You don't need to be an accountant to understand your business numbers.
But if you own a business, there are a few numbers you really should know.
We're not talking about memorising your entire Profit & Loss report or checking your bank account ten times a day. We're talking about having enough information to answer some pretty basic questions:
Are we making money?
Where are we making it?
Where are we losing it?
And are we heading in the right direction?
Turnover
Sales are important, but turnover on its own doesn't tell you whether you have a successful business.
A business turning over $2 million can be less profitable than one turning over $1 million.
Rather than simply asking, "Are sales up?", ask:
"Are we making enough from those sales?"
Gross Margin
Your gross margin shows how much is left from your sales after the direct costs of delivering your product or service.
If your costs increase but your prices don't, your margin gets squeezed.
A small change can have a surprisingly large impact on your overall profit.
Break-even Point
Do you know how much you need to sell each week or month before you've actually covered your costs?
Knowing your break-even point gives you a target based on something more useful than simply "we need to sell more".
Debtors
A sale isn't much use to your cashflow if you don't get paid.
Keep an eye on how much customers owe you and, importantly, how long it is taking them to pay.
If your debtor days are creeping up, your customers could effectively be using your business as their bank.
Wages and Overheads
As your business grows, expenses often grow with it.
Wages, rent, vehicles, software, insurance and administration can quietly eat into the extra revenue you're generating.
Tracking these costs as a percentage of sales can help identify changes before they become bigger problems.
Cash
Profit and cash aren't the same thing.
You can have a profitable business and still struggle to pay the bills.
Understanding what's coming in, what's going out and what's coming up gives you far more control than simply checking today's bank balance.
The Most Important Number?
There isn't one.
The real value comes from looking at your numbers together and understanding what they're telling you about your business.
And you shouldn't have to wait until your annual accounts are prepared to find out.
At Cross Group, we help business owners turn their financial information into something useful — so they can understand what's happening, make better decisions and plan ahead with confidence.
You don't need more accounting reports. You need information that helps you run your business.
If you'd like to understand your numbers better, let's have a chat.