Business Numbers You Need to Know

I’m guessing you went into business to do something that you enjoy, or felt strongly enough about to keep at it.  Not to necessarily become a finance person.  However, your finances are key to helping you amplify your impact and reach more customers.  Not to mention fund the lifestyle that you want!

I’m not a fan of complicated things.  I like to keep things simple (hence the name of my business, Money Made Simple), and so I’ll focus here on the key numbers you need to know, and go through them without too much jargon.  You do need to know some of the jargon, because that is how your accountant will communicate with you!

Firstly, numbers tell you about how your business is performing, and what levels of debt you’re carrying, or how much cash you actually have.  This helps you to make better decisions about how to grow or scale your business and do it in the areas that your customers and clients actually respond the most to.

Here are the top 7 most important numbers you need to know:

1. Your income goals – this will impact the products and services that you offer, the pricing of each, and how much of each that you need to sell. Once you know this, you can better plan how to run your business and the areas to focus on;
2. Profit and Loss – this will depend a bit on the accounting treatment, but basically it’s – the income you make, minus all your expenses. If the number is positive, you are in Profit.  If the number is negative, you are in Loss;
3. Expenses – knowing where your money is going and what you’re spending it on is very important, especially for small businesses.
4. Accounts Receivable – depending on how your business is set up, this is money you are owed from clients or customers, i.e. unpaid invoices. It will impact your cashflow;
5. Profit by client – this will help you to know which client relationships to nurture better. You can also look at ways to increase the repeat business from other clients as well;
6. Cashflow – this is how much actual cash is coming in, and what expenses you are paying out;
7. Sales per product or service – knowing what your most profitable products or services are will help you to focus on promoting these more that those that don’t make much.

It’s likely your accountant will have spoken to you about these in the past (hopefully).  Knowing what these numbers are, why they’re important, and being able to track them on a regular basis is an important part of being in a profitable business that will fund the lifestyle you want!