From LLCs to Cash Flow: The Basics of Business Vocabulary

Starting a business is like learning a new language — one filled with acronyms, contracts, and jargon that can feel overwhelming at first. But understanding even a few foundational terms can help you make smarter decisions, communicate confidently, and build trust with partners, investors, and customers.

This guide breaks down essential business terminology for first-time founders, solo entrepreneurs, and small business starters — with practical explanations and strategic links to help you go deeper when you're ready.

What Every New Business Owner Should Know

Whether you're opening a bakery, launching an online consultancy, or building a local services brand, here are key terms you'll likely run into:

?? Foundational Business Terms

• Sole Proprietorship – A business owned and operated by one person; the simplest structure, but no legal separation between you and the business.
   

• LLC (Limited Liability Company) – Offers personal liability protection with fewer formalities than a corporation.
   

• EIN (Employer Identification Number) – A unique ID assigned by the IRS for business tax purposes.
   

• Cash Flow – The movement of money in and out of your business; vital for tracking liquidity and sustainability.
   

• P&L Statement (Profit and Loss) – A financial report showing income, expenses, and net profit over a period.

Tip: Many online tools simplify P&L generation and tax prep. For example, Bench offers done-for-you bookkeeping tailored to small businesses.

Understanding the Letter of Intent (LOI)

In early-stage partnerships or acquisitions, you may encounter a Letter of Intent. This is a document that outlines the preliminary understanding between parties before a formal agreement is finalized.

Businesses use LOIs to signal that they’re seriously considering a deal — such as a strategic partnership, investment, or sale — before hammering out the final details. LOIs can also act as a way to announce deals-in-progress or begin due diligence.

If you're new to these scenarios, check this out for a clean breakdown of what a business LOI typically includes and when to use one.

Quick Reference: Essential Business Terms in a Table
 

Must-Know Legal & Financial Jargon

• Gross vs. Net Revenue – Gross is total income before expenses; net is after.
   

• Accounts Receivable – Money owed to your business for delivered goods/services.
   

• Business Liability – Legal responsibility for debts or damages.
   

• Trademark – Legal protection for your brand name, logo, or slogan.
   

• Depreciation – The gradual reduction in value of assets over time, used for tax and accounting purposes.

If your business will use equipment or vehicles, understanding depreciation is key — Intuit's guide breaks it down with examples.

FAQs: Common Questions About Business Terms

Do I need an LLC to start a business?
No, but an LLC offers liability protection. If you're running solo or on a tight budget, you can begin as a sole proprietor and transition later.

What’s the difference between revenue and profit?
Revenue is what your business earns before expenses. Profit is what's left after covering all costs.

Do I need to know accounting?
Not deeply. But understanding your financial statements (like a P&L or cash flow report) helps you make better decisions — tools like Wave can help automate much of this.

What’s a business model?
Your business model explains how your company makes money — whether it's through subscriptions, direct sales, licensing, etc.

What’s a pitch deck?
A short presentation that outlines your business to investors or partners. For tips on making yours effective, Pitch.com has free templates and design help.

Bonus List: 10 More Terms to Learn Over Time

• Bootstrapping
   

• Equity
   

• Cap Table
   

• KPI (Key Performance Indicator)
   

• B2B vs. B2C
   

• Churn Rate
   

• NDA (Non-Disclosure Agreement)
   

• Business Plan
   

• Seed Funding
   

• Acquisition

Final Thoughts

You don’t need an MBA to start a business — but knowing these core terms can reduce confusion, protect your interests, and boost your confidence. Bookmark this guide, refer to it when you're negotiating a deal or signing a form, and stay curious.