Business owners and managers need to regularly monitor the financial performance of their business. This provides key insights that help answer questions about the business like:
What are the most and least profitable areas of the business?
Is the business gaining or losing financial strength?
Am I performing in line with my objectives and business plan?
What price point maximises profits?
How much cash will the business generate over the next 12 months?
How did we perform this month compared to last month?
Whilst your financial statements are full of numbers, there are five important ones that you need to check on a regular basis. This will ensure your business is on track and profitable. If these numbers are off a bit, or outside expectations, by checking them regularly, you have time to put in place the necessary adjustments to get them back on track.
Check the level of sales you are making. Sales of last month, last quarter and year to date. It’s best to compare this to your budget, to see if you’re tracking in line with your plans
2. Cost of goods sold
This is one of the critical numbers for a business that buys goods in, converts them and sells them. It’s a measure of how well you trade. Show this as a % of sales to get the most meaning. Important to track this over time and compare to budget, or benchmark.
3. Wages as a % of sales
This shows the proportion of sales spent on wages. As one of your biggest expenses, it shows how effective your team is. Keep a very close eye on this %.
4. Net profit
You need to make a profit to survive. So, monitor net profit each month, quarter and year to date. Compare this against your budget. Is there a profit? Is it enough?
5. Current liabilities
This shows how much the business owes to suppliers and other obligations that are due to paid within the coming 12 months. Include income tax, superannuation and other employee benefits to get a realistic figure. Your ability to pay your bills is a key indicator of the financial strength of the business.
This information is provided solely for general information purposes and is not intended as professional advice. Readers should not act on the information contained therein without proper advice from a suitably qualified professional.
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