Want to know if you’re a serious business owner? Start reciting your profit margins and sales conversion rates without consulting your accounting books. Stumped? It might be time to track your numbers more closely. Studies show that business owners who monitor the critical financial numbers of their business are more likely to achieve financial goals. Below are the lucky 7 crucial numbers you should be monitoring to steadily start doubling profits.
Time Sheet: This is the number-one figure you should be tracking at all times! Monitoring your time – and knowing how much time it takes to complete a certain service or order – is going to determine your entire business model. Track your time daily to monitor which clients take up the most time, and how to potentially start charging differently.
Sales/Revenues: Tracking sales is a no-brainer (hopefully), but are you comparing them to previous months, or tracking them to reach future goals? Sales will inform you where your company is headed as you look to meet quarterly and yearly goals.
Net Profit: Net profit is the profit you earn once you’ve paid all your overhead. Clearly, the goal is to always make a profit and to grow this number, while maintaining a balance of your overhead and COGS.
Defensive Numbers: Your defensive numbers can be seen as “gross wages as a percentage of sales” and “overhead as a percentage of sales”. These two numbers show you a simple ratio to warn you if overhead or wages are increasing, why sales are going, or a combination of the two.
Quick Ratio: To figure out your quick ratio, calculate the cash plus accounts receivable, divided by accounts payable (or current liabilities). Ultimately, this will inform you how much cash you have on hand to manage any incoming bills. If, for example, you have too big of a number in your accounts receivable, which normally indicates you don’t have the cash, that means you need to check out your defensive numbers or adjust your quick ratio.
Total Inventory: If you keep inventory, this number will help indicate how fast a certain product is moving, and dictate manufacturing times and/or reordering needs.
Debt-To-Equity: Don’t brush your debt under a rug – it will only make it worse. Instead, put it where it belongs (your quick-check sheet), and make sure paying off part of your debt is part of your monthly or quarterly goals. Establish a budget and stick to it.
Which crucial numbers do you track in your business? Tell us below or email us at firstname.lastname@example.org.