Many businesses look at a very narrow set of numbers, but it is often necessary to look at a broader range of metrics.  Money in the bank can be a sign that a business is performing well, but we also need to know about sales, gross margin, and costs to be able to decide that.

Some of the key numbers are below:

Sales volumes, and value

Volume tells us how many units are sold, and sales value is numbers by price.  Both tell us something, but both can be deceptive.  Volume can increase but also might disguise discounting undertaken to boost the number of sales.  A rising sales value may not be due to higher volume, but perhaps the effect of rising buying price pushing up the selling price but with no change in Gross profit.

Profit

We measure two profits.  Gross profit is sales less the direct/variable cost of that sale, that is the cost to make or acquire (purchase, freight in, factory wages).  Net profit is gross profit less all overheads or costs.

Costs

These can be fixed, which means no change regardless of how much work performed or income earned (like rent) and variable, which change as sales or production changes.  These have an effect on profitability and also impact on cashflow.  For instance, variable costs rise as you increase inventory or take on more employees, often well ahead of the business selling to a customer and receiving payment.

Monthly revenues

These are an important part of sales.  Seasonality lets us anticipate rises or falls, useful in managing stock levels and cash flow.  If we know monthly sales may fall in a month we can also calculate receipts expected from customer payments and so the cash available to pay the business costs like fixed costs and suppliers.

Money in the bank

Profit is one thing, but cash is critical.  Bookkeeping can tell you this, or by simply checking to the bank account for the balance.  Compare the actual balance to your cash forecast – are you on track, can all accounts be paid, is there a reserve for growth or an expected need?

Inventory

This may be goods on the shelf, but also in the storeroom or in transit to you, and can also include work in progress.  It needs to be tracked so you re-order on time but not too far ahead, because that would mean less money in the bank.  Some businesses use inventory software, great if you have the resources to run the software accurately, but sometimes your own gut feeling is almost as good.

Whether the business is a start-up or more mature, the numbers are so important.  They answer the questions that you must always know;  2) Am I trading profitably, and b)  Can I pay the bills?

Accounting software is not there just to keep a bookkeeper busy or to do a BAS every quarter, it is important to track these key metrics so you can always answer be confident of your control of the business.