Business Banking Terms Every Business Owner Should Know

3 Min. Read

Business Banking Terms Every Business Owner Should Know

Running a business comes with its own language, and understanding that language can help you make smarter financial decisions now and in the future.

 

Whether you’re just opening your doors or expanding your operations, brushing up on the most common business banking terms can help you manage cash flow, build reserves, and position your business for future growth.

 

This guide covers some of the most important terms every business owner should understand. And if you’re just getting started, you may also want to check out our Business Banking Basics guide to learn how these concepts come together to support your business goals.

 

Core Financial Terms

These terms help you understand how money moves through your business and how to measure your performance.

 

Revenue

Revenue is the total income your business earns from selling goods or services before expenses are deducted. It represents your top-line income, not your profit.

 

Expenses

Expenses are the costs required to operate your business. These may include things like rent or mortgage payments, utilities, payroll, inventory, marketing, and software.

 

Profit

Profit is what remains after you subtract your expenses from revenue.

• Gross profit is revenue minus the direct costs of producing goods or services.
• Net profit (or net income) is what remains after all expenses, taxes, and operating costs are deducted.

 

Profit Margin

Profit margin measures how much of your revenue becomes profit. It’s usually expressed as a percentage. For example, if your business earns $100,000 in revenue and keeps $20,000 in profit, your profit margin is 20%.

 

Cash Flow

Cash flow refers to the movement of money in and out of your business.

• Positive cash flow means more money is coming in than going out.
• Negative cash flow means expenses exceed incoming revenue.

 

Working Capital

Working capital is the difference between your current assets (such as cash and accounts receivable) and your current liabilities (such as short-term debts and payables).

 

Liquidity

Liquidity refers to how quickly your business can access cash to meet immediate financial needs. Funds in a checking or savings account are highly liquid. Assets like equipment or property are less liquid because they cannot be quickly converted into cash.

 

Operational Terms

These terms relate to how your business manages money on a daily basis.

 

Operating Expenses

Operating expenses are the ongoing costs associated with running your business. These differ from one-time investments like purchasing equipment or property.

 

Accounts Payable (AP)

Accounts payable refers to the money your business owes to vendors or suppliers for goods and services already received.

 

Accounts Receivable (AR)

Accounts receivable refers to the money owed to your business by customers or clients.

 

Cash vs. Accrual Accounting

These are two common accounting methods:

• Cash accounting records income and expenses when money actually changes hands.
• Accrual accounting records income and expenses when they are earned or incurred, regardless of when payment occurs.

 

Each of these methods offers different advantages depending on your business structure and complexity. To learn more, check out our article, Cash vs. Accrual Accounting: Which Method is Best for Your Business?

 

Financing & Capital

These terms relate to funding and financing your business’s growth.

 

Capital

Capital refers to financial resources used to start, operate, or grow a business. It can come from personal investment, retained earnings, loans, or investors.

 

Financing

Financing refers to borrowing funds or accessing credit to support your business needs. Common uses include purchasing equipment, expanding operations, investing in property, or managing gaps in short-term cash flow.

 

Business Banking Accounts & Services

These terms refer to the types of accounts commonly used to manage business finances.

 

Business Checking Account

A business checking account is designed for daily transactions, like depositing revenue, paying vendors, processing payroll, and making purchases. It’s the central hub of your business’s financial activity.

 

Business Savings Account

A business savings account allows you to set aside funds for taxes, emergencies, or future investments. Separating your operating funds from savings can improve clarity and strengthen your financial discipline.

 

Money Market Account

A money market account is similar to a savings account but may offer higher dividend rates. Businesses often use money markets to build reserves while maintaining liquidity and access to funds.

 

Share Certificate

A share certificate is a type of savings account that pays a fixed dividend rate in exchange for committing funds for a specific period. Share certificates are often used for longer-term savings goals when you don’t need immediate access to funds.

 

Business Credit Cards

Business credit cards allow you to make purchases on credit and repay the balance later. When used responsibly, they can help you manage short-term expenses and build a business credit history.

 

Marine Credit Union: Helping You Make Sense of Business Banking

Understanding these key business banking terms can help you make more informed decisions about managing your accounts, building savings, and planning for growth.

 

If you’re ready to put these concepts into action, Marine Credit Union is here to help. Our team partners with you, so you can navigate the financial side of running your business with clarity and confidence. Contact us today.