There are five key numbers that can provide valuable insight into the health and performance of your business.
1. The amount of cash available in the business
Profit is important, but cash pays the bills.
Understanding your current cash position, and what it is likely to look like over the next few months, can help you make better decisions and avoid unpleasant surprises.
The added visibility lets you plan ahead for things like paying VAT and corporation tax bills. It also shows you whether there are likely to be any tight spots so you can manage your cash proactively.
2. Profit vs turnover
Turnover is often the number business owners focus on first and people are, rightly, proud of reaching big sales thresholds.
In reality though extra turnover doesn’t automatically equal extra profit and the phrase ‘being a busy fool’ can become a reality if you aren’t careful.
The whole point of working hard is to have something to show for it at the end so understanding how much profit remains after delivering your products or services can provide a far clearer picture of performance.
3. Outstanding Debtors
How much money do your customers owe you? Strong sales figures can quickly lose their shine if cash isn't being collected promptly.
Invoicing on time and sending statements will help to both minimise the risk of bad debts and keep cash flowing in.
If you’re offering repeat services you could agree your customer will put a retainer in place, paid via direct debit, so that you don’t have to keep chasing invoices.
4. Tax Liabilities
Tax bills should never come as a surprise but it’s very common to find a business owner who is surprised by how much corporation tax they have to pay, or a high VAT bill.
Knowing what you're likely to owe throughout the year allows you to plan ahead and manage cash flow with confidence.
In practice, it also helps to have a company bank account set up to save funds for tax bills. For instance, having a deposit account that you transfer funds into each month, once you know your profit figure, means it’s a lot less stressful when it comes time to pay HMRC.
5. Growth forecasts
Recruitment plans, equipment purchases, loan repayments and investment decisions all impact future cash flow.
Understanding the cost of hiring a new team member to drive sales for instance is more than just a salary cost. It’s additional computer equipment and software licences, employers National Insurance and pension costs, and training and & HR related costs.
Having a realistic growth forecast with accurate and complete costs, anchored into your existing numbers can ensure today's decisions support those growth goals.
In summary, the purpose of good financial information isn't simply a tick box exercise. It's to help business owners make confident decisions.
When you understand the key numbers driving your business, you're better equipped to plan ahead, manage risk and focus on growth.
If you need any help understanding your key numbers, please contact us.
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