The most important numbers in business
Do you know about the most important numbers in business?
I once heard a salesperson say “All sales are good sales”, but when I asked what profit he was working to, he didn’t have a clue. His boss had told him to simply get sales through the door, so he did what was asked of him. Now, fair play to the lad – he was hitting his targets every month!!
As a business owner I know how important it is to keep a close eye on the numbers not only knowing them but truly understand them, can help you be successful in your business.
So to help ensure that your business stays on track here are the most important numbers in business you need to know and keep an eye on.
- Cash Flow
Knowing your cash flow gives you a good overview of the state of your business. This figure is calculated by taking away your expenses everything from salaries to stationery, from the money your company generates. When your cash inflow exceeds your cash outflow, this is a sign that you’re operating in the black. If the reverse is true, it’s time to take a closer look at your income and expenses.
Checking cash flow in your is critical and one of the main reasons that companies go under. All business owners should always make sure they have the necessary cash flow to meet their monthly expenses.
- Net Income
Closely related to cash flow is your net income, which is also known as your net earnings and net profit. This figure is calculated by subtracting all your expenses, including taxes, from your income and like cash flow, your net profit is a good indicator of whether you’re earning or losing money.
- Profit and Loss
A Profit and Loss statement (P&L), this is a snapshot of your company’s income (sales and revenue) minus expenses during a set period of time, i.e. monthly, quarterly or yearly. Knowing your company’s profit and loss over time allows you to forecast.
Knowing your sales and keeping a close eye on sales is very important in business, it’s the life blood of the business. Its important to keep an eye on the good times and the bad. Keeping an eye on your sales allows you to react and adapt to change quickly.
Business owners should know exactly how much it will cost to purchase their goods and then what they’ll need to sell those goods to make a profit, making sure they have taken into account all expenses and that they are competitive within the market.
- Gross Profit
Gross profit is the figure that reflects how much money remains after taking away the cost of your product from the selling price. If this figure is low and not sufficient to cover operating costs, then you’re likely not charging enough for your products and services.
- Total Inventory
Monitor your inventory on a weekly basis to ensure that the amount of inventory isn’t increasing. By tracking inventory on a regular basis, you can spot issues early everything from low / excessive stock levels, possible waste and reduced profits.
So what happened to the company that the young sales lad worked at? Would you be that surprised if I told you that company was no longer trading.
You only have to look at the collapse of Carillion to know that they got their figures wrong!
So the moral of the story is know your figures and keep a close eye on them
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