Glossary of Key Financial Terms for Business Leaders

Introduction

Financial reports can feel like a different language. Terms like EBITDA, working capital, and variance analysis appear in board decks and investor updates every day, but not everyone feels confident explaining what they mean.

This glossary is designed for CEOs, founders, and business leaders who want straightforward definitions of essential business and financial terms. Each entry is written in plain English and includes why it matters, so you can connect the numbers on the page to real decisions in your business.

Accounts Payable (AP)

Money your business owes to suppliers and vendors for goods or services received but not yet paid for.
Why it matters: Managing AP well supports cash flow and vendor relationships.

Accounts Receivable (AR)

Money owed to your business by customers for goods or services delivered but not yet paid for.
Why it matters: Collecting receivables quickly strengthens liquidity.

Amortization

The gradual reduction of intangible asset values (like patents or trademarks) or repayment of debt over time.
Why it matters: It impacts reported profit and shows how intangible assets or loans decrease in value.

Assets

Everything your company owns that has measurable value, such as cash, inventory, property, or equipment.
Why it matters: Assets are resources you can use to operate, borrow, and grow.

Break-Even Point

The sales level at which total revenue equals total costs, resulting in zero profit or loss.
Why it matters: It helps leaders understand how much they must sell before generating profit.

Budget

A financial plan that sets expectations for revenue, expenses, and profit over a specific period.
Why it matters: Budgets provide benchmarks for performance and guide resource allocation.

Burn Rate

The rate at which a business spends its cash reserves, usually expressed monthly.
Why it matters: It shows how long you can operate before needing new funding.

Capital Expenditures (CapEx)

Money spent on acquiring or upgrading long-term assets such as property, equipment, or technology.
Why it matters: CapEx affects cash flow today and growth capacity in the future.

Capital Structure

The mix of debt and equity a company uses to finance its operations and growth.
Why it matters: It influences risk, return, and financial flexibility.

Cash Deficit

When cash outflows exceed inflows during a period.
Why it matters: Persistent deficits may require borrowing or cost cuts to stay solvent.

Cash Flow

The movement of money in and out of your business during a set period.
Why it matters: Strong cash flow ensures your company can pay bills, invest, and weather downturns.

Cash Runway

The amount of time a company can operate before it runs out of cash, based on current spending.
Why it matters: It helps leaders gauge how urgently they need to raise capital or cut costs.

Cash Surplus

When cash inflows exceed outflows during a period.
Why it matters: Surpluses provide flexibility to invest, repay debt, or build reserves.

Compound Annual Growth Rate (CAGR)

The average annual growth rate of an investment or business metric over multiple years.
Why it matters: It smooths out year-to-year fluctuations and shows long-term growth.

Cost of Capital

The return a company must earn to justify the cost of financing, often a blend of debt and equity costs.
Why it matters: It sets the hurdle rate for investment decisions.

Cost of Goods Sold (COGS) / Cost of Sales

The direct costs of producing goods or delivering services, such as materials and labor.
Why it matters: COGS directly affects gross profit and pricing strategy.

Customer Acquisition Cost (CAC)

The total cost of gaining a new customer, including marketing and sales expenses.
Why it matters: It helps evaluate whether customer growth is sustainable and profitable.

Depreciation

The gradual reduction in value of tangible assets (like equipment) due to wear, tear, or obsolescence.
Why it matters: It lowers taxable income and shows how assets lose value over time.

Dividend

A dividend is a payment a company makes to its shareholders, usually in cash, as a distribution of profits. Some companies also issue dividends in the form of additional stock.
Why it matters: Dividends show how profits are returned to owners and can signal a company’s financial strength and stability.

EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization)

A measure of operating profitability before financing costs, taxes, and non-cash expenses.
Why it matters: It highlights core operating performance and is widely used by investors.

Equity

The value of ownership in the business, calculated as assets minus liabilities.
Why it matters: Equity shows how much of the company belongs to its owners.

Earnings Per Share (EPS)

Net income divided by the number of outstanding shares of stock.
Why it matters: It’s a common measure of profitability for investors in public companies.

Forecast

A forward-looking estimate of revenue, expenses, and cash flow, updated regularly to reflect actual results.
Why it matters: Forecasts help leaders anticipate challenges and adjust plans.

Free Cash Flow (FCF)

Cash generated from operations after subtracting capital expenditures.
Why it matters: It shows how much cash is truly available to reinvest or return to owners.

Gross Margin

The percentage of revenue left after subtracting the cost of goods sold (COGS).
Why it matters: It shows how efficiently your company produces and sells.

Gross Profit

Revenue minus the cost of goods sold.
Why it matters: It shows how much money is left to cover overhead and profit.

Key Performance Indicators (KPIs)

Metrics that track progress toward business objectives, such as customer churn or revenue growth.
Why it matters: KPIs align teams around measurable goals.

Liabilities

Financial obligations your company owes, such as loans, accounts payable, or accrued expenses.
Why it matters: Managing liabilities helps balance growth with financial stability.

Net Income

The total profit after deducting all expenses, including taxes and interest.
Why it matters: Net income is the bottom line that shows if your business is profitable.

Net Profit Margin

Net income divided by revenue, expressed as a percentage.
Why it matters: It shows how much profit you keep from each dollar of sales.

Operating Expenses (Opex)

The day-to-day costs of running your business, such as salaries, rent, and marketing.
Why it matters: Monitoring Opex ensures spending supports growth and profitability.

Operating Income

Profit from core business operations, calculated as gross profit minus operating expenses.
Why it matters: It reflects performance from normal activities before financing and taxes.

Operating Profit Margin

Operating income divided by revenue, expressed as a percentage.
Why it matters: It shows how efficiently your company converts sales into profit.

Payback Period

The time it takes for an investment to generate enough returns to recover its cost.
Why it matters: Shorter payback periods reduce risk and improve flexibility.

Revenue

The total money earned from selling products or services.
Why it matters: Revenue is the top line that drives growth and supports profit.

Return on Investment (ROI)

A measure of profitability comparing the gain or benefit of an investment to its cost.
Why it matters: ROI helps leaders decide whether an initiative creates enough value.

Scenario Analysis

A process of modeling different financial outcomes based on assumptions (e.g., best case, worst case).
Why it matters: It helps leaders prepare for uncertainty and test resilience.

Sensitivity Analysis

A technique that tests how changes in a single variable (like price or volume) impact financial results.
Why it matters: It shows which factors most affect performance.

Variance Analysis

The comparison of actual financial results to budgeted or forecasted results.
Why it matters: It explains deviations from expectations and guides decisions.

Working Capital

The difference between current assets and current liabilities.
Why it matters: Positive working capital means your company can cover obligations and stay flexible.

The Bottom Line

This glossary covers the financial terms you’ll encounter most often in board meetings, investor updates, and management discussions. Each one connects directly to the financial health and future of your business.

To dive deeper, explore our upcoming guides on the income statement, balance sheet, and cash flow statement, or connect with us to learn how these concepts apply to your company.

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Productivity vs. Profitability: How to Increase Both

Productivity vs. profitability— which is more important? As a business owner, you naturally focus on profitability. But here’s the key insight: improving productivity is often the most direct path to higher profits. When your team gets more done with the same or fewer resources, costs go down, profit margins increase, and your business becomes more resilient.

In this article, you’ll learn how productivity and profitability are connected, and four proven ways to strengthen both at the same time.

Understanding Productivity vs. Profitability

Before diving into strategies, it’s important to understand the relationship.

  • Productivity measures how efficiently your business turns inputs (time, labor, capital) into outputs (products, services, revenue).
  • Profitability is what remains after you deduct all costs from revenue—your true bottom line.

Read more: Proven Strategies to Increase Profit

When productivity improves, your business can generate more output without a proportional increase in costs. That efficiency directly translates into stronger profit margins and healthier financial performance.

Four Strategies to Increase Productivity and Profitability

1. Leverage Technology to Eliminate Manual Work

Automation and AI are no longer optional. They’re essential for scaling efficiently. By automating tasks such as expense tracking, scheduling, or client onboarding, you:

  • Reduce errors
  • Lower administrative costs
  • Free up your team to focus on higher value work

These efficiencies directly lower operating expenses and create capacity for revenue-generating activities.

2. Track Revenue per Employee to Measure Productivity

One of the most effective productivity metrics is revenue per employee. A rising number indicates that your business is producing more value without adding headcount.

To improve it, focus on:

  • Sales enablement: better training, CRM tools, and streamlined sales processes
  • Customer service improvements: reducing friction in how clients interact with your business
  • Product development efficiency: faster iterations and fewer wasted resources

When revenue per employee rises, profitability often increases.

3. Implement Lean Operations to Reduce Waste

Lean operations are about doing more with less. Review your processes and look for ways to eliminate inefficiencies such as excess inventory, underutilized labor, and redundant workflows.

Streamlining operations lowers costs and helps allocate resources to growth initiatives. Over time, lean practices compound into a significant profitability advantage.

4. Align Employee Incentives with Profitability Goals

When employees are motivated by clear performance incentives tied to profitability, they are more likely to focus on activities that generate financial returns. For example, performance bonuses based on achieving profit targets or cost-saving initiatives ensures that your employees’ efforts are aligned with your business’s financial goals. This alignment drives behaviors that increase productivity and profit margins.

The Bottom Line

Productivity and profitability aren’t competing priorities—they’re partners in driving growth. By leveraging technology, measuring the right KPIs, streamlining operations, and aligning employee incentives, you can reduce costs, increase margins, and build a more profitable business.

Are you ready to strengthen both productivity and profitability in your company? Check out these proven strategies to increase profit and schedule a free introductory consultation with Momentum CFO to learn how expert insights can help you achieve sustainable growth.

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Why Your Business Needs a Budget

Think of your budget as the financial equivalent of a roadmap. If you’re setting out on a cross-country trip, you wouldn’t just start driving without knowing where you’re headed, how long it might take, or where to refuel along the way. The same is true in business. Without a budget, you risk running out of resources, missing opportunities, or veering off course.

Budgeting isn’t about restriction. It’s about clarity and direction. A strong budget connects your financial resources to your growth strategy so you can set priorities, measure progress, and make confident decisions about the future of your company.

And just like any good roadmap, it starts with knowing your destination. In business terms, that means defining your goals and aligning your spending to support them.

Align Your Goals with Your Spending

Every strong budget starts with clear goals. What are you aiming to achieve this year? Growing revenue, improving margins, building cash reserves, or launching new products?

Once your goals are defined, your budget allows you to connect dollars to strategy. For example:

  • If revenue growth is your goal, do you need to invest in sales staff or customer acquisition?
  • If improving cash flow is your priority, should you renegotiate vendor terms or streamline expenses?
  • If product expansion is on your roadmap, what level of R&D investment is realistic?

A budget forces prioritization. With finite resources, you allocate funds where they’ll have the greatest impact.

Once your goals are clear and your spending priorities are set, the next step is translating that vision into numbers. That’s where your budget becomes a roadmap to profitability.

Create a Roadmap to Profitability

At its core, a budget shows how income and expenses translate into profit. By forecasting revenue by product or service line and detailing expenses by category, you can see whether your strategy adds up.

Supporting schedules, such as compensation by employee or sales by client, provide more insight into the numbers. Instead of one “big number,” you’ll know exactly where money is going and why.

The result is a clear financial roadmap that shows how your business will achieve its profitability goals.

But a roadmap only works if you check it along the way. After you’ve built your budget, the real value comes from measuring performance against it and adjusting when necessary.

Measure What Matters

A budget is more than a plan—it’s a benchmark. Comparing actual results to your budget each month (known as variance analysis) helps you spot risks and opportunities early.

If sales lag behind plan, you can adjust expenses or accelerate sales efforts before problems escalate. If marketing spend delivers higher-than-expected returns, you can double down on what’s working.

Budgets keep you proactive instead of reactive. You don’t just track performance, you manage it.

Tracking results is powerful, but the real payoff of budgeting is confidence. With clarity on your numbers and your progress, you can make important financial decisions without second-guessing.

Make Financial Decisions with Confidence

With a budget in place, financial decisions become clearer. You already know your priorities, planned investments, and expected results. That makes it easier to answer questions like:

  • Can we afford to hire that new executive?
  • Should we sign this long-term lease?
  • Is now the right time to expand into a new market?

When your budget keeps your team aligned and your decisions grounded in data, it becomes more than a spreadsheet. It becomes a tool for growth.

The Bottom Line

A budget gives growing businesses more than numbers on a spreadsheet. It provides direction, accountability, and confidence in navigating growth.

As Dale Carnegie said, “An hour of planning can save you ten hours of doing.” Taking the time to create a thoughtful budget now pays dividends throughout the year. 

If you don’t have the time or expertise to tackle this alone, Momentum CFO can help. We work with business leaders to build budgets that not only track expenses, but also support strategy, profitability, and long-term growth. Schedule a free consultation to learn how can help you plan for financial success in the year to come.

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8 Components of a Business Plan to Revisit as You Grow

Many business owners create a business plan in the early days, then rarely look at it again. But as your company grows, your original plan can quickly become outdated. New markets emerge, competition shifts, and your financial picture changes. Revisiting the components of a business plan regularly ensures your strategy, operations, and finances remain aligned with growth goals.

A business plan isn’t just for startups. It’s a tool that should evolve with your company. As the Chamber of Commerce notes, “a business plan is a living, breathing document that you’ll use to direct your enterprise. You should revise your business plan annually and refer to it often after you launch your business.”

Here are the eight components you should revisit.

1. Executive Summary

The executive summary is one of the most important components of a business plan because it captures where your company is today, and more importantly, where it’s headed. Update it to reflect new growth strategies, financial performance, and long-term objectives. A clear, current summary helps employees, investors, and lenders quickly grasp your vision.

2. Business Description and Mission

Mission statements often shift as companies mature. Ask yourself: does your mission still capture what your business does and why? Has your long-term vision evolved? Revisiting this section helps realign leadership and employees around shared goals.

3. Products and Services

The product and services section is another key business plan compoenent that deserves attention as your business grows. offerings that worked at launch may no longer be your strongest drivers of profit. For example, some products may face pricing pressure while others deliver higher margins. Reassess:

  • Which offerings generate the highest margins
  • Where pricing needs to be adjusted
  • What innovation or expansion opportunities exist

Pricing in particular deserves close attention. Many businesses unintentionally erode profit by sticking with outdated pricing models.

4. Market Research and Competitive Analysis

Customer needs and competitors change constantly. Therefore, review your market research to identify:

  • How your ideal customer profile may have evolved
  • Where demand is increasing or declining
  • How new competitors are positioning themselves

Staying on top of these shifts helps you refine strategy and avoid blind spots.

5. Marketing and Sales Strategy

Even the best product won’t succeed without customers. In this section, explain how you’ll build brand awareness and drive Your growth depends on how effectively you attract and convert customers. Revisit your sales and marketing plan to ensure it reflects:

  • The most effective channels for reaching customers today
  • A sales process that converts leads consistently
  • Realistic expectations for customer acquisition and retention

A well-tuned sales and marketing strategy ensures growth projections are achievable.

6. Organization and Management

As your business scales, leadership and staffing needs often outpace original plans. Review your organization chart:

  • Do you have the right leaders in place for the next stage of growth?
  • Where do gaps in skills or bandwidth exist?
  • Are decision-making processes efficient at your current size?

Scaling successfully requires the right structure and leadership.

7. Financials: The Most Important Component of a Business Plan

The financials are the most scrutinized component of a business plan, and for good reason In fact, the most successful companies go beyond historical reporting and focus on forward-looking tools such as:

  • Multi-year profit and loss forecasts
  • Cash flow projections
  • Balance sheet planning
  • Scenario modeling to test growth strategies

Reliable financials help you secure financing, evaluate opportunities, and reduce risk. As the U.S. Small Business Administration points out, your business plan “not only helps you set and track goals, but it also makes a case for why banks and prospective investors should offer you funding.”

8. Finishing Touches: Table of Contents and Appendix

Finally, keep your plan professional and complete. Also update supporting documents like market data, organizational charts, and financial models in the appendix. A polished, current plan gives credibility when shared with investors, lenders, or strategic partners.

The Bottom Line

A business plan isn’t a one-and-done document. It should evolve with your company. Revisiting the components of a business plan regularly helps you ensure your strategy, operations, and financials remain aligned with your growth goals.

Momentum CFO helps midsize businesses strengthen their financial planning, build models that support decision-making, and ensure profitability keeps pace with growth. Schedule a free consultation to bring new discipline and clarity to your business plan.