7 Numbers you NEED to know in your business

Kirsty Young Advice and Tips, Business Tips, Limited Company

Do you feel in the dark about your business’s numbers?

Many small business owners feel there is a real lack of data available to them. This is usually due to a combination of:

a) not knowing what numbers are important (and why)

and

b) not having a system to produce them regularly

So, here’s your business owner’s guide to 7 of the most impactful numbers you could know about your business. Once you know them, they can give you some real insight into what’s happening in the business, and help you understand how to push the business forward.

Some of these numbers you will easily be able to pull from your records, and some might need a more detailed calculation. We don’t cover the detail of the calculation here. Right now, we just want you to be aware what key numbers you should be looking at are, and why they are important.

Know your numbers

First, we’ll talk you through you the ‘Big 3’ key numbers that most owners need a handle on. Then we’ll explore “4 More” that really help you get under the bonnet of the business.

 

THE BIG 3

1. Revenue

The obvious first number to understand is how much you are selling. Call it ‘sales’, ‘revenue’ or ‘turnover’ – it’s all the same thing.

Knowing this number, and whether it is growing or decreasing will give you a key indication of whether the business is going in the right direction.

It’s not the only number that matters, but it’s a pretty important one!

2. Gross Profit Margin

This one is MASSIVE. The power in knowing this number and actively trying to improve it can change your business, and ultimately your life as an owner.

Your gross profit margin tells you what profit would be left after you pay for your ‘direct’ costs for every £ of revenue you generate. This number is normally a % figure.

For example, if you make a product, it’s usually the profit after you’ve paid for the materials to make it, package it, delivery, etc.

Your gross profit margin shows you how profitable your main business activities are, before considering your fixed costs (overheads).

For more commentary on this, check out our previous blog on the subject.

3. Net Profit and ‘EBITDA’

Some would argue that Net Profit is actually all the matters. It’s the profit (if any!) that’s left at the end when all other costs have been taken into consideration.

One key version of this number is something known as ‘EBITDA’. This is the profit, but with some of the more ‘unusual’ costs that are normally found in accounts stripped out.

EBITDA means:

Earnings (profit) Before Interest, Tax, Depreciation and Amortization (another form of depreciation).

The best way to use your EBITDA figure is as a percentage of your revenue. This will then in theory tell you, for any given £ revenue figure, what profit is left at the end. So, if you have an EBITDA of, say 35%, then for every £100 you make, £35 is Profit.

It’s very important to keep tracking this figure, so you are also keeping an eye on the direction the business is heading in.

 

4 MORE

4. Revenue per employee

This number is how much revenue (sales) you produce per employee in the business. This number is impacted by many elements of your business including:

    • Efficiency
    • Employee costs (holidays, pension plans, etc)
    • Training
    • Tech and Equipment
    • HR and Recruitment

As a result, this number is more of a holistic look at the business and how efficient the team is. If you concentrate on improving this number, you often find many others are positively impacted.

5. Cash Days

Your Cash Days number can also be called ‘working capital days’. It is a measure that gives you a snapshot of how long it takes for money to go through your business.

Your Cash Days calculation combines:

    • How long it takes for your customers to pay you
    • How long it takes for you to pay your suppliers
    • How long it takes for your stock to be turned into cash
    • How long it takes any ‘work in progress’ to be turned into cash

Improving this figure (making it lower) can really help improve the cash in your business at any given time. This is particularly important in times of financial stress or market worries.

6. Core Cash Target

This number looks at the ideal amount of cash your business should keep on hand before starting investments or paying profits out.

Depending how you calculate this, it’s usually a number that includes:

    • Your total taxes due
    • An amount for your fixed overheads

It gives you an idea of what you really need to hold back in reserve before committing funds to other projects or put in your pocket as the owner!

7. Business Return

This number is another indicator of how your business is progressing overall. It is normally calculated by looking at:

    • Your net profit over a year

vs

    • The overall ‘value’ of your business

You could look at this number as ‘Is the business producing a good enough return?’. For example, would you get more if you just closed the business now, cashed in and stuck the money in a bank?

 

Summary

And there we have it, 7 key numbers you should know about your business.

If you don’t know them, or are not sure how to find them, we have a range of business advisory services that build in these key numbers at their core.

Our business advisory service includes monthly meetings to:

  • Review these numbers
  • Understand what’s happening
  • Help you set an action plan to move the numbers and push your business forward

Want to know your numbers? Call this number – 02392 240040– and ask about our business advisory services. We’re here to help.