7 Pieces of Critical Information Every Business Owner Should Be Tracking

Posted: February 24th, 2014 | Author: Dan Zimanski

To run a business successfully, you have to be able to identify which efforts are increasing your profits and which are draining your resources. The only way to do this is to be able to monitor and analyze your finances.

In short, you’ve got to know your numbers!

Whether you work with an accountant, or if you are keeping track of your finances on your own, every business owner needs to understand which types of financial information are most important to track and measure. With so many different varieties of data available to you, this can easily become very overwhelming.

Much of what we teach at Action Coach focuses on the process of establishing the most important metrics for each client’s business, and here are 7 core metrics you should learn to track and measure:

7 Types of Financial Information to Track & Measure

Net Profit – Your net profit is going to be the amount of revenue you receive after all of your costs are deducted. Even if your sales have increased, if your costs have also increased, you may only be breaking even or you could be losing money. By studying the net profit, you can determine if certain projects are truly worth your time or if they need changes.

Overall Sales – By studying the sales figures for the entire company, or a particular product or service, you can measure things such as how well your marketing efforts are working. Are customers eager to make purchases or are the sales figures dropping?

The experts at Inc. recommend comparing your current sales figures to where you want them to be in the future. This will help you make a plan for how to proceed.

Sales Per Capita – Sales per capita data allows you to take your sales figures and separate them into smaller divisions. Instead of looking at your sales figures as a whole, analyze the sales numbers for particular team members. Score recommends also looking at which days and times of the day bring you the highest average sales. This allows you to identify opportunities for improvement.

Quick Ratio – The quick ratio is determined by dividing your total accounts receivable by your total accounts payable. This ratio indicates your business’ ability to pay its bills. The ratio should be at least one to one, meaning you can cover your expenses, but ideally, accounts receivable will be twice as large as accounts payable.

Debt to Equity – The debt to equity ratio, which is the business’ total debt divided by its equity, allows for a measurement of how well the business is able to manage its financing. This ratio is often observed while the business creates a strategy to reduce its overall debt.

Inventory – Inventory management is an essential element of financial analysis. Business owners must strike a balance between running out of stock and having large costly surpluses. Inventory levels must be monitored regularly to avoid any unexpected fluctuations or wasted resources.

% Of Sales – The only way to determine if your costs are growing too high is to measure them in relation to your sales. If costs become a high percentage of sales, this means overhead expenses are getting out of control and changes need to be made.

Not Sure Where to Start?

If gathering financial the information to track these metrics  seems like an impossible task to you, or there are certain pieces of it you’re not sure about, please contact us today.  Our coaches can help you create a system to begin tracking the most important numbers to your business – no matter where you’re starting from.

Sources:

http://www.inc.com/guides/tracking-critical-numbers.html/1

http://blog.score.org/2013/renee-butler/tracking-critical-numbers/