Many small business owners believe that profit equals cash. They see a positive number on their profit and loss statement and assume that money is sitting in the bank, ready to spend. Unfortunately, this is one of the most dangerous misunderstandings in small business finance.

Every small business owner needs to know the number that separates profit from loss — your breakeven point. It tells you exactly how much revenue you need to cover your costs before you start earning profit. Understanding this number helps you make smarter decisions about pricing, budgeting, and growth.

Building strong business credit is a foundational step for any small business owner who wants to access financing, favorable supplier terms, and safeguard their business’s financial health. When your enterprise has a solid business credit profile, you’re better positioned to secure loans or lines of credit, obtain favorable terms from vendors, and separate your company’s risk from your personal credit.

Revenue is the total money your business earns before any expenses are deducted. Profit, on the other hand, is what’s left after all costs — like payroll, rent, taxes, and supplies — are paid. In short: revenue is the top line, while profit is the bottom line on your income statement.

Net Profit—also called Net Income—is the amount of money your business actually keeps after paying all of its expenses. Think of it as your company’s true “bottom line.” It’s what’s left after you subtract operating costs, interest, taxes, and any other expenses from your total revenue.

As a small business owner, your success isn’t just about sales or customer relationships — it’s about how well you understand your numbers. Financial literacy is the foundation of smart decision-making. Yet many business owners struggle to interpret their financials, spot red flags early, or confidently discuss money with their advisors.

If you run a small business, you’ve probably heard the term GAAP tossed around by accountants, lenders, or even your tax preparer. GAAP — Generally Accepted Accounting Principles — is the standard framework of rules and guidelines that ensure financial statements are consistent, comparable, and reliable.

Why it’s wrong: A write-off doesn’t mean the IRS pays you for business expenses. It simply reduces your taxable income, which lowers the amount of tax you owe. For example, if your business earns $100,000 and you have $20,000 in legitimate deductions, you’ll only be taxed on $80,000—not get $20,000 back.

When you buy a car for your business, new equipment, or even office furniture — those items don’t hold the same value forever. Over time, they wear out, lose value, or become outdated. That gradual loss in value is called depreciation.

Working Capital is the money your business has available to cover its short-term expenses — like paying bills, buying inventory, or meeting payroll. It’s calculated using a simple formula: Working Capital = Current Assets – Current Liabilities

Understanding your Owner’s Equity is one of the most fundamental steps toward mastering your business finances. Yet many small business owners can’t clearly define what it means — or how it affects their day-to-day decisions. Let’s break it down in plain English.

Accrual accounting (also called the accrual method of accounting) records income when it’s earned and expenses when they’re incurred—not when the cash actually changes hands. In other words, if you send an invoice today but don’t get paid until next month, accrual accounting still records that sale today. Likewise, if you receive a bill for services this month but pay it next month, the expense is recorded when you receive the bill.

A trial balance is a simple accounting report that lists all of your business’s accounts — assets, liabilities, equity, income, and expenses — along with their ending balances at a specific point in time.

A journal entry is the official way businesses record each financial transaction in their accounting system. Every time money moves in or out — whether you make a sale, pay a bill, or buy supplies — it gets logged through a journal entry.

The main difference between a bookkeeper and an accountant is that a bookkeeper manages the day-to-day recording of financial transactions, while an accountant uses that information to provide analysis, interpretation, and strategic guidance. Bookkeepers focus on accuracy and detail in financial records; accountants focus on compliance, reporting, and planning. In short: bookkeepers keep the books, accountants make sense of them.