What numbers monitor the vital signs of your business?
Examining these three trends can help you identify potential cash flow problems or falling profitability.
1. Sales. Track any significant increase or decrease during the last twelve months and compare to month to month with the previous year.
2. Costs. Are costs increasing more than revenue? Examine major costs as a percentage of sales; including labour, overheads, warehousing and delivery costs. Then compare those percentages month to month with the previous year.
3. Working capital. Ascertain the working capital currently available in your business by subtracting your current liabilities from your current assets. Then compare your working capital month to month with the previous year.
Other key numbers to review are your current:
Break-even Point
Profit Margins (Gross and Net)
Cash Flow Forecasts
Budgets
Creditor and Debtor Days
Financial numbers are only the beginning.
You need to look beyond the numbers on your financial statements.
Most successful business owners have a set of key numbers they use to monitor how well their business is doing, and usually these numbers are a combination of financial and nonfinancial measurements.
Other very useful numbers that indicate a trend in your business can be found in:
• marketing effectiveness reports
• sales conversion reports
• payroll reports
• production reports
• telephone log
• customer complaint reports
• quality control reports
Need help with the numbers?
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Passionately supporting business owners
The above is very true – an extension which is very interesting is to set up an excel graph and just input those 3 numbers each month – over time the trends will show cyclical nature of your business and trends towrds more or less profitability – it is a really interesting tale over a few years and only takes a few seconds each month.
Regards,
Wayne