CFO glossary

13 week cash flow

The weekly cash forecast every CFO runs: receipts and payments by week, payroll, VAT quarters and rent on their real dates, with an actuals row against it. Thirteen weeks because that is a quarter, and weekly because the low point lives between the month ends.

Adjusted EBITDA

EBITDA after the add-backs a lender or investor insists on: one-off costs, owner pay above market, exceptionals. Your covenant tests the facility agreement's definition, not the number in your management accounts, and the two rarely match.

Advance assurance

HMRC's confirmation, obtained in advance, that a share issue should qualify for SEIS or EIS relief. Investors expect it before they commit, and applying mid-round costs weeks at exactly the moment weeks cost momentum.

Audit threshold

An audit becomes compulsory once a company exceeds two of three limits for two consecutive years: £15 million turnover, £7.5 million balance sheet total, 50 employees, on the limits in force from 6 April 2025. Shareholders holding 10 per cent can demand one at any size.

Board pack

The papers a board reads before the meeting: five headline numbers, profit against plan with a bridge, cash, KPIs, risks and asks, each with short commentary. Six pages, sent three days early, so the meeting is for decisions rather than reading aloud.

Break-even point

The revenue at which contribution exactly covers the fixed costs and profit is zero. On the demo book that is 32.6 clients of the 40, which is the honest way to see how much of the company exists to pay the rent.

Cap table

Who owns what: shares, options, warrants and anything convertible, fully diluted. Diligence opens here, and a cap table that does not reconcile to Companies House ends processes before the financials are read.

Cash conversion cycle

How many days a pound is tied up between paying for delivery and collecting from the customer: debtor days plus stock days minus creditor days. The demo book runs at about 14 days; strong retailers run negative and are funded by their suppliers.

Contribution margin

What each pound of revenue leaves after the costs that scale with it, before fixed costs. The demo company keeps 55p in the pound, £3,685 a month on the average retainer, and every pricing and hiring decision runs on that number.

Covenant

A promise about ratios attached to a facility, commonly leverage under about 3 times and interest cover over about 4 times, tested quarterly on the lender's definitions. A breach is an event of default even while every payment is being made.

Creditor days

How long you take to pay suppliers, measured over total operating costs. The demo book pays in 38 days. Days added by agreement are free funding; days added by drifting are borrowed from supplier goodwill at an unstated rate.

Customer concentration

The share of revenue held by your largest customer. Buyers and lenders start pricing the risk around 15 per cent. On the demo book a 10.4 per cent client takes 56 per cent of profit when they leave, because the fixed costs do not leave with them.

Data room

The organised folder of everything a buyer or investor asks for: corporate, financial, tax, commercial, people, IP, legal, in the order diligence opens them. Built before the term sheet, it answers in hours, and answering in hours is how momentum survives.

Debtor days

How long customers take to pay, measured as trade debtors over annual revenue times 365. The demo book collects in 52 days, so each pound of monthly revenue drags about £1.71 of debtor book behind it, which is what growth spends first.

Degree of operating leverage

Contribution over profit: how many times faster profit moves than revenue, in both directions. At the demo book's 5.4, a ten per cent revenue fall is a 54 per cent profit fall, and a 18.6 per cent fall wipes profit entirely.

Dilution

The shrinking of existing holders' percentages when new shares are issued. On the demo round, £1,000,000 on £4,000,000 pre-money with a 10 per cent pool leaves founders 70 per cent, and the pool alone moves £500,000 of founder value.

Down round

A raise at a lower valuation than the previous one. Anti-dilution clauses from earlier rounds can shift the pain onto founders, which is why those clauses matter on the way in, while everything is going well.

EBITDA

Earnings before interest, tax, depreciation and amortisation: operating profit with the financing and accounting noise removed, and the number covenants and valuations start from. Everyone adjusts it differently, so every document should say whose definition it uses.

EIS

The Enterprise Investment Scheme: income tax and capital gains reliefs for investors in qualifying growth companies, up to £12 million of qualifying investment in a company's lifetime. The reliefs are the investor's; the paperwork and the advance assurance are yours.

EMI options

Enterprise Management Incentives: the tax-advantaged share option scheme for smaller companies. Granted properly, with a valuation agreed and the notifications made. A pool that exists only in a spreadsheet is a repair bill waiting for diligence.

Facility

An agreed borrowing limit you can draw and repay, like the demo's £250,000 revolver with £180,000 drawn. The undrawn £70,000 is headroom you can ask for, not negative debt, and headroom is measured before it is needed or it is not headroom.

Fixed costs

The costs that do not care what revenue does: rent, most payroll, software. The demo carries £120,000 a month, which is why losing a client hurts profit five times harder than it hurts revenue.

Fractional CFO

A senior finance leader for a fraction of the week: typically two to six days a month building and running the cash forecast, the close, the pack and the plan. The deliverable is a machine the company owns, not attendance.

Going concern

The judgment that the company can meet its obligations for at least twelve months from the date the accounts are signed, not from the year end. Auditors test it against a forecast with the downside included, which is one more reason to have one.

Headroom

Distance from a limit: cash above the buffer, EBITDA above the covenant floor, the undrawn facility. The demo book's EBITDA can fall 80 per cent before the first covenant breaches, and knowing that number while it is comfortable is the entire point.

Interest cover

EBITDA over interest: how many times profit covers the cost of the debt. Facilities commonly require 4 times; the demo book runs at about 20 times. Tested on adjusted EBITDA as the facility agreement defines it.

Invoice finance

Borrowing against unpaid invoices. The effective cost usually lands well above the headline once service and discount fees are counted, and it suits growth locked in a debtor book better than it suits a gap a cheaper facility would cover.

KPI

A number that answers a management question: are we selling, pricing, collecting, concentrating. Twelve with targets and direction beat forty without, and two KPIs that always move together are one KPI and a decoration.

Leverage

Net debt over EBITDA: how many years of current profit would clear the debt. SME facilities commonly cap it around 3 times. The demo book runs at net cash, which a lender reads as leverage of zero.

Management accounts

The monthly PandL, balance sheet and cash view produced for running the company, as against the statutory accounts filed yearly. Useful ones arrive within five working days and reconcile to the bank, which is most of what diligence means by clean.

Marginal relief

The taper between the 19 per cent small profits rate and the 25 per cent main rate of corporation tax, for profits between £50,000 and £250,000. The demo company sits above the band and pays the main rate; a model for a company inside it should say so.

Month-end close

The process that turns a finished month into numbers: reconcile cash, recognise revenue, accrue costs, prove the balance sheet, write the pack. A company that has outgrown a two-week close runs it in five days, one layer a day.

Net burn

Cash out less cash in, per month, measured on the bank account rather than the PandL. Runway is always computed on net burn, and a burn growing 8 per cent a month does not stay where the spreadsheet left it.

Net debt

Drawn debt less cash. The demo holds £190,000 of cash against £180,000 drawn, so it runs at net cash of £10,000. The undrawn facility is not negative debt, however tempting the arithmetic looks.

Net revenue retention

What last year's customers spend this year, as a percentage, with churn and expansion netted. Above 100 per cent the book grows before sales does anything; below it, sales runs in order to stand still.

Option pool

Shares reserved for future hires. Created pre-money, the way term sheets usually demand, it dilutes only the existing holders: the demo round's 10 per cent pool is £500,000 of founder value. Size it to the hiring plan, not the term sheet's round number.

Pre-money and post-money

The company's value before and after the new cash lands: post-money is pre-money plus the raise. The investor's share is the raise over the post-money, so £1,000,000 into £5,000,000 post is 20 per cent.

Rolling forecast

A forecast re-anchored on actuals every month, so the full-year view stays alive. The annual budget survives as the yardstick; the roll is what you steer by, and one soft month reprices the whole year the day it lands.

Runway

Months until the cash runs out at the current net burn. Compute it on a burn that grows if the burn is growing: the demo downside is 6.8 months flat and 5.6 months honestly, and the difference is the planning time you thought you had.

Scenario model

Base, upside and downside computed from one set of drivers plus stated adjustments, so the cases cannot drift apart. On the demo drivers the downside is a monthly loss, which is exactly the kind of thing downsides exist to find.

SEIS

The Seed Enterprise Investment Scheme: reliefs for the earliest investors, on up to £250,000 of qualifying investment per company. Advance assurance from HMRC before the round opens is the piece of paper angels wait for.

Stock days

How many days of cost sit in stock, measured over total operating costs. A services company runs at zero; for a product company this is usually where the cash conversion cycle is won or lost.

Term sheet

The non-binding summary of a deal's shape: valuation, pool, preferences, board seats. Your negotiating leverage peaks just before it is signed and diligence begins, which is why the data room is built first.

Three-statement model

A PandL, balance sheet and cash flow linked so the balance sheet balances by construction: cash comes from the cash flow, retained earnings roll up profit. If its check row is not zero, the model is broken and every number on it is decoration.

Unit economics

Profit at the level of one unit: one client, one order, one seat. The demo retainer contributes £3,685 a month after variable costs, and 32.6 of the 40 clients exist to pay the fixed costs before profit starts.

Variance bridge

The gap to budget decomposed into named movements, volume, price, delivery rate and fixed costs, summing to the gap exactly. A variance column says you missed; the bridge says why, in pounds, with an owner per line.

Working capital

The cash tied up in running the business: debtors and stock, less creditors. Moving its days is the cheapest funding there is: seven days off debtors and seven onto creditors frees £117,048 on the demo book without selling anything.