Financial indicators that all small business owners need to know
Understanding a company’s financial indicators and what those numbers represent can be a way to make your business successful, to know if your business is profitable, or to wake up one day and go bankrupt. It’s important to notice that it’s late. Most of these indicators are very simple and logical, but add something based on your experience as a small business owner and shed light on how your organization monitors these indicators. I hope you can do it. 1. Income:
Without business income or income, nothing more happens. No one is paid. We will not deliver the product. Consumables cannot be purchased. A company cannot continue its business without profit. In my opinion, this is one of the first metrics you need to be familiar with.
There are several ways to classify your costs, and your accountant can help you with this. But in the end, you want to know the cost of doing business and whether your business income is enough to cover those business costs. It is the difference between your income and your spending that determines whether your business makes a profit. After all, profit should be one of the main goals when starting your own business.
- Cash flow:
Insufficient cash flow has been the secret of death for many small businesses over the years. If you’ve heard the phrase “cash flow is king,” this is the story. Putting money into your business account at the end of the month is not enough. You need to understand the cash flow indicators.
- Maturity of receivables:
This is an important indicator that cannot be ignored. How long does it take for the customer you provide the credit terms to pay their invoice? When you offer a 30-day condition, they consistently pay in 30 days, or sometimes go 45 or 60 days.
- Accounts payable:
Another number you should know is the average number of days it takes to fulfill a company’s financial obligations. If you can effectively manage your accounts receivable, cash flow, and income, you can keep your accounts payable up-to-date and take advantage of the quick payment terms that your suppliers may offer.
I think it is important to manage these five indicators for the success of your business. You may want to dig a little deeper into one or two of them. For example, you can categorize your income flow or identify certain classes of expenses that may be easier to understand and manage. An accountant or certified accountant can help you identify the indicators that give you the best insight into your business.
If you’re not familiar with terms or formulas, don’t be afraid to ask. Your accountant should be able to explain them in a way that you can understand. One of the big mistakes I made as a business owner was treating an accountant that way.