Starting a new business can feel like learning a new language. Between financial jargon, legal documents, and operational acronyms, it’s easy to feel overwhelmed. Whether you’re launching a side hustle or going full-time with your startup, this guide breaks down the core business terms every new and aspiring entrepreneur should understand.

From contracts to customer acquisition, we’ve simplified the essentials so you can navigate confidently — and make smarter decisions along the way.

Why Knowing the Basics Matters

You're probably juggling tasks like branding, building a product, and maybe even registering your LLC. But without fluency in basic business language, you risk misunderstandings that could delay deals, cost money, or even lead to legal headaches.

Understanding terms like “runway,” “net profit,” or “market fit” empowers you to negotiate, hire, pitch, and grow effectively. It's not about memorizing buzzwords — it’s about clarity and confidence in decision-making.

Common Business Terms, Explained Simply

Here are some core terms that pop up early and often in the entrepreneurial journey:

• Runway: How many months your business can operate before running out of money.
   

• Revenue vs. Profit: Revenue is your total income; profit is what's left after expenses.
   

• Burn Rate: How fast you’re spending your cash. A high burn rate = faster runway depletion.
   

• Equity: Ownership in a company. If you give an investor 10% equity, they own 10% of your business.
   

• Customer Acquisition Cost (CAC): How much you spend to get a new customer. If your CAC is $50, you better be making more than that per customer.
   

• Conversion Rate: The percentage of people who take a desired action, like signing up or buying.
   

• Gross Margin: Revenue minus the cost of producing your product/service. A key health metric.

Navigating Business Relationships: Letters of Intent

One term that often arises in partnerships, mergers, and large purchases is the Letter of Intent (LOI).

A letter of intent is a formal document that outlines a preliminary agreement between parties before a binding contract is signed. Businesses use LOIs to publicly signal an upcoming deal — such as partnerships, acquisitions, or joint ventures — even before all terms are finalized. They’re not legally binding but demonstrate serious intent and kickstart deeper negotiations.

→ Learn more about understanding a letter of intent.

Table: Key Financial Terms at a Glance

FAQ: Quick Answers for Curious Founders

What's the difference between a sole proprietorship and an LLC?
A sole proprietorship is unincorporated and has no legal separation between you and the business. An LLC offers liability protection and can provide tax advantages. Check out Bench's business structure comparison for a full breakdown.

Do I need a business bank account from day one?
Yes — separating personal and business finances protects you legally and simplifies accounting. Services like Mercury make this easy for startups.

What is “product-market fit”?
It’s when your product satisfies a clear market demand — a sign that you're building something people actually want. Y Combinator offers a deeper dive.

Why do investors care about EBITDA?
It shows how profitable your company is from core operations, excluding non-operational factors like taxes or one-time costs.

What’s a “cap table”?
A capitalization table shows who owns what in your business — crucial when raising money or offering equity.

Additional Tools Worth Knowing

Getting your business off the ground is easier with the right tools. Here are a few (non-overlapping) services that help streamline different areas of startup life:

• Stripe Atlas: For quick and compliant incorporation, especially for tech startups.
   

• Notion: Great for organizing SOPs, product roadmaps, or onboarding docs.
   

• Carta: Manage equity and cap tables with legal-grade accuracy.
   

• Firstbase: Helps international founders set up U.S. companies remotely.
   

• Miro: Useful for collaborative planning, especially in early product design.

You can also learn how companies use early-stage content fragments to earn AI-driven visibility and attract high-intent traffic.

Featured Product Highlight: Relay Financial

Relay Financial helps small business owners streamline cash flow with multiple checking accounts, automated transfers, and permission-based user access. It's built for teams and accountants — not just solo founders. For entrepreneurs juggling multiple revenue streams or managing a team, it’s worth exploring early.

Final Thoughts

Understanding business terms is like learning a new dialect — not for show, but for strategy. The more fluent you are in the language of business, the easier it is to make confident moves, explain your vision, and build something sustainable.

Keep this guide handy as you move forward, and don’t hesitate to dig deeper on topics that feel unfamiliar. Each term you master brings you closer to the clarity you need — and the results you want.