The 7 Financial Numbers Every Business Owner Should Know.

 

         To help ensure that your business stays in the black, take the time to familiarize yourself with these seven key

      financial numbers.

 

1. Cash Flow


Operating cash flow offers a bird’s-eye view of the economic state of your business. This figure is computed by subtracting your operating expenses from the money your company generates during normal business activities. It includes depreciation to your net income and adjusts for working capital like receivables and inventory. When your operating 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. “Sufficient cash flow in your business checking accounts, especially payroll accounts, is critical,” says tax lawyer Daniel Petri, a tax analyst with the Tax Defense Network. “Small-business owners should always make sure they have the necessary cash flow to meet all monthly business expenses.”


2. Net Income


Closely related to cash flow is your net income, which is also known as your net earnings and net profit. This figure

constitutes the result of subtracting all your expenses, including taxes, from your income. It's not adjusted for items

like depreciation. Like cash flow, your net profit is a good indicator of whether you're earning or losing money.


3. Profit and Loss


This figure is found on what's commonly known as your P&L statement, which is a snapshot of your company’s

income (sales and revenue) minus expenses during a specific period of time, which is generally quarterly, every six

months or yearly. Knowing your company’s profit and loss over time allows you to project earnings and make

realistic plans for the future, both short term and long term.


4. Sales


Given that generating sales is the reason most entrepreneurs operate small businesses, this figure is a given on the

critical number's list. Keeping a close eye on sales is important, as a dip could be a warning sign of trouble. In the

same respect, it’s important to pay attention when sales are up. Determining why business is good at the time your

company's on an upward trajectory is easier than trying to figure it out later. Reacting quickly to an increase in sales

also allows you to determine what you need to keep doing to sustain that growth.


5. Price Point


“Small-business owners should know exactly how much it will cost them to purchase their goods and then what they'll

need to sell those goods or services in order to make a profit,” says Petri, who notes that this is an especially critical

number for restaurants and other retailers. “When you determine price point," he adds, "make sure to take into

account all overhead expenses, such as utilities, payroll and sales tax.”


6. Gross Margin


Also known as your gross profit—and related to price point—this figure reflects how much money remains after the

actual cost of your merchandise is subtracted from the selling price. If this figure is low and not sufficient to cover

your operating costs, such as salaries, rent, marketing and utilities, then you're likely not charging enough for your

products and services.


7. Total Inventory


Monitor your inventory numbers on a weekly basis to ensure that the amount of inventory isn’t gradually increasing,

as this could be a sign of sales trouble. By tracking inventory on a regular basis, you can spot problems early enough

to avoid the negative effects of excess inventory, which include storage costs, reduced profits and potential waste.
Understanding your critical financial numbers may not be as exciting as making a big sale, but keeping an eye on

these must-know figures will give you precious peace of mind—and a glimpse of what the future holds for your

business.