Keeping track of your small business financials can become overwhelming. You must remain on top of every rise and fall in finances to make sure that your business can access all that it needs, and that all of your bills can be paid. A simple way to quickly determine the state of your small business finances is to examine three elements: your cash flow, cash runway, and revenue growth rate. Knowing these three small business analytics can help answer three critical questions about the current state of your business, as well as its future.
Your cash flow statement will show the flow of cash in and out, or how much you receive and how much you spend, during a set period. Your cash flow used in conjunction with your income statement and balance sheet is a way to make sure you have enough funds to keep going even if you encounter a rough patch. If your small business has tight funds, checking these small business analytics at least once a month is critical.
Knowing your cash flow is important because it shows you your “bottom line” of cash in hand. It also helps you spot patterns that can help you predict potential downturns in your cash flow. Ultimately, your cash flow is essential for helping you know whether your everyday operations are generating enough money for you to stay in business.
It is not just important to know how much money you have on hand, but how long you have before you run out of cash if you were to stop generating revenue. It’s the worst-case scenario, but if you’re a new small business, there will likely be months where you spend more than you make. These small business analytics can help you understand how long you can keep your business running as you currently are.
For example, if your net burn rate, which is how much you regularly spend for payroll and expenses, is $20,000 a month and you have $100,000 in the bank, you know you have roughly five months to start generating more cash.
Revenue Growth Rate
Comparing your revenue over time, or year-to-year can help you see the big picture of your small business. You can spot whether your business is growing or not. Knowing this information is key to figuring out marketing expenses, whether to hire more employees, or whether you should open a new franchise. Being able to analyze your revenue growth rate is key to planning the future of your business.
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