Owning a business is a lot of work. In addition to the actual work that your business does – selling, landscaping, fixing, treating, etc. – you also have to do all of the tasks of a business manager. And of all of the many tasks on the small business owner’s plate, the financial tasks are often the most daunting for most people. There is so much to keep track of, quantify, track, and process. While it can feel unreasonable to add even more to your financial responsibilities, in the long run, doing so will make everything easier. So, read on for the financial metrics that every small business should track, and if you’re not tracking them, start today.
Cashflow is a big category that covers several metrics that you should be monitoring. First, the actual cash flow itself is a metric: you need to know what is going out, coming in, and moving around on a macro scale. You should also be monitoring your cash cycle. You have to know the timing for the different parts of your cash flow so that you don’t run low or, worse, run out at points in the cycle. Finally, as part of this, you need to be watching your profit and loss each quarter and preferably create a quarterly report of it.
Accounts receivable is another broad category, covering everything that your business is owed or due. You should, of course, be monitoring what payments you have outstanding, but you also need to track how long it takes to be paid, especially from key customers. If you are routinely going without being paid for longer than you’d like, you should consider incorporating a late payment fee structure. Part of monitoring customer metrics also includes keeping track of “churn,” or how many customers stick around and for how long.
In addition to money in, you should be monitoring money out. You need to watch how much you’re paying for stuff, especially compared to your budget, as well as how long it is taking you to pay things off. In some cases, it may be better to pay more for something than to have lower payments stretch out over your head for months or years.
Finally, you should, of course, be watching your profits. Specifically, you should track how much you’re making in strict profits, but also per customer profit. You should also be comparing your profits to your projections.
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