The Startup Finance Glossary: 60+ Startup Finance Terms Founders Should Know

This is a plain-language glossary of the startup finance terms founders, operators, and early finance hires run into every week, defined without the jargon that usually surrounds them. It covers the words you will hear in a board meeting, a fundraise, an investor email, and your own accounting software, grouped by theme so you can find the one you need. Use it as a reference, not a course. Founders who don’t understand finance terms can’t evaluate decisions clearly. Finance is how every other choice gets framed and measured.

Founders who don't understand finance terms can't evaluate decisions clearly. Finance is how every other choice gets framed and measured.

Cash and liquidity

Cash conversion cycle

The number of days it takes a company to turn money spent on inventory and operations back into cash from customers. It combines days inventory outstanding and days sales outstanding, minus days payable outstanding. A shorter cycle means cash returns faster.

Cash flow

The movement of money into and out of a business over a period. Positive cash flow means more came in than went out; negative means the reverse. It is distinct from profit, because revenue and expenses can be recorded before the cash actually moves.

Cash position

The total amount of cash and cash equivalents a company has available at a given moment, usually across all its bank accounts. It is the simplest measure of whether a company can pay its bills today.

DIO (days inventory outstanding)

The average number of days a company holds inventory before selling it. A lower number means inventory turns into sales faster and ties up less cash. Mostly relevant to companies that hold physical goods.

DPO (days payable outstanding)

The average number of days a company takes to pay its suppliers and vendors. A higher number means the company holds onto its cash longer, though stretching it too far can strain supplier relationships.

DSO (days sales outstanding)

The average number of days it takes a company to collect payment after making a sale. A high DSO means cash is stuck in unpaid invoices. It is a core measure of how efficiently a business collects what it is owed.

Free cash flow

The cash a company generates from operations after subtracting the capital it spends to maintain or grow the business. It is the cash actually available to repay debt, return to investors, or reinvest, and it can differ sharply from reported profit.

Liquidity

How easily a company can meet its short-term obligations with the cash and assets it can quickly convert to cash. High liquidity means the company can pay bills on time. Low liquidity creates payment difficulty even if the business is profitable on paper.

Solvency

Whether a company’s total assets exceed its total liabilities, meaning it can meet its long-term obligations and stay in business. Liquidity is about the short term; solvency is about whether the company survives over the long run.

Treasury

The function responsible for managing a company’s cash, liquidity, and financial risk. At a startup this often means deciding where to hold cash, how to forecast it, and how to keep enough on hand without leaving idle money earning nothing.

Working capital

The difference between a company’s current assets and its current liabilities. It measures the short-term resources available to fund day-to-day operations. Positive working capital means the business can cover its near-term obligations.

Burn, runway, and efficiency

Burn multiple

The amount of cash a company burns to generate one new dollar of recurring revenue, calculated as net cash burn over a period divided by net new recurring revenue in that same period. A lower number signals more efficient growth.

Burn rate

The rate at which a company consumes its cash, usually expressed per month. A burn rate of $80,000 means the business spends that much more than it brings in each month. It measures how fast capital is being used up.

Gross burn

The total cash a company spends in a period, before counting any revenue it brings in. It captures the full cost of running the business and is useful when revenue is volatile or near zero.

Net burn

The cash a company spends in a period minus the cash it brings in, the real monthly drain on the bank balance. Net burn is the number that drives runway.

Rule of 40

A benchmark for software companies that says revenue growth rate plus profit margin (often EBITDA margin) should sum to 40% or more. It captures the trade-off between growing fast and running profitably.

Runway

How many months a company can keep operating before it runs out of cash, calculated as current cash divided by monthly net burn. It tells you when the next funding event, profitability, or cost cut needs to happen.

SaaS and unit economics

ARR (annual recurring revenue)

The annualized value of a company’s recurring subscription revenue, equal to MRR multiplied by twelve. It is the headline revenue measure for most subscription businesses and the basis for many growth and valuation comparisons.

Billings

The amount a company invoices its customers in a period, regardless of when that revenue is recognized. Billings often lead revenue, because a customer can be billed upfront for a year of service that gets recognized month by month.

Bookings

The total value of contracts a company has signed in a period, regardless of when the cash arrives or the revenue is recognized. A booking is a commitment; it becomes revenue over the life of the contract.

CAC (customer acquisition cost)

The total sales and marketing cost to acquire one new customer, calculated by dividing those costs over a period by the number of new customers won. It measures how expensive growth is.

CAC payback

The number of months it takes for the gross margin from a customer to repay the cost of acquiring them. A shorter payback period means the company recovers its acquisition spend faster and needs less cash to grow.

Churn

The rate at which customers or revenue leave over a period. Customer churn counts lost accounts; revenue churn counts lost dollars. High churn forces a company to replace lost revenue before it can grow, which raises the cost of every gain.

COGS (cost of goods sold)

The direct costs of delivering a product or service, such as hosting, support, and payment processing for software. COGS is subtracted from revenue to calculate gross profit and gross margin.

EBITDA

Earnings before interest, taxes, depreciation, and amortization. It is a rough measure of the profitability of the core operating business, stripped of financing and accounting effects. It is not the same as cash flow.

Gross margin

The percentage of revenue left after subtracting COGS, calculated as gross profit divided by revenue. It shows how much each dollar of revenue contributes before operating costs. Software businesses typically run high gross margins.

Gross revenue retention

The percentage of recurring revenue a company keeps from existing customers over a period, before any expansion, counting only losses from churn and downgrades. It caps out at 100% and shows how sticky the base revenue is.

LTV (lifetime value)

The total gross profit a company expects to earn from a customer over the entire relationship. It is weighed against acquisition cost to judge whether customers are worth what they cost to win.

LTV:CAC

The ratio of a customer’s lifetime value to the cost of acquiring them. A common rule of thumb is that a healthy ratio sits around three to one, though the right number depends on the business and how LTV is calculated.

MRR (monthly recurring revenue)

The predictable subscription revenue a company expects to collect each month from active customers. It is the building block of ARR and the metric most subscription businesses watch week to week.

Net revenue retention

The percentage of recurring revenue a company keeps from existing customers over a period, including expansion from upsells, minus churn and downgrades. Above 100% means the existing customer base is growing without new customer acquisition, a sign of strong product retention.

Accounting and the close

Accruals

Revenues and expenses recorded when they are earned or incurred, not when cash changes hands. Accruals match income to the period it relates to, giving a more accurate picture of performance than cash timing alone.

Accrual vs cash accounting

Two methods of recording transactions. Cash accounting records revenue and expenses when money moves; accrual accounting records them when they are earned or incurred. Accrual is the standard under GAAP and gives a truer view of performance, though cash accounting is simpler.

ASC 606

The accounting standard that governs how companies recognize revenue from contracts with customers. It requires revenue to be recognized as obligations to the customer are fulfilled, which is why annual subscriptions are recognized over the year rather than all at once.

Audit trail

A complete, traceable record of every transaction and change in the financial records, showing what happened, when, and by whom. A clean audit trail is what lets an auditor or investor verify that the numbers are real.

Balance sheet

A financial statement showing what a company owns (assets), what it owes (liabilities), and the residual value to owners (equity) at a single point in time. Assets always equal liabilities plus equity.

Cash flow statement

A financial statement that tracks the actual movement of cash in and out of a business over a period, split into operating, investing, and financing activities. It reconciles reported profit with the real change in the cash balance.

Chart of accounts

The organized list of every account a company uses to record its financial transactions, grouped into categories like assets, liabilities, revenue, and expenses. A well-structured chart of accounts enables clean, organized reporting.

GAAP

Generally Accepted Accounting Principles, the standard set of rules companies follow when preparing financial statements in the United States. Following GAAP makes financials consistent and comparable, which investors and auditors expect.

Month-end close

The process of finalizing the books for a month: recording all transactions, reconciling accounts, and producing financial statements. A fast, accurate close shows the finance function is tracking numbers correctly each month.

P&L (profit and loss statement)

Also called the income statement, a financial statement showing revenue, costs, and expenses over a period to arrive at profit or loss. It answers whether the business made money during the period.

Reconciliation

The process of comparing two sets of records, such as the general ledger and a bank statement, to confirm they agree and to resolve any differences. Reconciliation is how a company catches errors and proves its balances are accurate.

Planning, budgeting, and modeling

Budget variance

The difference between a budgeted figure and the actual result. A favorable variance means results beat the plan; an unfavorable variance means they missed. Reviewing variances each month is how teams learn where forecasts and reality diverged.

FP&A (financial planning and analysis)

The function responsible for budgeting, forecasting, and analyzing a company’s financial performance to guide decisions. FP&A converts accounting data into budgets, forecasts, and variance analysis.

Scenario analysis

A planning method that models distinct, complete versions of the future, such as a base case, an upside case, and a downside case. It helps a company see how different sets of assumptions would play out and prepare for each.

Sensitivity analysis

A method that tests how a single change in one input, such as growth rate or churn, affects an outcome like runway or revenue. It isolates which assumptions the plan is most exposed to.

Top-down vs bottom-up budgeting

Two approaches to building a budget. Top-down starts with high-level targets set by leadership and allocates them downward. Bottom-up builds the budget from detailed estimates by each team and rolls them up. Many companies reconcile the two.

Zero-based budgeting

A budgeting method where every expense must be justified from scratch each period, starting from zero, rather than carried over from last period with an adjustment. It forces a fresh look at where money goes, at the cost of more effort.

Fundraising and equity

409A valuation

An independent appraisal of the fair market value of a private company’s common stock, used to set the strike price for employee stock options in the United States. A current 409A keeps option grants compliant with tax rules.

Cap table

A record of who owns what in a company: the shares, options, and convertible instruments held by founders, investors, and employees, along with their ownership percentages. It tracks how equity is divided and how it shifts over time.

Convertible note

A short-term loan that converts into equity at a later financing round, usually at a discount or with a valuation cap. It lets a startup raise money quickly without setting a price on the company immediately.

Dilution

The reduction in existing shareholders’ ownership percentage when a company issues new shares, such as in a funding round or option grant. Each owner holds a smaller slice of a (hopefully) larger pie.

Non-dilutive financing

Funding that does not require giving up equity, such as venture debt, grants, or revenue-based financing. It lets a company raise capital without diluting existing owners, usually in exchange for repayment or other obligations.

Option pool

A block of equity a company sets aside to grant as stock options to employees. The pool is built into the cap table and dilutes existing shareholders when it is created or expanded.

SAFE

A Simple Agreement for Future Equity, an instrument that gives an investor the right to shares in a future priced round in exchange for money now. Unlike a convertible note, it is not a loan and carries no interest or maturity date.

Term sheet

A non-binding document that lays out the key terms of a proposed investment, such as valuation, the amount raised, and investor rights. It sets the framework that the final, binding legal agreements are then built on.

Valuation multiple

A ratio that values a company as a multiple of one of its financial metrics, such as revenue or ARR. Saying a company is valued at “ten times ARR” applies a valuation multiple. Multiples let investors compare companies of different sizes.

Venture debt

A loan provided to venture-backed startups, usually alongside or after an equity round. It gives a company more capital and runway without immediately giving up equity, though it must be repaid with interest.

Investor and fund metrics

DPI (distributions to paid-in)

A fund metric measuring the cash actually returned to investors divided by the capital they paid in. Unlike TVPI, it counts only realized returns, so it shows real money in hand rather than paper value.

Dry powder

The capital a fund has committed but not yet invested, available to deploy into new or existing companies. A fund with plenty of dry powder can keep investing through a downturn.

IRR (internal rate of return)

The annualized rate of return on an investment, accounting for the size and timing of cash flows in and out. Because it weighs timing, an early return contributes more to IRR than the same return years later.

MOIC (multiple on invested capital)

A fund metric measuring total value returned divided by the capital invested, ignoring timing. A MOIC of 3x means an investment is worth three times what was put in. It is simpler than IRR but says nothing about how long it took.

TVPI (total value to paid-in)

A fund metric measuring the total value of a fund, both cash returned and the remaining value of its holdings, divided by the capital investors paid in. It captures realized and unrealized returns together.

Finance roles and cost lines

CapEx (capital expenditure)

Money spent to acquire or improve long-term assets, such as equipment or property, that provide value over multiple years. CapEx is recorded on the balance sheet and expensed gradually through depreciation rather than all at once.

Controller

The person responsible for a company’s accounting operations: the books, the close, financial reporting, and compliance. The controller ensures historical numbers are accurate. FP&A and the CFO focus on future plans and forecasts.

Discretionary spending

Costs a company chooses to incur and could cut or delay without immediately stopping operations, such as travel, events, or some marketing. It is the first place teams look when they need to extend runway.

Fractional CFO

An experienced finance leader who works for a company part-time or on contract rather than as a full-time hire. Startups use a fractional CFO to get senior financial guidance before they can justify a full-time chief financial officer.

G&A (general and administrative expenses)

The overhead costs of running a company that are not tied to producing the product or to sales and marketing, such as finance, legal, HR, and office costs. G&A is a line on the income statement watched for bloat.

OpEx (operating expenses)

The ongoing costs of running the business that are not direct product costs, including categories like sales and marketing, research and development, and G&A. OpEx is expensed in the period it occurs.

Frequently asked questions

What are the most important startup finance terms for a first-time founder?

Start with the cash and burn group: cash position, burn rate, net burn, and runway, because they decide how long the company survives. Then add the revenue and unit-economics terms that match your model, such as MRR, ARR, gross margin, CAC, and churn. Those few words cover most early board conversations.

What is the difference between cash and accrual accounting?

Cash accounting records revenue and expenses when money actually moves; accrual accounting records them when they are earned or incurred, regardless of timing. Accrual is the standard under GAAP and gives a more accurate picture of performance, which is why investors and auditors expect it. Cash accounting is simpler and easier for very small operations.

What is the difference between burn rate and runway?

Burn rate is how fast a company spends cash, usually stated per month. Runway is how many months of cash are left, calculated as current cash divided by monthly net burn. Burn rate is the speed; runway is the time that speed leaves you.

What is the difference between MRR and ARR?

MRR is monthly recurring revenue, the predictable subscription revenue expected each month. ARR is annual recurring revenue, equal to MRR multiplied by twelve. They describe the same recurring revenue over different time frames.

Why do fund metrics like TVPI, DPI, and IRR matter to founders?

These are the numbers your investors are measured on, so understanding them tells you how a fund thinks about your company. DPI is cash actually returned, TVPI includes unrealized value, and IRR factors in timing. Knowing what drives them helps you read why an investor pushes for certain outcomes.

The stand: speak the language before someone else writes the story

Every term in this glossary is a word someone in your business is already using to make decisions, with or without you in the room. Learning finance terms helps founders participate in financial decisions instead of being passive. Understanding the concepts lets you shape decisions rather than follow them. Bookmark this, and come back the next time a board deck or a term sheet uses a word you were too busy to look up.

You should know where the money is going, and that starts with knowing what the words mean. Sign up free to join CX Cash, grab our Month-end close checklist + P&L review template to put the accounting and close terms to work, and share this glossary with a fellow founder who is still nodding along in meetings hoping nobody asks them to define net revenue retention.