As a business owner, you’re probably passionate about running your business and helping customers — but maybe not so much about poring over bank and loan documents and invoices or crunching numbers.
While you aren’t required to produce quarterly earnings reports similar to public companies, you should still have a good understanding of your company’s key financial metrics. Keeping a solid grasp on “your numbers” helps you know that the business is financially healthy and can help you expand your operations prudently. Also, any bank or outside investor you approach will expect to see a well-organized breakdown of your company’s financials.
Any small-business accounting program can help you keep tabs on key figures and run reports. But if you don’t have the time or feel you need more expertise, you can hire a professional bookkeeper or have an accountant create more detailed financial reports. (The U.S. Small Business Administration offers a primer on how to prepare a balance sheet and income statement.)
Here are five key basic financials you should be keeping track of:
The most basic thing to know is exactly how much money total you’re bringing in every year. It’s nice to know you’re generating decent income — but it’s not the full story. (Read on.)
How much do you spend every month and year? Keeping a detailed record of your company’s costs can assure you that you’re not spending more than you’re bringing in. Analyzing your expenses can also help you identify potential cost cuts that will strengthen your company’s balance sheet.
3. Assets and liabilities
How much do you own (cash, inventory, accounts receivables, equipment, real estate, etc.) compared to how much you owe to creditors or investors? Putting together a balance sheet that compares your assets and liabilities can give you a helpful snapshot of your company’s overall financial well-being.
4. Net Profit
This is your company’s “bottom line.” You calculate your net profit by taking your total revenue over a specific period — such as a year — and subtracting your company’s total expenses over that same period. This can help to show you whether you’re truly making money and not digging your company into a hole.
5. Net Profit Margin
This shows you what percentage of your company revenue is profit. Knowing your profit margin helps you benchmark your success over time and set goals. You calculate your profit margin by dividing your net profit by total revenue.
These are just a starting point, of course. There are many other business financial metrics that can be worth keeping track of depending on your operations and business goals that can offer deeper insight into your company’s financial health. Talk with your accountant about which ones make sense for your business.
About the Author
Kelly Spors is a freelance writer and editor based in Minneapolis. She previously worked as a staff reporter for The Wall Street Journal, covering small business and entrepreneurship.
[The contents of this article are for informational purposes only. The information should not be relied upon as replacement for professional financial advice.]
All content provided herein is for educational purposes only. It is provided “as is” and neither the author nor Office Depot, Inc. warrant the accuracy of the information provided, nor do they assume any responsibility for errors, omissions or contrary interpretation of the subject matter herein.
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