The Importance of Knowing your Numbers

The heart is one of the body’s most essential organs. One can argue that the heart is the most important as it sends oxygen and nutrients to all other parts of your body and works incredibly hard to keep you alive.

As it relates to your business, I truly believe that your finances are the heart of your business. Similarly to the heart, your finances provide support to every aspect of your business. There is not a decision you can make that doesn’t have a financial implication. For that alone, knowing your numbers is incredibly essential to keeping your business alive. 

Now that we’ve got the why knowing your numbers is important out of the way, you are probably wondering where to start. 

The first step to getting to know your numbers is keeping them up to date. Gone are the days where we wait until it’s time to file taxes. As the CEO, you should be regularly tracking your income and expenses. Regular check-ins with your finances are critical to the health of your business. 

There are three statements you should be looking at on a regular basis. Your Profit and Loss Statement, Balance Sheet and Statement Of Cash Flows. These statements can easily be downloaded in your accounting system. For our clients, we use Quickbooks Online.

With accurate and up to date financial information, you can lean in on Key Performance Indicators (KPI’s) to measure your business performance. Depending on your industry, some KPI’s would be more relevant than others. I have a separate Blog post on why tracking KPI’s are important that you can read here. We help our clients develop KPIs based on their products and services and provide monthly reporting on KPI progress as part of our Virtual CFO services. In general some KPIs that may be helpful to start paying attention to are: 

• Gross Margin – indicates profitability and measures how efficient your business is managing operations
• Cash Burn – indicates sustainability and measures how much you spend each month to keep your business going
• Recurring Revenue – Indicates stability and measures the portion of your total revenue that is likely to continue 
• Bottom Line – Indicates profitability during a given period

Lastly, once you have established KPIs that are important to keep track of in your business, you should implement a process to regularly monitor progress. This is a way to hold yourself accountable. Monitoring progress against KPIs serves as a report card and allows you to understand what’s going well, where you have room to improve, what you should be doing more of, where you should be focusing your efforts etc. 

Knowing your numbers is an incredibly important and powerful tool that business owners can use to drive decision making. As we are nearing the end of the year, I want to encourage you to reflect on the progress your business has made this year. What are some things that you are hoping to accomplish next year? Whether its launching a new product or service, growing your team to increase capacity or offering benefits to your employees – these decisions are best made with a solid understanding of where your business stands financially and a plan for where you’re going. If this is something you need to support with – sign up for a free discovery call so we can talk numbers and how The Blk Report can help you.