equals total costs — the company makes neither profit nor loss.

The rate at which a business spends cash, typically expressed as monthly net cash outflow (gross burn = total monthly spend; net burn = spend minus revenue).

An accounting method that records revenue when cash is received and expenses when cash is paid.

A controller looks backward — ensuring financial reporting is accurate and timely. A CFO looks forward — translating financials into strategy, forecasting, and decision support. Both roles can be fractional, and most growing businesses need both functions.

The structured list of all accounts (assets, liabilities, equity, revenue, expenses) used to classify financial transactions in your accounting system.

The direct costs of producing the goods or services a company sells — labor, materials, and direct overhead.

Combined financial reporting across multiple legal entities — operating companies, holding entities, real estate LLCs, investment vehicles, and personal household — that eliminates intercompany transactions and presents the complete economic picture.

Revenue minus variable costs — the dollars each unit of sale contributes toward fixed costs and profit.

A senior accounting role responsible for the accuracy and integrity of financial reporting — overseeing bookkeeping, managing the monthly close, performing quality review, ensuring proper accruals and reconciliations, and producing management-ready financial statements.

Cash received in advance of providing the product or service — recorded as a liability until the revenue is earned.

The systematic allocation of a fixed asset's cost over its useful life as an expense.

The average number of days between receiving a vendor invoice and paying it.

The average number of days between invoicing a customer and receiving payment.

Earnings Before Interest, Taxes, Depreciation, and Amortization — a proxy for operating cash generation, widely used in valuation and lending.

Quarterly tax prepayments required by the IRS for individuals and entities with significant income not subject to withholding.

An organizational structure that coordinates the financial, investment, and administrative affairs of a high-net-worth family across multiple entities and generations.

Long-term tangible assets (equipment, vehicles, buildings) with useful lives longer than one year, capitalized to the balance sheet rather than expensed.

Fixed costs don't change with sales volume (rent, salaries); variable costs scale with volume (materials, sales commissions).

A senior financial executive engaged on a part-time, ongoing basis — typically 20–60 hours per month — providing strategic financial leadership without the cost of a full-time CFO ($200K–$400K+ fully loaded annually).

The master record of every financial transaction, organized by account. The source of truth from which the balance sheet and income statement are derived.

Revenue minus cost of goods sold (COGS), expressed as a percentage of revenue. It measures the profitability of your core product or service before operating expenses, overhead, and taxes.

Transactions between related entities under common ownership — loans, management fees, expense allocations, equity contributions.

The state of having the financial reporting, documentation, controls, and forecasting infrastructure that institutional investors, lenders, or acquirers expect to see during diligence — typically 6–18 months before a transaction.

Tracking costs (labor, materials, subcontractors, overhead) at the individual project or job level — not just companywide.

A consolidated view of the 5–10 metrics that actually drive your business — typically refreshed monthly alongside the financial close. Examples vary by industry but usually include a revenue metric, a profitability metric, a cash metric, an efficiency metric, and a leading indicator.

The structured process of finalizing all financial transactions for a given month — reconciling accounts, recording adjustments, and producing accurate financial statements (P&L, balance sheet, cash flow).

Coordinated financial recordkeeping across multiple legal entities — operating companies, holding LLCs, real estate vehicles, investment partnerships, trusts, and personal household finances — with consistent chart of accounts and proper intercompany handling.

A consolidated statement of all assets minus all liabilities for an individual or family — typically updated quarterly or annually.

The minimum cash reserve a business holds to cover normal operating expenses through unexpected disruption — typically expressed in weeks of fixed operating expenses (rent, payroll, software, insurance).

Engaging an external firm to handle financial recordkeeping, reconciliations, monthly close, and reporting — rather than employing an in-house bookkeeper. Typically delivered remotely using cloud accounting software like QuickBooks Online.

The decision between hiring internal finance staff or engaging an external firm for bookkeeping, controller, or CFO functions.

Construction-industry concept: when billings exceed earned revenue (over), the difference is a liability; when earned revenue exceeds billings (under), it's an asset.

Cash or property transferred from the business to its owners — distinct from owner compensation.

The residual interest in the business after subtracting liabilities from assets — what the owner would receive if all assets were liquidated and all debts paid.

A revenue recognition method for long-term contracts that recognizes revenue based on the percentage of total work completed.

A dedicated financial executive providing strategic oversight for individuals or families — distinct from wealth advisors who manage investments.

Cash paid in advance for future goods or services — recorded as an asset and amortized to expense over the benefit period.

Cloud-based accounting software that has become the dominant platform for small and mid-sized business bookkeeping.

The IRS standard for owner-employee salary in S-corporations — must be 'reasonable' for services performed before owners can take additional profit as distributions.

The accounting principle that determines when and how revenue is recorded — typically when earned and realizable, regardless of cash timing.

Cash on hand divided by net monthly burn — the number of months a business can operate before exhausting cash.

Specialized recordkeeping for assets held in trust — tracking principal vs. income, distributions, trustee fees, and beneficiary allocations.

A construction-industry report that tracks each open project's contract value, costs incurred to date, percent complete, billings to date, and over/under billings. It reconciles project-level economics back to the income statement.

Current assets minus current liabilities — the short-term capital available to fund operations.