Numbers tell a story about your business. They paint a bigger picture of what’s going on. They help us make the right decisions for our businesses and plan for the future.
But business metrics are useless if we don’t understand what they mean. If we don’t understand them in the context of what we want to achieve with our businesses, and where we want to be.
Think about where you want to be with your business. What’s the dream? Do you want to expand your offering, grow three-fold, or maybe even redesign your business so you can spend more time with family? What do the next 2, 5, or even 10 years look like?
Now, picture where your business currently stands.
Numbers come to life when we see them in the context of this story.
Numbers help us bridge the gap between where we are and where we want to be. When we see our business numbers in the context of our goals, they help us plan for the future. They become the jumping off point from where your business is now, to where you want it to be.
Looking at the key numbers alone won’t help us build better businesses. It’s when we see our current numbers in the context of the bigger picture, of our goals, of what we want to achieve, that we can use them as tools to create change. They become stepping stones for helping you plan for the future and shaping where you want to be.
When you know your numbers, you’ll know the full story of your business.
Here are the 7 key numbers every business owner needs to know to understand where they are and gain clarity on the way ahead.
1. Revenue Growth
If you’re looking to grow your business, tracking revenue can be a great place to start. Often referred to as ‘sales’, your revenue is the income earned from the sale of your products or services. This is a key metric for analysing how well your business is performing over time.
2. Gross Profit Percentage
Gross profit indicates how much money you’re making directly from delivering your product or service.
This key number helps you understand if your business is making a good profit from the production of its main activities. It’s also a key indicator of how well your business manages its production costs.
3. Operating Profit
Your operating profit is the total income your business generates from sales after paying off all your operating expenses. These are things like rent, payroll, and equipment.
Measuring operating profit can help you assess the health of your business, the strength of your business model, and how well you’re controlling costs.
4. Revenue per Employee
This is a number that can tell so many different stories about your business. Straight off the bat, you’ll see how much money each employee generates for the business. But it’s also a really useful metric for measuring team productivity and benchmarking how your business compares to others in your industry.
If you see that your revenue per employee ratio is low, you can start to look at the bigger picture– does your team have the tools and resources they need to work efficiently? Do they need more training, better systems, less distractions? How could the company culture be hindering your team’s productivity?
When we only look at revenue, we don’t see the whole picture. A company with less employees could actually be generating more revenue per employee and be more productive than a bigger organisation with more employees and a higher revenue!
5. Core Cash Target
Your core cash target is the ideal amount you will have in your bank account before investing in a new project, like hiring a new employee, opening a new premises, launching a new product/service, or paying shareholders.
The last thing you want to do is invest in that next big project without any cash in reserve, then realise you have shareholders to pay and a big tax bill due!
This is a great metric for helping you forward-plan and spot the optimum time to invest in your new project, whilst proactively managing your cash flow.
6. Cash Days
Cash Days helps you determine how long it takes for cash to go through your business.
This is broken down into:
Accounts receivable days – how long it takes for your customers to pay.
Accounts payable days – how long it takes for you to pay your suppliers.
Inventory days – how long it takes for your inventory, your stock to be turned into cash.
Work in progress days – how quickly your work in progress is turned into cash.
This metric is key for assessing your cash flow over multiple different areas and identifying ways you can shorten any gaps.
7. Business Return
This metric evaluates what your business is worth to you based on its current profit, helping you identify if you’re getting the kind of return you want on your business. By evaluating whether your business is creating a good return, you can make an informed decision on whether you want to keep the money you’ve invested in the business or put it in the bank.
Take control of your finance story
At Complete, we’re on a mission to help businesses understand the numbers behind their organisation.
We simplify numbers into stories you can understand, and use them as a jumping off point to get to where you want to be.
We help businesses gain clarity on the numbers with actionable strategies, systems, and tools that get them where they want to be.
Using leading industry software, we can drill down into the 7 key numbers for your business, help you understand what they mean, and then shape an action plan to help you achieve your goals.
Ready to take control of your finance story? Let’s talk!
*The 7 key numbers in this post are courtesy of our friends at Clarity, reporting software designed to help you understand the numbers behind your business.*