Starting a business can feel like learning a new language. Between meetings, contracts, and financial statements, entrepreneurs find themselves surrounded by a sea of terms that seasoned professionals toss around effortlessly. But here’s the truth: you don’t need an MBA to grasp the basics. Understanding a handful of key business terms can help you navigate early challenges, make informed decisions, and communicate confidently. Whether you’re sketching out a business plan or gearing up to pitch investors, here’s a breakdown of essential terms every new entrepreneur should have in their toolkit.

Revenue vs. Profit: Knowing the Difference

You might hear people use these interchangeably, but they’re not the same. Revenue is the total money your business brings in before expenses—think of it as the top-line number. Profit, on the other hand, is what’s left over after you subtract costs like rent, payroll, and supplies. Many entrepreneurs get caught up in revenue growth, but a business that makes a million dollars a year and spends $999,000 isn’t exactly thriving. Keeping an eye on both revenue and profit is key to long-term sustainability.

Equity: Your Stake in the Game

Equity is ownership—plain and simple. If you own a business outright, you have 100% equity. But if you bring on investors or co-founders, you’re giving up a slice of that pie in exchange for capital, expertise, or resources. Understanding equity is crucial because it impacts control and financial rewards. Too many founders give away equity early on without considering the long-term effects. Every percentage point matters, especially when the business starts to take off.

Cash Flow: The Lifeline of Your Business

Profit is important, but cash flow is what keeps your business alive day-to-day. It refers to the movement of money in and out of your business—covering bills, paying employees, and keeping operations running smoothly. A company can be profitable on paper but still go under if it doesn’t have enough cash on hand to cover short-term expenses. That’s why understanding and managing cash flow is essential. Delayed payments, unexpected costs, or a slow sales month can quickly put you in a tight spot.

Letter of Intent: Setting the Stage for Agreements

Before a formal deal is signed, businesses often use a letter of intent template to outline key terms and mutual understandings. A letter of intent in business is a document outlining the preliminary understanding between parties before finalizing a formal agreement. This non-binding document can serve as a roadmap for negotiations, clarifying expectations and reducing the risk of misunderstandings. Businesses can use letters of intent to announce new transactions or relationships before finalizing official documents like definitive agreements or purchase agreements, giving all parties a foundation to move forward with confidence.

Scaling vs. Growing: Two Different Strategies

Growing your business sounds great, but scaling is where real success happens. Growth usually means adding more resources—like hiring more employees or opening new locations—to increase revenue. Scaling, on the other hand, is about increasing revenue without significantly increasing costs. Think of a software company that sells the same product to a million people with little additional expense—that’s scaling. Understanding this difference can help you build a business that’s not just bigger, but more efficient.

Product-Market Fit: The Key to Selling Anything

Before you start thinking about marketing or scaling, you need to ask one question: does anyone actually want what you’re selling? Product-market fit means your product or service meets a genuine need, and people are willing to pay for it. Many entrepreneurs make the mistake of assuming demand instead of proving it. If you have to convince people they need your product, you might not have market fit yet. The best businesses solve real problems, and that’s what creates sustainable demand.

Mastering business terms isn’t about memorizing jargon—it’s about understanding the mechanics of how a company functions. Every decision, from how you manage cash flow to how much equity you give away, shapes your business’s future. Knowing these terms won’t just help you sound more confident in meetings; it will help you make smarter choices. So the next time you hear an investor or advisor throw out terms like “burn rate” or “scaling,” you won’t just nod along—you’ll know exactly what they mean.