5 Business numbers you need to understand

EMMA BOWDLER

I’m a cheerleader for women and an accountant bursting with personality. 

To really know your business, you need to know your numbers. 

Now I understand running a small business is full of endless tasks, and accounting is an entire field in its own right, so I don’t for a second expect you to become a finance whiz overnight. 

That said, there are several numbers you need to understand in order to keep track of your success. 

Let’s cover five of the essentials below.

Gross Profit Margin

 

Gross Profit Margin is a relatively simple calculation that indicates your profitability against production. Put simply, gross profit margin is the difference between revenue and cost of goods sold, divided by revenue. It’s usually measured by a percentage. 

Profit margins vary based on the industry you work in.  The higher the number the better. A low profit margin indicates 2 things. Either, you are not charging enough, if your cost of sales is high. 

The ATO have provided some industry benchmarks and these can be used as a guide to compare your business to other similar businesses. 

If you find your gross profit margin is fluctuating a lot, I’d suggest taking a close look at your management practises and the quality of your products. To remain sane, you want your gross profit margin to be stable.

business numbers
Emma Bowdler

“If you find your gross profit margin is fluctuating a lot, I’d suggest taking a close look at your management practices and the quality of your products. ” 

EMMA BOWDLER

business numbers

Net Profit

 

Now to one of my favourite numbers! Net profit refers to the amount of money a business makes, AFTER expenses such as interest, operating costs and taxes are paid. It’s one of the easiest gauges to measure success. 

The number is always expressed in dollars, and is also known as the bottom line because it can be found on the last line of a company’s income statement.

Price point

 

Sorry to be an alarmist but this number is one that can make or break a business. Price point refers to the cost of your product. 

Setting your price point is easier said than done. When you determine it, you need to consider variables such as manufacturing costs, what competitors are charging, the quality of your product, how your company is perceived, and what customers are willing to pay. 

This is a task that should take time, so please, whatever you do, don’t rush this.

business numbers
Woman Using Eftpos Machine at Checkout

Cash flow

As the name suggests, cash flow refers to the movement of your money. It’s the total amount of cash being transferred into, and out of, a business. There are three types; operating, investing and financing. 

A positive cash flow indicates a company is adding to its reserves. It helps to create value for shareholders and is used to assess the liquidity and flexibility of a business. 

Have a read of this blog post if you’re interested in some easy ways to improve cash flow.

 

EMMA BOWDLER

I’m a cheerleader for women and an accountant bursting with personality. 

Total inventory

 

This measures stock. If you’re monitoring your inventory every week and find stock levels are gradually increasing, it can serve as an early warning system; one that indicates rough waters ahead because you’re not selling your goods. 

If you spot excess stock early enough, you prevent costs associated with storage, reduced profits and potential waste. 

Want a closer look at your numbers? Book an appointment today and we can see how your business is tracking.

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