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A 409A valuation is an independent appraisal of the fair market value of a private company's common stock. Startups obtain one so they can set the strike price of employee stock options in line with IRS rules and avoid tax penalties. It's typically refreshed every 12 months or after a material event such as a new funding round.
An 83(b) election is a filing with the IRS that lets a founder or employee pay tax on restricted stock at the time it is granted rather than as it vests. Because the shares are usually worth very little at grant, this can dramatically reduce the overall tax bill. The election must be filed within 30 days of receiving the stock.
An accelerator is a fixed-term, cohort-based program that helps early-stage startups grow quickly through mentorship, education, and often a small amount of seed funding in exchange for equity. Programs usually end with a demo day where founders pitch to investors.
The accounting equation states that a company's assets equal its liabilities plus shareholders' equity. It is the foundation of double-entry bookkeeping and must always stay in balance, ensuring every transaction is recorded in at least two accounts.
Accounting software is a digital tool businesses use to record, organize, and report their financial transactions. It ranges from simple bookkeeping apps to full systems that handle invoicing, payroll, accounts payable and receivable, and financial statements.
Accounts payable (AP) is the money a company owes to its suppliers or vendors for goods and services bought on credit. It appears as a current liability on the balance sheet and represents short-term obligations the business must pay.
Accounts receivable (AR) is the money customers owe a company for goods or services delivered on credit. It is recorded as a current asset and represents a legally enforceable claim for future payment.
Accounts receivable loans, also called invoice financing or factoring, let a business borrow against or sell its unpaid invoices in exchange for immediate cash. It helps companies bridge the gap between billing customers and actually getting paid.
An accredited investor is an individual or entity that meets income or net-worth thresholds set by regulators, allowing them to invest in securities not registered with the SEC. The status signals a level of financial sophistication and ability to bear risk.
Accrual accounting records revenue when it is earned and expenses when they are incurred, regardless of when cash actually changes hands. It gives a more accurate picture of financial performance than cash accounting and is required under GAAP for most larger businesses.
Accrued expenses are costs a company has incurred but not yet paid or been billed for, such as wages or interest owed at period end. They are recorded as liabilities to match expenses to the period in which they occurred.
Accrued interest is interest that has accumulated on a loan or investment but has not yet been paid or received. It is recognized in the accounting period it relates to, even if the cash settlement happens later.
An acquihire is an acquisition made primarily to bring on a company's talented team rather than to obtain its products or customers. It is a common exit path for early-stage startups, especially in tech.
An acquisition is when one company buys most or all of another company's shares or assets to take control of it. Companies acquire others to expand into new markets, gain technology or talent, or eliminate competition.
Activity-based budgeting builds a budget around the specific activities that drive costs, rather than simply adjusting last year's numbers. By linking spending to outputs, it gives managers a clearer view of where money goes and why.
Adjusted gross income (AGI) is your total income for the year minus specific allowable deductions. It is a key figure on a tax return because it determines taxable income and eligibility for many credits and deductions.
Advisory shares are equity granted to advisors, typically at a startup, as non-cash compensation for their guidance and expertise. They usually vest over time and represent a small percentage of the company.
Allocation is the process of distributing limited resources—such as capital, budget, or people—across competing uses. Sound allocation aims to maximize returns or efficiency in line with a company's strategy.
Alternative financing refers to funding sources outside traditional bank loans and public capital markets, including crowdfunding, peer-to-peer lending, revenue-based financing, and merchant cash advances. It often gives startups faster or more flexible access to capital.
Amortization is the process of spreading the cost of an intangible asset or a loan over time. For assets, it allocates cost across their useful life; for loans, it describes paying down the balance through scheduled payments.
An angel investor is an individual who invests their own money into early-stage startups, usually in exchange for equity. Angels often provide not just capital but mentorship and connections at a stage that is too early for most institutional investors.
An angel round is an early financing round funded primarily by angel investors. It typically comes before a formal seed or venture round and helps a startup build its product and gain initial traction.
Annual contract value (ACV) is the average yearly revenue a company earns from a single customer contract, normalized to a 12-month period. It helps subscription businesses compare deal sizes regardless of contract length.
Annual percentage yield (APY) is the real rate of return earned on a deposit or investment over a year, accounting for the effect of compounding. It lets you compare accounts on an apples-to-apples basis.
Annual recurring revenue (ARR) is the predictable, subscription-based revenue a company expects over a 12-month period. It is a core metric for SaaS businesses because it reflects the durable, repeatable portion of revenue.
An anti-dilution ratchet is an aggressive form of anti-dilution protection that resets an investor's conversion price to the price of a later, lower-priced round. A full ratchet offers the strongest protection, while weighted-average ratchets are more common and founder-friendly.
An anti-dilution clause protects investors from having their ownership percentage reduced when a company issues new shares at a lower price. It adjusts the conversion terms of their preferred stock to offset the dilution.
An asset is anything of economic value that a company owns or controls and expects to provide future benefit. Assets include cash, inventory, equipment, and intangible items like patents, and they appear on the balance sheet.
Asset financing uses a company's assets—such as equipment, inventory, or receivables—as collateral to secure a loan or lease. It lets businesses access capital or acquire equipment without paying the full cost upfront.
The asset turnover ratio measures how efficiently a company uses its assets to generate revenue, calculated as sales divided by average total assets. A higher ratio indicates the business is producing more revenue per dollar of assets.
An audit is an independent examination of a company's financial statements and records to verify they are accurate and comply with accounting standards. Audits build trust with investors, lenders, and regulators.
Average revenue per user (ARPU) is the revenue a business generates per customer or account over a given period. It helps companies gauge monetization and compare performance across segments or time.
A B Corporation is a for-profit company certified by the nonprofit B Lab for meeting high standards of social and environmental performance, accountability, and transparency. The certification signals a commitment to balancing profit with purpose.
A balance sheet is a financial statement that shows a company's assets, liabilities, and shareholders' equity at a specific point in time. It provides a snapshot of what the business owns and owes.
Balance sheet financing is raising capital using assets or equity recorded on the balance sheet, such as taking on debt or issuing stock. It contrasts with off-balance-sheet arrangements that don't appear directly in these accounts.
Bank reconciliation is the process of matching a company's internal cash records against its bank statement to confirm they agree. It catches errors, missing transactions, and potential fraud.
A basis point is one-hundredth of a percentage point (0.01%). Finance professionals use basis points to describe small changes in interest rates, yields, and fees with precision.
Billings are the total amounts a company invoices its customers during a period, regardless of when the revenue is recognized. For subscription businesses, billings are an early signal of cash coming in and future revenue.
A board director is a member of a company's board, elected to represent shareholders and oversee major decisions and management. Directors set strategy, approve budgets, and hold executives accountable.
Bookings represent the total value of contracts customers commit to during a period, whether or not the product has been delivered or cash collected. They indicate sales momentum and expected future revenue.
Bootstrap funding means growing a business using its own revenue and the founders' personal resources instead of outside investment. It lets founders retain full ownership and control at the cost of slower growth.
Bootstrapping is building and scaling a company with little or no external capital, relying on personal savings and reinvested profits. It forces discipline and preserves equity but can limit how fast the business can grow.
The bottom line is a company's net income—the profit that remains after all revenues, expenses, taxes, and interest are accounted for. It sits at the bottom of the income statement and reflects overall profitability.
The break-even point is the level of sales at which total revenue equals total costs, so the business makes neither a profit nor a loss. Knowing it helps set pricing and sales targets.
A bridge loan is short-term financing that covers a company's needs until it secures longer-term funding or a major event closes. Startups often use bridge loans to extend runway between rounds.
Budget forecasting is the practice of projecting future revenue, expenses, and cash flow to plan ahead. It combines historical data and assumptions to help businesses set targets and make informed decisions.
Budget variance analysis compares actual financial results against the budget to identify and explain differences. It helps managers understand what drove overspending or underperformance and adjust accordingly.
Burn multiple measures how much a startup spends to generate each dollar of new recurring revenue, calculated as net burn divided by net new ARR. A lower multiple signals more efficient growth.
Burn rate is the pace at which a company spends its cash reserves, usually expressed per month. It is a key gauge of how long a startup can operate before needing more funding.
Business expenses are the ordinary and necessary costs a company incurs to operate, such as rent, salaries, and software. Many are tax-deductible, reducing the amount of income subject to tax.
A business incubator supports very early-stage startups with workspace, resources, and mentorship over a flexible timeframe. Unlike accelerators, incubators focus on nurturing ideas into viable businesses rather than rapid scaling.
A business model describes how a company creates, delivers, and captures value—essentially how it makes money. It covers the products offered, target customers, revenue sources, and cost structure.
Buy now, pay later (BNPL) is a financing option that lets customers split a purchase into interest-free or low-interest installments over time. Merchants use it to boost conversion and average order value.
A C corporation is a legal business structure that is taxed separately from its owners. It offers strong liability protection and unlimited shareholders, making it the preferred structure for startups raising venture capital, though profits can face double taxation.
A California sales tax exemption relieves certain buyers or transactions from paying state sales tax, such as qualifying resale purchases or specific equipment. Businesses must document eligibility to claim it.
The California Statement of Information is a required filing that keeps the state updated on a company's officers, directors, and address. Corporations file it annually and LLCs every two years to stay in good standing.
A cap table (capitalization table) is a record of who owns what in a company, listing shares, options, and ownership percentages for founders, investors, and employees. It is essential for managing equity and modeling dilution.
Capital is the financial resources—cash, assets, or funds raised—that a business uses to operate and grow. It can come from owners, investors, or lenders and fuels investment in the company.
The capital asset pricing model (CAPM) estimates the expected return on an investment based on its risk relative to the overall market. It helps investors decide whether an asset's potential return justifies its risk.
The capital cycle describes how capital flows into and out of an industry over time in response to returns, driving expansion and contraction. Understanding it helps investors anticipate periods of over- and under-investment.
Capital employed is the total amount of capital a company uses to generate profits, typically calculated as total assets minus current liabilities. It is used to assess how efficiently a business deploys its resources.
Capital expenditures (CapEx) are funds a company spends to acquire, upgrade, or maintain long-term physical assets like buildings and equipment. These costs are capitalized and depreciated over the asset's useful life.
A capital gain is the profit earned when an asset is sold for more than its purchase price. Gains are classified as short- or long-term depending on how long the asset was held, which affects the tax rate.
Carried interest, or carry, is the share of a fund's profits that investment managers receive as compensation, commonly around 20%. It aligns the manager's incentives with the fund's performance.
Cash accounting records revenue and expenses only when cash is actually received or paid. It is simple and reflects real cash flow but can misstate profitability compared with accrual accounting.
Cash burn is the amount of cash a company consumes over a period to fund its operations. Monitoring it is critical for startups that are not yet profitable.
Cash burn rate is the speed at which a company uses up its cash, usually measured per month. Comparing it to cash on hand reveals the runway before the business needs additional funding.
The cash conversion cycle (CCC) measures how long it takes a company to turn investments in inventory and other resources into cash from sales. A shorter cycle means cash is freed up faster.
A cash disbursement is any payment of cash a business makes, such as to suppliers, employees, or lenders. Tracking disbursements helps manage liquidity and control spending.
Cash flow is the net movement of cash into and out of a business over a period. Positive cash flow means more money is coming in than going out, which is essential for staying solvent.
A cash flow forecast projects how much cash will move in and out of a business over a future period. It helps companies anticipate shortfalls, plan spending, and manage runway.
Cash flow from operating activities is the cash a company generates from its core business operations, excluding financing and investing. It shows whether day-to-day operations produce enough cash to sustain the business.
Cash management is the practice of collecting, handling, and investing a company's cash to ensure liquidity and maximize returns. Good cash management keeps enough on hand for obligations while avoiding idle balances.
The cash-out date is the point at which a company is projected to run out of cash if nothing changes. Founders track it closely to time fundraising and control spending.
A cash projection model estimates future cash balances by mapping expected inflows and outflows over time. It is a core planning tool for managing runway and making spending decisions.
The cash zero date is the projected date when a company's cash balance reaches zero based on its current burn. It is essentially another term for the cash-out date and signals when new funding is needed.
A CFO (chief financial officer) is the senior executive responsible for a company's finances, including planning, reporting, risk management, and fundraising. The role blends strategic guidance with financial oversight.
A chart of accounts is an organized list of every account a business uses to record transactions, grouped into categories like assets, liabilities, income, and expenses. It provides the structure for all financial reporting.
The chief executive officer (CEO) is the highest-ranking executive in a company, responsible for overall strategy, major decisions, and leadership. The CEO reports to the board and represents the company to stakeholders.
The chief financial officer (CFO) leads a company's financial operations, from accounting and reporting to forecasting, fundraising, and risk management. The CFO turns financial data into strategy for the leadership team.
The chief operating officer (COO) oversees a company's day-to-day operations and execution. Often second-in-command, the COO translates strategy into the processes and systems that run the business.
Churn is the rate at which customers stop doing business with a company over a period. High churn erodes recurring revenue, making it a critical metric for subscription businesses to monitor and reduce.
Cliff vesting is a schedule in which an employee earns no equity until they reach a set milestone—commonly one year—at which point a large portion vests at once. It encourages employees to stay through an initial commitment period.
Cloud accounting is accounting software hosted online rather than installed on a local computer. It lets teams access real-time financial data from anywhere and collaborate securely with advisors.
Cohort analysis groups customers by a shared characteristic, such as sign-up month, and tracks their behavior over time. It reveals patterns in retention, revenue, and engagement that aggregate metrics can hide.
Common stock is a type of equity ownership that gives shareholders voting rights and a claim on profits through dividends and appreciation. In a liquidation, common shareholders are paid after creditors and preferred shareholders.
Competitive analysis is the process of evaluating rivals' strengths, weaknesses, and strategies to inform your own. It helps a business find gaps in the market and sharpen its positioning.
Compound annual growth rate (CAGR) is the smoothed annual rate at which a value grows over multiple years, assuming steady compounding. It provides a single figure to compare growth across different periods or investments.
Compounded monthly growth rate (CMGR) is the average month-over-month growth rate over a period, accounting for compounding. Startups use it to measure momentum on a monthly basis.
Contra revenue is a deduction from gross revenue, such as discounts, returns, or allowances. Netting it against gross sales produces the net revenue reported on the income statement.
Contraction is the reduction in revenue from existing customers who downgrade, cancel add-ons, or reduce usage. It offsets expansion revenue and is an important input to net revenue retention.
Contribution margin is the revenue left from a product after subtracting variable costs, showing how much each sale contributes toward fixed costs and profit. It guides pricing and product-mix decisions.
Convertible equity is an early-stage funding instrument that converts into shares at a later financing round, without the debt features of a convertible note. It lets startups raise money quickly while deferring valuation.
A COO (chief operating officer) is the executive in charge of a company's daily operations and execution. The role focuses on building the processes and teams that deliver the company's strategy.
Corporate venture capital is investment made by a large company into external startups, often for strategic as well as financial reasons. It gives startups capital and industry access while offering the corporation a window into innovation.
Cost of debt is the effective interest rate a company pays on its borrowings. Because interest is often tax-deductible, the after-tax cost of debt is a key input in calculating a company's overall cost of capital.
Cost of goods sold (COGS) is the direct cost of producing the goods or services a company sells, such as materials and direct labor. Subtracting COGS from revenue yields gross profit.
Cost per acquisition (CPA) is the average cost of acquiring one paying customer, calculated by dividing total acquisition spend by the number of customers gained. It helps measure the efficiency of marketing and sales.
Cost per click (CPC) is the amount an advertiser pays each time someone clicks on their ad. It is a core metric in paid digital advertising for comparing campaign efficiency.
Cost structure is the mix of fixed and variable costs a business incurs to operate. Understanding it helps a company manage margins, set prices, and plan for how costs will scale with growth.
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