The Owner's Glossary

Plain-language definitions of the terms owners actually meet – from COGS to working capital.

The terms

A

AI (Artificial Intelligence): A field of computer science focused on creating systems that perform tasks typically requiring human intelligence – reasoning, recognizing patterns, and weighing judgment calls. In business, AI can analyze data, spot patterns, make predictions, and automate decisions that would otherwise need a person's judgment.
AI Hallucination: When an AI system generates information that sounds plausible but is factually incorrect or entirely fabricated. Hallucinations happen because AI models predict likely word patterns rather than retrieve verified facts – a real risk when AI output feeds directly into business decisions.
Asset: Any resource owned by a business that has economic value and is expected to provide future benefit. Assets can be tangible – cash, inventory, property, equipment – or intangible, such as patents, trademarks, and goodwill. Assets are recorded on a company's balance sheet and are used to generate revenue and support operations.

B

Bookkeeper: A professional responsible for recording a business's financial transactions. Bookkeepers maintain accurate records of income, expenses, and other financial activity, often managing day-to-day accounting tasks such as invoicing, payroll, and bank reconciliations. They typically handle the initial data entry that feeds into higher-level financial reporting.
Break-Even Analysis: The calculation that finds the sales volume at which a business neither makes a profit nor takes a loss. Knowing your break-even point grounds pricing, cost management, and planning – it tells you how much of your revenue is safety, and what any decision must clear to be worth making.

Formula
Break-Even Revenue = Fixed Costs / Gross Margin %
Business Plan: A formal document outlining a company's goals and the strategies it will use to reach them. A business plan typically covers market analysis, organizational structure, products or services, marketing and sales plans, and financial projections. It guides the business and is often used to secure funding from investors or lenders.
Business Strategy: The overarching plan a company takes to reach its long-term objectives. Business strategy means setting goals, deciding the actions needed to achieve them, and directing resources to execute those actions. It spans every part of the business – operations, marketing, sales, and finance – and guides decision-making at the highest levels of the organization.

C

Capital: The financial resources a business uses to fund its operations and growth. Capital includes equity – money invested by the owners or shareholders – and debt, or borrowed money. It can also mean the physical assets used to produce goods and services. In accounting, capital is often shown on the balance sheet as the difference between a company's assets and liabilities, i.e., its equity.
CEO (Chief Executive Officer): The highest-ranking executive in a company, responsible for making major corporate decisions, managing overall operations, and setting the direction the rest of the business follows. The CEO also acts as the main link between the board of directors and day-to-day operations, and is often the face of the company to customers, lenders, and the public.
CFO (Chief Financial Officer): A senior executive responsible for managing a company's financial actions – financial planning, risk management, record-keeping, and financial reporting. The CFO sets financial strategy, oversees cash flow and financial risk, and reports results to the owner, the board, or outside investors, translating the numbers into decisions the business can act on.
COGS (Cost of Goods Sold): The direct costs of producing the goods or services a company sells – materials and labor used directly to create the product. COGS excludes indirect expenses such as distribution costs and sales force costs. It is the figure subtracted from revenue to find gross profit.

Formula
COGS = Beginning Inventory + Purchases During the Period - Ending Inventory
CPA (Certified Public Accountant): A professional designation for accountants who pass the Uniform CPA Examination and meet additional state education and experience requirements. CPAs provide accounting services such as auditing, tax preparation, and financial planning, and are licensed to sign off on official financial statements in a way an unlicensed bookkeeper or accountant cannot.
CRM (Customer Relationship Management): A technology system used by businesses to manage interactions with current and potential customers. CRM systems help streamline processes, build customer relationships, track deals through a pipeline, increase sales, improve customer service, and increase profitability by keeping every conversation and follow-up in one place.
Current Ratio: A measure of short-term financial health – current assets divided by current liabilities. A ratio below 1 means the business owes more within the next year than it holds in cash and near-cash assets. That is arithmetic rather than a benchmark, which is what makes it worth watching.

Formula
Current Ratio = Current Assets / Current Liabilities

E

EBIT (Earnings Before Interest and Taxes): A financial metric showing a company's profitability before interest expense and taxes. EBIT reflects how much a company earns from its core operations, before the cost of borrowing or tax obligations. It's often used to compare operating performance across companies in the same industry, since it strips out differences in financing structure and tax rates.
EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization): A financial metric measuring profitability by excluding interest and taxes, along with depreciation and amortization – the two big non-cash expenses. EBITDA focuses on a company's ability to generate cash from its core operations, which makes it useful for gauging short-term financial health. It's often used in mergers and acquisitions, and to assess a company's ability to service debt.
ERP (Enterprise Resource Planning): Software used by organizations to manage day-to-day business activities such as accounting, procurement, project management, risk management, and compliance. An ERP system integrates these functions into one platform, so processes and information flow across the organization instead of living in separate, disconnected tools.
Expenses: The costs a business incurs in the effort to generate revenue. Expenses include operating costs such as rent, utilities, salaries, and marketing, as well as non-operating costs like interest and taxes. Unlike COGS, expenses aren't tied directly to producing goods or services – they cover the overall running of the business.

F

Financial Controller: A senior executive who oversees a company's financial operations, ensuring accurate financial reporting, managing budgets, and maintaining internal controls. The Controller often supervises the accounting department and works closely with the CFO to develop financial strategies and policies – the hands-on steward of the numbers day to day.
Financial Strategist: A professional who specializes in developing and carrying out strategies to improve a company's financial performance. Financial strategists focus on long-term financial planning, investment strategy, capital structure, and risk management, working closely with other executives to align financial practices with overall business goals and support sustainable growth.
Financial Strategy: A plan for how a company will manage its finances to reach its long-term goals. This covers decisions on capital structure, budgeting, investment, and cash management. A financial strategy is built to grow long-term value and make sure the company has the financial resources it needs to carry out its business strategy.

G

Go-To-Market (GTM) Strategy: A plan for how a company will launch a product or service into the market. A GTM strategy identifies the target audience, defines the value proposition, and sets marketing and sales plans and market-penetration goals. Where a sales strategy focuses on closing deals and generating revenue, a GTM strategy covers the broader approach to entering and succeeding in a market.
Gross Margin: The percentage of revenue a company keeps after covering the direct costs of producing the goods or services it sold (COGS). Gross margin shows how efficiently a business turns sales into profit before overhead, marketing, and other operating expenses are taken into account.

Formula
Gross Margin = (Revenue - COGS) / Revenue
Gross Profit: The dollar amount a company keeps after deducting the cost of goods sold (COGS) from total revenue. Gross profit measures how efficiently a company produces and sells its product – the amount left to cover overhead, marketing, and other costs before arriving at net profit.

Formula
Gross Profit = Revenue - COGS

H

Human-in-the-Loop: An approach to using AI where human oversight and intervention are built into the process, not bolted on after. A person monitors AI outputs, validates decisions, corrects errors, and gives feedback to improve performance – keeping accountability and control with a human, not the system.

K

KPI (Key Performance Indicator): A measurable value that shows how effectively a company is achieving its key business objectives. KPIs are used by organizations to track progress toward targets across sales, finance, operations, and other parts of the business – the handful of numbers worth checking on a regular basis.

L

Liability: A company's legal financial obligations or debts, settled over time through money, goods, or services. Liabilities appear on the balance sheet as either current (due within one year – accounts payable, short-term loans) or long-term (due after a year – long-term debt, deferred tax liabilities). They represent the claims creditors hold on a company's assets.
LLM (Large Language Model): A type of AI model trained on vast amounts of text data, able to understand, generate, and work with human language. LLMs like ChatGPT, Claude, and Gemini are the foundation for many text-based AI applications, and can handle tasks ranging from answering questions to drafting documents.

M

Margin (Percentage): The difference between revenue and costs, expressed as a percentage of revenue – a measure of how profitable a company's products or services really are. Gross margin % measures production efficiency; net margin % reflects overall profitability after every expense has been deducted.

Formulas
Gross Margin % = (Revenue - COGS) / Revenue

Net Margin % = Net Profit / Revenue
Model Drift: The gradual decline of an AI model's performance over time, as real-world conditions drift from those represented in its training data. In business, model drift can lead to increasingly inaccurate or inappropriate outputs if AI systems aren't monitored and updated on a regular basis.

N

Net Profit: Also known as net income or the bottom line, net profit is a company's total earnings after deducting all expenses – operating costs, taxes, and interest – from total revenue. It's the clearest single number for whether the business actually made money in the period.

Formula
Net Profit = Revenue - Total Expenses

O

Owner: The individual or entity that holds ownership in a business. In small and medium-sized businesses, the owner is often deeply involved in day-to-day operations and decisions, setting direction and priorities for the company. An owner may also fill any other executive role – CEO, CFO, or otherwise – at the same time.

P

Plan: A detailed proposal for doing or achieving something. In business, a plan lays out the steps needed to reach specific goals, including timelines, resources required, and the sequence of actions. A plan is often a key part of both strategy and tactics, guiding execution from one step to the next.

R

ROI (Return on Investment): A performance measure used to evaluate the efficiency or profitability of an investment. ROI is calculated by dividing the net profit from an investment by its initial cost, typically expressed as a percentage – the standard way to compare returns across very different kinds of spending.

Formula
ROI = (Net Profit / Investment Cost) × 100

S

Sales Play: A predefined, strategic approach tailored to specific market segments, customer types, or sales situations. A sales play provides a set of tactics, messaging, and actions designed to address the particular needs of different buyers at different stages of the sales process.
Sales Strategy: A plan for how a company will sell its products or services to meet revenue targets and growth objectives. A sales strategy includes identifying target markets, setting sales goals, and determining the tactics and processes needed to reach those goals – focused on improving the sales process, customer engagement, and revenue.
SBA (Small Business Administration): A United States government agency that supports entrepreneurs and small businesses. The SBA offers access to capital through loans and loan guarantees, entrepreneurial education and training, help securing government contracts, and advocacy for small business interests in the federal government – resources that would otherwise be hard for a small business to reach on its own.
Strategy: A high-level plan designed to achieve one or more long-term goals under conditions of uncertainty. In business, strategy means setting objectives, weighing the competitive environment, and deciding how to allocate resources to reach those objectives. Strategy sets the overarching direction for a company and guides everything it does.

T

Tactics: The specific actions or steps taken to achieve a particular objective, or part of a larger strategy. Tactics are the how of executing a strategy – the short-term actions that move a company toward its strategic goals. Tactics are often laid out in a plan, detailing the day-to-day activities needed to reach broader objectives.

V

Value Discipline

A strategic framework, from Michael Treacy and Fred Wiersema's The Discipline of Market Leaders, that categorizes how a company delivers value to customers. Most companies focus on one of three disciplines, while keeping the other two at a solid, competitive standard:

Operational Excellence – efficiency and cost leadership, delivering reliable products or services at competitive prices (e.g., Walmart).
Product Leadership – innovation, offering cutting-edge products and services (e.g., Apple).
Customer Intimacy – personalized customer relationships and tailored solutions (e.g., Ritz-Carlton).

Excelling in one discipline, more than the others, is usually what drives a company's competitive advantage in its market.

W

Working Capital: A measure of a company's short-term financial health – the difference between current assets and current liabilities. Working capital shows whether a company has enough short-term assets on hand to cover what it owes in the next twelve months, without needing to borrow or sell long-term assets.

Formula
Working Capital = Current Assets - Current Liabilities

From our book, The Numbers Expedition – kept current here.