Five Numbers You Need to Look at Every Month (and What they Actually Mean)

While it can be tempting to just glance at your bank account balance each month and tell yourself that everything is fine, the truth is that your bank account does not even come close to telling you the full story. To know if your business is actually heading in the right direction, you need to not only look at five key numbers, but also understand them. And the best part, no accounting degree required! Below is your no-nonsense guide to the financial metrics that actually matter for your small business.

1. Revenue

What is it? Every single dollar and cent you made, without considering any expenses. 

Why it matters? Revenue fuels your business. If its higher than expected, well done and keep up the efforts that have landed you here. If it’s lower than you wanted or expected, have a look at your pricing or your marketing and see how you can adapt.

The Takeaway: Revenue is great, but it is only the starting point. You likely won’t keep the full amount due to expenses that you need to incur for your business to run smoothly

2. Expenses

What is it? Any money that you need to pay in order for your business to operate. This includes any costs of doing business (think taxes, depreciation, interest) as well as day to day expenditures such as marketing, software, internet, and overheads (electricity, heating/AC, insurance, etc).

Why it matters: Expenses are a silent killer. A free trial that ends here, a new software there, and suddenly your business is spending money without you even knowing it. However, sometimes, you need to spend more in order to earn more.

The Takeaway: High expenses are expected in the startup phase of any new business, but still need to be kept in check. Try to keep these as low as possible by utilizing free trials to test out what works for you before outright purchasing and remembering to cancel before the trial ends if its not the right fit for your business.

3. Net Income

What is it? Your bottom line. This is what is leftover when you take your total revenue and subtract every single expense your business had. 

Why it matters? This is the true measure of your business’ health. If it is positive, the money can be reinvested in the business for growth or paid out to you. If it is negative, you are losing money. 

The Takeaway: A positive net income is one of the hardest things a small business owner will ever work towards. Don’t let several months of negative net income distract you from what you are building.

4. Accounts Receivable (AR)

What it is? Money that is owed to you by your clients.

Why it matters? Once you have completed your promised deliverables, its now up to your client to maintain their end of the deal. Unpaid invoices can lead to a cash flow crisis, as having “profitable” months on paper won’t pay your expenses.

The Takeaway: If your clients aren’t paying you within your terms, your follow up process needs to be tightened.

5. Cash Flow

What it is? The actual movement of cash in and out of your business bank account.

Why it matters? This number tells you if you have enough “liquid” cash to pay bills today, or pivot if needed.

The Takeaways: Net Income gives you an idea of the health of your business for the long-term. Cash gives you an idea of your health TODAY.

If looking at these numbers makes you wish you had studied an accounting degree, you aren’t alone. Most business owners start their business to do what they love, not stare at spreadsheets.
If you’re ready to stop guessing and start growing, let’s chat! I help overwhelmed small business owners clean up their processes and understand their numbers.

Book a clarity call today at www.korporateconsultingservices.com/#schedule.