Business acumen questions: what people ask and what is true

The useful questions in business are not clever. They are the ones that force somebody to say which meaning of a word they are using. Eight of them below, with the definitions each one is trying to surface and the form a real answer takes.

What to take away

"Is it profitable?"

Unanswerable until you say which line. Gross profit is revenue less the

The same activity can be positive on one of these and negative on the next, and each answers a different question. Contribution answers "should we take this order". Operating profit answers "is this business working". Net profit answers "what is left for the owners".

Then there is EBITDA: earnings before interest, tax, depreciation and amortization. It is not a measure defined by the standard accounting frameworks. It is assembled, and how it is assembled varies: adjusted versions exclude further items chosen by whoever prepared them.

Where EBITDA appears in a loan covenant, the agreement's own definition of it is the one that binds, and it is often several lines long for exactly that reason. Two parties quoting EBITDA without checking the definition may be quoting different numbers.

A real answer sounds like: "Positive at contribution, negative at operating profit, on the last full quarter."

"How many customers do we have?"

Five words routinely count five different populations. An account is a record in a system, while a buyer makes the purchase decision and the payer provides the money.

A user operates the thing, and an end customer gets the benefit. In some businesses all five are one person; in others no two of them are.

Then active needs defining, and it is a stipulated definition, not a discovered one. Active means whatever rule you wrote: purchased in the period, logged in during the period, holds a live contract. Each rule produces a different count, none is more correct, and comparing across a period in which the rule changed produces a change that is entirely artificial.

A real answer sounds like: "Accounts with at least one purchase in the period, counted at period end, on the definition we have used since the beginning of the year."

"Do we own it?"

Ownership of intellectual property means holding the rights themselves. A license means someone else owns them and has permitted specified uses, under specified conditions, for a specified time. The difference shows up when you want to do something the license did not contemplate, or when the license ends.

An assignment transfers ownership; it usually must be in writing to be effective.

Whether work by an employee or a contractor belongs to the commissioning party by default depends on the jurisdiction and the relationship. For contractors, the default is often the opposite of what people assume.

Where it matters, ask a lawyer in the relevant jurisdiction. The answer lies in the contract, not custom.

A real answer sounds like: "We hold a license, not ownership; here is the clause and here is what it does not cover."

"Are they a partner?"

In commercial usage, partner is a courtesy term for several arrangements. A reseller buys and sells on in its own name, while a distributor typically holds stock and serves a territory.

An agent acts on your behalf and may bind you to obligations, while a referrer introduces and takes a fee. A joint venture is a jointly controlled undertaking, often a separate entity.

The warning attached to this word: partnership is also a legal form. In many jurisdictions people can find they have created one by conduct, by sharing profits and control, without ever intending to. A partnership can carry obligations toward each other and liability toward third parties.

Using the word loosely in a contract is a poor idea for that reason alone. What the relationship actually is depends on the substance of the arrangement and on local law, not on the label.

A real answer sounds like: "A referral arrangement with a fee on closed business, no authority to represent us, terminable on notice."

"Is that revenue recurring?"

Repeat revenue is a customer buying again. There is no commitment; the pattern is a description of past behavior.

Recurring revenue arises from an ongoing arrangement that continues unless someone stops it: a subscription or a service contract. The commitment is structural, not behavioral.

Contracted revenue is what the customer is contractually obliged to pay, which may cover a fixed term.

These vary in reliability, and calling repeat purchasing recurring overstates it. Money already received for something not yet delivered is a third thing, a deferral, and sits as an obligation rather than as a result.

The follow-up question settles it: what has to happen for this to stop? If the answer is "the customer chooses not to buy again", it is repeat; if it is "the customer has to actively cancel", it is recurring.

A real answer sounds like: "Contracted for the current term, cancellable on notice at renewal."

"Is it in the budget?"

A budget is an authorized limit on spending for a period. A forecast is an estimate of what will actually happen, updated as things change. A plan is what you intend to do. A commitment is money you are already contractually obliged to spend. An allocation is budget assigned to a particular purpose.

"In the budget" can mean at least three things: that a limit exists and this fits within it, that this specific item was named when the budget was set, or merely that somebody expects to spend it. The second is the only one that implies anyone has approved this item.

A real answer sounds like: "There is an allocation of this size for the category, this item was not named individually, and it needs approval from the budget holder."

"Are we done?"

Delivered means it was handed over. Accepted means the customer agreed it meets the specification: often a defined event in the contract with a deadline attached, after which acceptance may be deemed to occur. Live means it is in real use. Invoiced means a demand for payment was issued. Closed means the obligations on both sides have been discharged.

These happen at different times and sometimes in an unexpected order. A project that is delivered, live, and invoiced can still be unaccepted, and unaccepted work can be work you cannot enforce payment for.

A real answer sounds like: "Delivered and live, acceptance window still open until the stated date."

"How many people do we need?"

Headcount counts people, whatever hours they work. A full-time equivalent converts hours into standard full-time units, so two people at half time count as one. The two figures answer different questions: headcount tells you how many individuals to manage and equip, full-time equivalents tell you how much working time you have.

Contingent workers (contractors, agency staff, temporary workers), may not appear in either measure depending on how the organization counts. And whether someone is an employee or a contractor is a legal classification determined by the substance of the working relationship under the applicable law, not by the contract's label or by how they are recorded internally. Getting that classification wrong has tax and employment consequences, which makes it a question for professional advice rather than for a naming convention.

A real answer sounds like: "Six full-time equivalents, across seven people, plus two contractors not counted in either figure."

The pattern

Each of these questions works the same way. It takes a word that sounds like it has one meaning, and asks which of its several meanings is in use. The answer that comes back is either a definition, in which case you now know something, or a pause, which is also information.

More entries at business acumen, the operating word pairs behind several of these questions are in the operating word pairs, and the nine confusions they come from are in the acumen mistakes.

Common questions

Is asking these questions going to annoy people?

Asked once, of your own claims first, they read as care. Asked as a cross-examination of somebody else's, they read as an audit. Same words, different reception, and the difference is whose claim goes first.

What if nobody in the room knows the answer?

Then the answer is that nobody knows, which is worth recording. An unanswered question in the notes is more useful next month than a confident guess.

Why is the profit question the first one?

Because profit has four layers and a business produces four different answers. Public introductions to reading a set of accounts, such as Investor.gov's glossary, set out the standard terms; which layer someone means is still a question you have to ask.

Do these work in a business with two people?

Better, because there is no reporting layer to hide behind. Two people using one word for two things is exactly the situation these questions were built for, and the three statements guide is where the underlying figures come from.