Financial Glossary for Founders
Clear, no-jargon definitions of the financial terms every founder and business owner should understand. Written for operators, not accountants.
Runway Fundamentals
Startup Runway
The number of months a startup can continue operating before it runs out of cash, based on its current burn rate and available capital.
Cash-Out Date
The projected date when a company will run out of cash based on current spending and revenue patterns.
Default Alive
A startup that will become profitable before running out of cash at its current growth rate and expense level, without needing additional funding.
Default Dead
A startup that will run out of cash before reaching profitability unless it raises more money, cuts costs, or accelerates revenue growth.
Cash Flow
The net movement of cash in and out of a business over a specific period — the difference between cash received and cash spent.
Cash Flow Positive
A state where a company's cash inflows exceed its outflows — more money is coming in than going out each month.
Runway Extension
Any action that increases the number of months a startup can operate before running out of cash — through cost cuts, revenue growth, or new funding.
Burn Metrics
Burn Rate
The rate at which a company spends its cash reserves, typically measured as a monthly figure.
Net Burn Rate
Total monthly expenses minus total monthly revenue — the actual rate at which cash is being depleted.
Gross Burn Rate
Total monthly operating expenses before accounting for any revenue — the total cash outflow per month.
Operating Expenses (OpEx)
The ongoing costs a business incurs through its normal operations — payroll, rent, tools, marketing, and other day-to-day expenses.
Burn Multiple
The ratio of net burn to net new ARR — measuring how efficiently a startup converts spending into revenue growth.
Revenue Metrics
Monthly Recurring Revenue (MRR)
The predictable, recurring revenue a company earns each month from active subscriptions or contracts.
Annual Recurring Revenue (ARR)
The annualized value of recurring revenue from subscriptions, calculated as MRR multiplied by 12.
Churn Rate
The percentage of customers or revenue lost over a given period — a measure of how well a business retains its existing base.
Revenue
The total income a business generates from its products or services before any expenses are deducted.
Committed MRR
Monthly recurring revenue from signed contracts and active subscriptions — deals that are closed and generating predictable income.
Revenue Model
A framework that defines how a business generates income — including pricing structure, customer segments, and revenue streams.
Fundraising
Seed Funding
The first significant round of external capital a startup raises, typically used to validate the product, build the initial team, and find product-market fit.
Series A
The first major institutional venture capital round, typically raised after a startup has demonstrated product-market fit and early traction.
Pre-Money Valuation
The value of a company before receiving new investment — used to determine what percentage of the company investors will receive.
Post-Money Valuation
The value of a company immediately after receiving new investment — calculated as pre-money valuation plus the investment amount.
Dilution
The reduction in existing shareholders' ownership percentage when new shares are issued — typically through fundraising or employee stock option grants.
Bridge Round
A smaller funding round designed to extend a startup's runway until it can raise a larger round or reach a specific milestone.
Down Round
A funding round where a company raises capital at a lower valuation than its previous round — signaling that the company's value has decreased.
Venture Debt
Debt financing for venture-backed startups that supplements equity fundraising — providing additional capital without the dilution of a traditional equity round.
Cap Table
A capitalization table listing all of a company's shareholders, their ownership percentages, and the details of each equity round — the definitive record of who owns what.
Financial Planning
Scenario Analysis
A financial planning technique where you model different possible futures to understand how decisions affect outcomes like runway and cash flow.
Financial Model
A structured representation of a company's financial performance — combining revenue, expenses, and cash flow projections to forecast the future.
Forecast Accuracy
A measure of how closely financial projections match actual results — indicating how well a company understands its own financial dynamics.
Headcount Planning
The process of determining how many people to hire, when to hire them, and how each hire impacts the budget and runway.
Budget vs Actual
A comparison of planned financial targets against real results — revealing where spending and revenue deviated from expectations.
Board Deck / Investor Update
A regular presentation or report shared with the board of directors or investors, summarizing company performance, financial health, and strategic priorities.
Key Performance Indicator (KPI)
A measurable metric that indicates how well a company is performing against its most important objectives — the numbers that actually drive decisions.
Financial Statements
Profit and Loss Statement (P&L)
A financial statement that summarizes revenue, costs, and expenses over a period — showing whether the company made or lost money.
Cash Flow Statement
A financial statement that tracks the actual movement of cash in and out of a business over a period, organized by operating, investing, and financing activities.
EBITDA
Earnings Before Interest, Taxes, Depreciation, and Amortization — a measure of operating profitability that strips out non-operational costs.
Gross Margin
The percentage of revenue remaining after subtracting the direct cost of delivering your product or service — a measure of fundamental business efficiency.
Net Income
The total profit (or loss) after all expenses, taxes, and costs have been subtracted from revenue — the "bottom line" of the P&L.
Cost of Goods Sold (COGS)
The direct costs attributable to delivering your product or service — for SaaS, this typically includes hosting, infrastructure, and payment processing.
Working Capital
The difference between current assets and current liabilities — a measure of a company's short-term financial health and ability to cover near-term obligations.
Unit Economics
Unit Economics
The revenue and costs associated with a single unit of your business — typically one customer — determining whether your business model is fundamentally viable.
Lifetime Value (LTV)
The total revenue a business expects to earn from a single customer over the entire duration of their relationship.
Customer Acquisition Cost (CAC)
The total cost of acquiring a new customer, including all sales and marketing expenses divided by the number of new customers acquired.
LTV:CAC Ratio
The ratio of customer lifetime value to customer acquisition cost — indicating whether acquiring customers is a profitable investment.
Payback Period
The number of months it takes to recover the cost of acquiring a customer — when cumulative revenue from that customer equals the acquisition cost.
Break-Even Point
The point where total revenue equals total expenses — the moment a company stops losing money and begins generating profit.
Budgeting
Variance Analysis
The process of comparing planned or budgeted financial figures against actual results to identify and understand discrepancies.
Zero-Based Budgeting
A budgeting method where every expense must be justified from scratch each period — starting from zero rather than adjusting last period's budget.
Department Budgeting
The practice of allocating and tracking budget by team or department — giving each group a defined spending limit and accountability.
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