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Founder Finance Glossary for UK Small Business Owners

Plain-English definitions of the accounting, cash-flow, credit, tax and business-finance terms UK founders need to understand.

These are concise educational definitions, not personal financial, tax or legal advice. Where a term has a deeper guide or tool, use that next and check current HMRC, provider or professional guidance before acting.

110 plain-English definitions

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The glossary stays on one page so it is useful to readers without creating a large set of thin pages. Concepts that need a worked example link to the relevant guidance.

Accounting

Accounts payable: Money your business owes suppliers and other creditors for goods or services already received.; Manage payment timing
Accounts receivable: Money customers owe your business for invoices you have issued but not yet received.; Chase a late invoice
Accrual: An accounting entry that recognises income earned or a cost incurred before cash has actually moved.
Accrual accounting: Recording income when it is earned and costs when they are incurred, rather than only when cash is received or paid.
Amortisation: The planned accounting expense of spreading the cost of an intangible asset, such as software rights, over its useful life.
Balance sheet: A snapshot of what a business owns, what it owes and the value left for its owners at a particular date.; Read your financial statements
Bookkeeping: The routine recording, organising and reconciling of a business's transactions so its records are complete and usable.
Cash basis: An accounting method that records income and expenses when cash is received or paid, subject to the tax rules that apply to the business.
Chart of accounts: The organised list of categories an accounting system uses to classify income, costs, assets, liabilities and equity.
Cost of sales: Costs directly connected with making or delivering what you sell, such as materials, subcontractors or fulfilment costs.; Understand mark-up and margin
Credit note: A document reducing the amount a customer owes, usually because goods were returned, a price was corrected or a service was not delivered.
Current assets: Assets expected to turn into cash, be sold or be used within the normal operating cycle, such as cash, stock and unpaid invoices.
Current liabilities: Debts and obligations due within the normal operating cycle or within 12 months, such as supplier bills, tax and short-term borrowing.
Debit: One side of a double-entry accounting record. Whether it increases or reduces a balance depends on the account type.
Depreciation: The accounting expense of spreading the cost of a tangible asset, such as equipment or a vehicle, over its useful life.
Double-entry bookkeeping: A record-keeping system in which every transaction has at least two entries so total debits and credits remain in balance.
Fixed asset: A long-term asset used to run the business, such as machinery, computers, vehicles or furniture, rather than something bought for resale.
General ledger: The central record containing the business's account balances and all the entries posted to each account category.
Goodwill: An accounting asset that can arise when a business is acquired for more than the fair value of its identifiable net assets.
Gross profit: Revenue minus direct costs of sales, before overheads, finance costs and tax.; Price for profit
Journal entry: A formal accounting record used to post or adjust a transaction in the general ledger.
Net profit: The profit remaining after all business costs, including overheads, finance costs and tax where relevant, have been recognised.; Separate revenue, profit and cash
Nominal code: The identifying code assigned to an account category in a chart of accounts.
Operating profit: Profit from normal trading activity before finance costs and tax, calculated after direct costs and operating overheads.
Prepayment: A payment made in advance for a service or benefit that will be used in a later accounting period.
Profit and loss account: A report of income, costs and profit over a period; it is also called an income statement.; Read a profit and loss account
Provision: An estimate recorded for a probable obligation or loss when the amount or timing is uncertain.
Reconciliation: Checking two records against each other, such as bank transactions against the accounting system, and explaining every difference.
Retained profit: Cumulative profit kept in the business after costs, tax and any distributions to owners, rather than paid out.
Revenue: Income earned from selling goods or services before costs are deducted; it is often called turnover.; Understand revenue, profit and cash
Trial balance: A list of ledger account balances used to check that total debits and total credits agree before financial statements are prepared.
VAT on expenses: Input VAT that a VAT-registered business may be able to reclaim on eligible business purchases, subject to HMRC rules.; Prepare your tax records
Working papers: Supporting schedules, calculations and evidence used to explain how bookkeeping or accounts figures were prepared.

Cash flow

13-week cash-flow forecast: A week-by-week view of expected cash receipts and payments over roughly one quarter, used to spot future cash pressure early.; Build a 13-week forecast
Cash buffer: Cash deliberately kept available to absorb normal timing differences and small surprises without missing essential payments.; Decide how much cash to keep
Cash burn: The rate at which a business uses more cash than it brings in over a period.
Cash conversion cycle: The time between paying for stock or work and collecting cash from the customer, adjusted for supplier-credit days.
Cash flow: The actual movement of money into and out of the business over time; it is different from accounting profit.; Why profitable businesses run out of cash
Cash runway: The time a business can continue operating before cash runs out if its current cash burn continues and nothing changes.
Creditor days: The average number of days a business takes to pay suppliers and other trade creditors.
Debtor days: The average number of days customers take to pay invoices after they are issued.; Improve late-payment recovery
Direct debit: An instruction allowing a business or organisation to collect an agreed payment from a bank account, usually on a recurring basis.
Emergency fund: Cash reserved for genuinely unexpected events, separate from money already needed for tax, payroll, supplier bills or normal cash-flow timing.; Build a business emergency fund
Free cash flow: Cash generated after operating costs and necessary investment; definitions vary, so check exactly what is included.
Liquidity: How readily a business can meet obligations as they fall due using available cash or assets that can quickly turn into cash.
Operating cash flow: Cash generated or used by the normal trading activity of a business, before financing and investing flows.
Payment terms: The agreed timing and method for payment, such as payment in 30 days, a deposit upfront or staged invoices.; Use deposits and staged payments
Purchase order: A buyer's formal instruction to a supplier setting out what is being ordered, the price and agreed terms.
Run rate: An annualised estimate based on a recent period of revenue or costs. It is a useful shorthand, not a forecast.
Working capital: The short-term funding tied up in day-to-day operations, commonly thought of as current assets minus current liabilities.; Forecast working-capital pressure

Credit and funding

Annual percentage rate (APR): A standardised annual measure of borrowing cost that can include interest and certain charges; read the product terms for the exact calculation.
Balance transfer: Moving debt from one credit product to another, often subject to fees, eligibility checks and promotional terms.
Charge card: A payment card that usually requires the balance to be repaid in full each statement period, unlike a revolving credit card.
Credit limit: The maximum amount a lender lets an account holder borrow at one time; it is not a recommendation of what is safe to spend.
Credit score: A score or assessment based on credit-file information that lenders may use alongside their own affordability and risk checks.
Debt service: Required repayments of borrowed money, including interest and scheduled capital repayments.
Director's personal guarantee: A legal promise by a director or owner to meet a business debt if the business cannot. The exact scope depends on the signed agreement.; Understand a personal guarantee
Finance lease: A lease arrangement that gives the user substantially all of an asset's economic use while creating long-term payment obligations.
Interest-free period: The period during which a lender may not charge purchase interest if its stated conditions, including repayment requirements, are met.
Invoice finance: Funding secured against unpaid business invoices, often through factoring or invoice discounting, for a fee.
Loan covenant: A condition in a borrowing agreement that requires the borrower to do, or not do, specified things such as maintain a ratio or provide information.
Minimum payment: The smallest payment a credit provider requires by the due date; paying only this amount can leave interest-bearing debt outstanding.
Overdraft: A borrowing facility attached to a bank account that lets the balance go below zero up to an agreed limit, usually with interest and fees.
Personal guarantee: A legal agreement that can make an individual personally liable for a business debt if the business cannot repay it.; Read the personal-guarantee guide
Revolving credit: Credit that can be repaid and borrowed again up to a limit, as with many credit cards and revolving facilities.
Security: An asset or legal right a lender can rely on to reduce its loss if a borrower does not repay.
Statement cycle: The repeating period over which card or account transactions are collected before a statement and payment due date are produced.
Term loan: Borrowing repaid over an agreed term under a repayment schedule, usually with stated interest and fees.
Utilisation: The proportion of an available credit limit that is currently being used.
Variable interest rate: An interest rate that can change under the agreement, often in response to a reference rate or the lender's pricing decisions.

Tax and compliance

Capital allowance: Tax relief that may let a business deduct qualifying capital expenditure from taxable profits under HMRC rules.; Prepare for year end
Accounting reference date: The date to which a company's annual accounts are prepared, as recorded for Companies House filing purposes.
Business expense: A cost incurred wholly and exclusively for the purposes of the business, subject to the relevant tax rules and evidence requirements.
Company tax return: The Corporation Tax return a company submits to HMRC, normally using its accounting records and tax computation.
Corporation Tax: Tax charged on a company's taxable profits under UK rules.; Set aside tax money
Deadline: The final date by which a filing, payment or other obligation must be completed; different obligations can have different deadlines.
Deductible expense: A business expense that is allowed as a deduction when calculating taxable profit, subject to tax rules.
Dividend: A distribution of company profits to shareholders that must follow company-law and tax rules; it is not the same as salary.
Director's loan account: The record of money a director owes to, or is owed by, their company. Tax and company-law consequences can arise if it is not managed correctly.
Employer National Insurance: National Insurance contributions an employer may need to pay on employee earnings, subject to thresholds and reliefs.
HMRC: His Majesty's Revenue and Customs, the UK authority responsible for taxes, customs and certain benefits administration.
Input VAT: VAT charged to a VAT-registered business on purchases, which may be reclaimable where the rules allow.
Making Tax Digital: HMRC's programme requiring or enabling digital record keeping and filing for certain taxes and businesses.
National Insurance: A UK system of contributions linked to earnings and certain self-employment or employer obligations.
Output VAT: VAT a VAT-registered business charges customers on taxable sales and accounts for to HMRC.
PAYE: Pay As You Earn, the system employers use to deduct Income Tax and National Insurance from employees' pay and report it to HMRC.
Self Assessment: The HMRC process through which individuals report taxable income and gains that are not fully dealt with through PAYE.
Tax reserve: Money deliberately separated from trading cash to meet expected tax liabilities when they fall due.; Calculate a tax reserve
Unique Taxpayer Reference (UTR): A ten-digit reference HMRC uses to identify a taxpayer for Self Assessment or Corporation Tax purposes.
VAT: Value Added Tax, a consumption tax charged on many goods and services in the UK under HMRC rules.
VAT return: The return through which a VAT-registered business reports output VAT and input VAT to HMRC for an accounting period.
VAT threshold: The level of taxable turnover at which UK VAT registration is generally required; check the current HMRC threshold because it can change.
Year end: The end of an accounting period used to prepare financial statements and meet filing and tax obligations.; Prepare for year end

Business fundamentals

Break-even point: The sales level at which total revenue equals total costs, so the business makes neither a profit nor a loss.; Calculate break-even
Business model: The practical way a business creates value, reaches customers and earns money.
Companies House: The UK registrar of companies, where limited companies and LLPs file certain statutory information.
Contribution margin: Sales revenue minus variable costs, showing how much each sale contributes toward fixed costs and profit.
EBITDA: Earnings before interest, tax, depreciation and amortisation. It is a measure with limits, so check its definition and what costs have been excluded.
Fixed costs: Costs that do not normally change directly with sales volume over the relevant period, such as core rent or salaried staff.
Gross margin: Gross profit expressed as a percentage of revenue; it shows how much is left after direct costs to cover overheads and profit.; Calculate margin correctly
Incorporation: The process of forming a company as a separate legal entity, usually registered at Companies House.
Limited company: A company that is legally separate from its owners and generally limits shareholder liability, subject to contracts, guarantees and legal duties.
Limited liability partnership (LLP): A UK business structure that combines partnership-style operation with limited liability for its members, subject to the applicable rules.
Margin: A profit measure shown as a percentage of revenue. The type matters: gross, operating and net margin answer different questions.; Understand margin and mark-up
Mark-up: The percentage added to cost to set a selling price. Mark-up and margin are different calculations.; Compare mark-up and margin
Net margin: Net profit divided by revenue, usually expressed as a percentage; it shows the profit retained after all recognised costs.
Overheads: Indirect running costs that support the business as a whole, such as rent, software, insurance and management time.
Sole trader: An individual who runs a business in their own name and is personally responsible for its debts and obligations.
Turnover: The total sales income of a business before costs are deducted; it is commonly used interchangeably with revenue.
Variable costs: Costs that change broadly with sales volume or activity, such as materials, transaction fees, commissions or fulfilment.

Where to go next

If you are learning the language because the numbers feel unfamiliar, begin with a short financial check-up, then work through the topic that matches the decision in front of you.

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