Five Financial Numbers Every Small Business Owner Should Know

Ask a business owner how the company is doing and you’ll usually hear something like:

“Business is good.”

That’s great.

But what do the numbers say?

You don’t need to become an accountant to run a successful business. You should, however, understand a handful of numbers that can tell you a tremendous amount about the financial health of your company.

Here are five worth watching.

1. Revenue

Let’s start with the obvious one.

Revenue is the money your business generates before expenses are deducted.

Most owners know roughly how much they’re selling, but the important part is understanding the trend.

Is revenue increasing?

Decreasing?

Seasonal?

Are particular products or services responsible for most of it?

A single revenue number tells you what happened. Tracking revenue over time helps tell you why it’s happening.

2. Gross Profit

Revenue sounds impressive.

Profit pays the bills.

Gross profit generally shows what’s left after accounting for the direct costs associated with producing the goods or services you sell.

A company can experience increasing sales while simultaneously becoming less profitable.

That’s why looking at revenue without understanding profitability can create a misleading picture of how well the business is actually performing.

3. Operating Expenses

Payroll. Rent. Insurance. Software. Advertising. Utilities. Professional services.

Individually, increases in these expenses may not seem dramatic.

Collectively, they can slowly eat away at profitability.

Monitoring operating expenses makes it easier to identify costs that are growing faster than expected and determine whether those expenses are producing enough value for the business.

4. Cash Flow

Here’s where profitable businesses can still get themselves into trouble.

Profit and cash are not necessarily the same thing.

Your accounting records may show revenue you’ve earned even though you haven’t collected all of that money yet.

Meanwhile, payroll, rent, vendors, and other obligations still need to be paid.

Understanding how cash moves into and out of the business helps you anticipate shortages rather than discovering them when the bank account gets uncomfortable.

5. Accounts Receivable

Making a sale is great.

Getting paid is better.

Accounts receivable represents money customers owe your business.

If that number keeps increasing, it may mean you’re generating plenty of business—but you’re not collecting the money quickly enough.

Tracking receivables and how long invoices remain unpaid can help identify cash-flow problems before they become serious.

Your Numbers Should Help You Run Your Business

Financial reports shouldn’t be documents you receive, glance at, and stick in a folder.

They should answer questions.

Are we growing?

Are we profitable?

Where are we spending too much?

Do we have enough cash?

Can we afford our next move?

At Smith Tax Pro, we help business owners turn financial information into something far more useful than numbers on a spreadsheet.

We help you understand what those numbers are telling you.

If you’re ready for greater clarity and confidence in your business finances, contact Smith Tax Pro to learn more about our bookkeeping, accounting, financial reporting, and advisory services.