April 12, 2022
Running a small business is much like navigating the high seas without the North Star. Okay, maybe it's not that dramatic, but the point is clear: without the right tools, you might be sailing into choppy waters without a compass.
Imagine you owe the local supplier a chunk of change, but the till's looking a little sparse, or your 'bottom line' has lost its voice amidst the clamour of business jargon. To avoid this dreaded dance with financial ruin, we're going to chart a course by highlighting the financial metrics every small business owner should not just know of, but keep a hawk-eye over.
Money talk isn't just for high-powered Wall Street suits. It's the lifeblood of your operation, the thing that keeps the lights on and the doors open.
But for small business owners, keeping track of the cash isn't as easy as looking at the number on a register at the end of the day. Cut through the financial fog and steer your ship of commerce toward clear, open seas with these financial metrics.
We love a good cash flow - it's the heartbeat of any business operation. Like a car running on fumes, a business without cash flow is a sputtering thing.
Without this vital metric, you might be making sales but end up in the red if the cash isn't coming in when the bills are due. To avoid this, track your incoming and outgoing funds weekly or even daily. It’s like water; allow a pond to become a puddle and you've got yourself a dust bowl.
Sure, cash is king, but it's Queen Profit Margins who usually calls the shots. Profit margins measure profitability - how much you're making off every sale.
High margins often mean pricing your goods or services just right (translation: not overpricing yourself out of the market, not underpricing yourself out of business). Track this metric as if your future success depends on it - because it does.
Every small business owner needs a tight grasp on the purse strings. Are you making big sales but seeing no profits? Are you spending too much on inventory? Are suppliers giving you a bulk discount you're not taking advantage of? Track and categorise your expenses to find out where the leak is before you end up knee-deep in water (or worse, debt).
Imagine throwing a party and realising you spent a fortune on fancy doilies and nobody came. Your CAC tells you if your investment in marketing and sales efforts to attract new customers is paying off. It’s about accountability; no point in shelling out if it's not getting shells in the door.
Everyone loves a good 'upward trend.' It's why we watch sports, follow fashion, and, in this case, monitor our company's growth rate. It shows you how quickly your business is expanding - or not. Steady growth is the telltale sign of a sound strategy.
While understanding these metrics is essential, it's not the only financial block in your business Jenga. Leveraging the right financial products can add strength and stability to your fiscal framework. High-interest, no-fee business savings accounts can turn idle money into seedlings for future investment or cushioning for tougher times.
On the other hand, low-interest and high-fee savings accounts, evident in some banks, like the Fifth Third Bank (see Fifth Bank savings account review here) will make you no money. Worst case scenario; you could end up losing to one of the many fees charged.
And in this economic rollercoaster, every penny counts, or, as we say in the world of small business, "A penny saved is a penny that doesn't yearn to break free from the cash register."
For small business owners, the sea is vast and full of adventure. But with adventure comes the all-too-real chance for calamity if you’re not prepared.
By mastering these 5 essential financial metrics, you'll not only steer clear of the more dubious business backwaters but keep your sails billowing with that sweet wind of success.
Remember, it's not just about knowing the metrics; it's about living and breathing them. They're the pulse, the breath, and, dare I say, the soul of your enterprise. Keep these financial friends close, and you'll weather any storm with aplomb. Smooth sailing, entrepreneurs!
