The money words,
explained simply.
No jargon, no lectures. Just the terms every business owner should know, in plain English.
Accrual accounting Recording income and costs when they are earned or incurred, not when the money moves. Allowable expenses Business costs you can deduct from income before your tax is worked out. AOV (Average Order Value) The average amount a customer spends per order. Balance sheet A snapshot of what the business owns and owes at one moment in time. Bookkeeping Keeping an accurate record of every pound in and out of the business. Break-even The point where what you sell exactly covers what it costs you to operate. Burn rate How much money your business spends in a month, net of income. Capital allowances How you claim tax relief on equipment you buy and keep, rather than as an ordinary expense. Capital Gains Tax Tax on the profit when you sell something that has gone up in value. Cash basis Accounting for money when it actually moves, rather than when it was invoiced. Cash flow The movement of money in and out of your business over time. Chargeback When a customer disputes a card payment and the bank reverses it. Churn The rate at which customers or subscribers stop paying you. COGS (Cost of Goods Sold) The direct cost of the products or services you sold in a period. Companies House The UK register of companies, and the body you incorporate with. Confirmation statement A yearly filing telling Companies House its record of your company is still correct. Corporation Tax The tax a limited company pays on its profits. Credit note A document that cancels or reduces an invoice you already issued. Crosslisting Listing the same item on several marketplaces at once to sell it faster. Day rate What you charge for a day of your time, which is not your salary divided by 260. Depreciation Spreading the cost of something you own across the years you actually use it. Dividend A payment of company profit to its shareholders, taxed at its own rates. Drawings Money a sole trader takes out of the business for themselves. End-to-end encryption A way of protecting data so only you can read it, not even the service holding it. Gross margin The percentage of revenue left after the direct cost of what you sold. Invoice A request for payment that says who owes what, for what, and by when. IR35 UK rules that decide whether a contractor is really employed for tax purposes. Kill fee An agreed payment if a client cancels a project part-way through. Landed cost The true, all-in cost of a product once it reaches you. Limited company A business that is a separate legal entity from its owners. Making Tax Digital (MTD) A UK initiative requiring digital records and software for tax submissions. Markup Profit expressed as a percentage of cost, not of the selling price. MOQ (Minimum Order Quantity) The smallest quantity a supplier will produce or sell in one order. MRR (Monthly Recurring Revenue) The predictable revenue you earn every month from subscriptions or retainers. National Insurance A separate tax on earnings that also builds your entitlement to the State Pension. Net 30 Payment terms that mean the invoice is due 30 days after it is issued. Net margin The percentage of revenue left after every cost, including overheads and fees. Overhead The ongoing costs of running your business that are not tied to a single sale. Payment on account An advance payment towards next year’s tax bill, which is why the first January hurts. Profit and loss (P&L) A summary of what you earned and what you spent over a period, and what was left. Profit margin Profit as a percentage of revenue. The single best measure of whether a sale was worth it. Purchase order (PO) A number a larger client issues to authorise a spend before you invoice against it. Reconciliation Checking your records against your bank statement so the two actually agree. Retainer A recurring fee a client pays for ongoing work or availability. ROAS (Return on Ad Spend) How much revenue you earn for every pound spent on ads. RRP (Recommended Retail Price) The price a brand suggests retailers charge the end customer. Runway How long your business can keep going before it runs out of money. Scope creep The slow expansion of a project past what was agreed and paid for. Self Assessment The UK system for declaring untaxed income and paying tax on it. Sell-through rate The percentage of stock you sold in a period, out of what you had. Simplified expenses Flat rates you can use instead of working out the real cost of vehicles, home working or living at your premises. SKU (Stock Keeping Unit) A unique code you assign to each distinct product or variant you sell. Sole trader The simplest UK business structure, where you and the business are the same legal person. Statutory interest Interest you are legally entitled to charge another business on a late payment. Trading allowance A £1,000 UK tax-free allowance for casual or self-employed income. VAT (Value Added Tax) A tax added to most goods and services, which some businesses must charge. VAT Flat Rate Scheme A simplified VAT scheme where you pay a fixed percentage of turnover instead of doing the full sum. VAT registration threshold The turnover at which charging VAT stops being optional. Wholesale Selling your products in bulk to retailers at a lower per-unit price.