10 Finance Terms Every Entrepreneur Should Know
Revenue records income from product or service sales before costs. Gross profit shows the amount remaining after direct production or delivery costs are deducted, making it a useful measure of how efficiently a company delivers its core offering. Revenue growth can coexist with weak margins, so sales figures require context. Net profit, often called the bottom line, accounts for all expenses, interest, taxes and other costs. It offers a fuller picture of financial performance, as a company can generate strong sales while operating at a loss. Cash flow tracks money entering and leaving the business. Payment timing can create pressure even for profitable companies when customer payments arrive late or bills become due before revenue is collected. Burn rate measures the speed at which available cash is spent, particularly during periods of losses. Runway uses cash reserves and burn rate to estimate how long a company can continue operating before funds are exhausted, giving founders a basis for decisions on increasing revenue, reducing costs, reaching break-even or seeking additional capital.
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