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There are 3 key numbers any business owner should track, no matter what industry you are in

Dealing with the numbers in your business can be very overwhelming.

You might be thinking: “If I don’t know the numbers in my business, that’s not a problem because I can’t see them.” But those numbers are still there.

There are three key numbers you need to track in your business in order to grow a successful business: sales, profits, and cash.

You don’t have to do this yourself. Your bookkeeper — and you should hire a bookkeeper — can do most of this for you.

What you track grows.

Sales

Sales are the lifeblood of your business. No sales, no business. Period.

Start tracking your sales at least once a month. Break it into your top three products or services.

Ask your bookkeeper to make them line items on your profit-loss statement. That way you will be clear on how your top three offerings are performing. Also track the drivers that affect sales. For example:

  • Growth of your email list
  • Sales conversations you have per week
  • People visiting your website
  • Speaking engagements you have

Create an Excel doc to track the drivers of your sales. Do this every week. Make it a game. Remember, what you track grows!

paperwork papers job fairERIC THAYER / REUTERS

Profits

Sales are important, but it’s just as important for your business to make a profit. There is only so long your business can last if it doesn’t make money.

Shoot for a profit margin of 10%.

Sales minus expenses equals profits. Some business owners pay themselves a salary that is part of their expenses. But if you just take a draw (distribution) from your business, this won’t show up on your profit loss statement — so add any distributions back into your expenses. This will make sure you have a clear picture of your profit margin.

Aiming for a 10% or higher profit margin will force you to keep your spending in check.

Here’s an example. Stay with me!

Your business does $100,000 in sales and has expenses of $40,000.

So your profits are $60,000.

You don’t take a salary, but every month you move $5,000 from your business account to your personal account to cover your living expenses — which adds up to $60,000 a year in distributions.

If you were to add back in those $60,000 of distributions and think of them as expenses, your profit would now be zero. $60,000 in profits minus $60,000 in distributions equals zero.

The goal is a 10% profit margin on sales of $100,000, which is $10,000. So in this example, you could only withdraw $50,000 to your personal account per year to keep your profit margin instead of the $60,000 you’ve been taking. $60,000 in profits minus $50,000 in distributions equals the $10,000 profit goal.

PaperworkFlickr / John Patrick Robichaud

Cash

Do you ever ask yourself, where did all the money go? Time to figure that out. Cash flow means many things to business owners.

  • How much money you have at the beginning of the period
  • How much money you have at the end of the period
  • What happened to the difference?

The most common causes of changes in your cash balance are:

  • Net income — your profits
  • Money you withdraw from your business account
  • Tax payments
  • Payments toward debt
  • Investments you make

Ask your bookkeeper to track this for you and you can find it in your cash flow statements. This is why hiring a bookkeeper is so important.

Make a goal to keep at least two months’ of business expenses in your business account. If that seems like a stretch, start with one month.

This will make you think twice about wasting money in your business. Remember — cash is king.

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