The 5 numbers that'll make or break your business
Regardless of the type of business you're running, monitoring a few numbers is often what's needed to keep your company growing and prosperous. On the other hand, neglecting a firm's vital signs can lead to management-by-crisis and corrective actions that might be too little, too late.
A company's key financial indicators often fall into one or more of the following categories:
Orders and returns. Are you selling more units over time? To find out, look at your sales figures by units. Tracking revenue alone may present a false picture. After all, revenue may be growing because you are raising prices. If unit sales are declining, you might be losing market share.
Breakeven point. You need to know if you're selling enough products or providing enough services to cover your other expenses. If you're dipping into reserves to cover revenue shortfalls, adjustments may be required.
Liquidity. Every month your accountant or bookkeeper should ensure your general ledger agrees with the bank's records of deposits and withdrawals. If a company is losing cash the bank statements should tell the story.
Inventory. Controlling the product on your retail shelves and accumulating in your warehouse is often a key to profitability. Buying too many items may lead to excessive storage costs and high waste. Remember, every dollar in inventory is a dollar you don't have available as cash.
Payroll. Staff size should be commensurate with revenues. Medium-sized businesses can especially find that labor expenses grow too rapidly. A decline in orders may signal a need to reduce payroll costs. Divide your sales by the number of equivalent full-time employees. Then compare this figure over time. Revenue per employee should be growing!
Compare your business's vital numbers over time. When viewed in isolation, their meaning can be lost, but by creating a comparison, useful trends can be discovered. The key is to know your company, identify changing conditions and adapt.
Michael Gunckel, CPA
Succentrix Business Advisors
671 East Riverpark Lane,
Suite 120B Boise, ID 83706