Know Your Numbers Like 1 - 2 - 3...
When making any idea in to a business reality, knowing your numbers is essential. With the help of Startright4Business you will be given a clear path of what is happening and how you can change things to make it a success, and the critical numbers you need to know...
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.
2. Net Profit:
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 & 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. 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.”
5. 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 it's likely you're not charging enough for your products and services.
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.
7. Review Process:
As with everything, you need to review your numbers to see how you are performing against plan. When setting out your goals, part of your goal will be to acheive what you set out. The SMART process is the most common used in the business world: