Do You Know Your Numbers?
A lot of people are surprised to learn that you can bring in a lot of money without actually turning a profit. Alot of business owners may not know whether they are turning a profit or not if even if their business is making alot of money. They could be actually losing money every year based on costs, expenses, debt, etc. How can a business owner make proper decisions when it comes to their business, such as whether to expand, open a line of credit, or accept venture capital, if they are not fully clear on their entire financial picture? Not knowing the true financial story can lead to short and long term consequences.
Who really likes math? Not many of us. But “math is the language of the universe, and accounting is the language of business.” Don’t let anyone know more about your business than you, get comfortable with knowing your numbers.
Knowing your numbers means to have full and up to date knowledge of every aspect of your business finances. It allows you to understand the full financial picture at any given moment so as challenges or opportunities arrive you are well prepared. Accounting and bookkeeping might not be your areas of expertise, but if you want to be successful in business, you should be familiar with certain financial numbers when it comes to your company.
This is a great article about the top “11 Numbers every Business Owner should know”:
Summary:
1) Revenue – the amount of money that a company brings in by its business activities also known as sales.
2) Expenses (or Costs) -These mainly come in the form of Cost Of Goods Sold (COGS), General & Administrative or Overhead Expenses.
3) Profit – calculated by subtracting the various costs , along with depreciation, interest, taxes from revenues.
4) Profit Margin – the percentage of revenue that is profit.
5) Cash on Hand – all the money your business has in bank accounts.
6) Equity – the money invested into your business by the owners and/or shareholders.
7) Debt – any loans or lines of credit taken by your business that must be repaid, usually with interest.
8) Tax Rate – the rate of taxes on the company profits.
9) Accounts Receivable – the amount of money your company is owed from sales of your products or services.
10) Accounts Payable – the amount of money your company owes to others, usually vendors.
11) Quick Ratio – determines if a business has sufficient short-term assets to cover its immediate liabilities to properly continue its operations.
It may seem like a lot to know, but this is where good bookkeeping comes in. A good bookkeeper can reliably produce these figures on a daily, weekly, monthly or yearly basis. So don’t be afraid to ask your bookkeeper for these financial numbers, or if you do your own bookkeeping, make sure you are pulling the correct reports to have this information ready when you need it.
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