When it comes to owning and operating a new business, it can be an incredibly exhilarating, and at times, overwhelming, journey. There are many details to keep track of that it can be easy to forget about some of the smaller metrics that are key for keeping your organization’s finances in check. From one small business to another, we understand that you have a lot on your plate.
If you are in charge of your business’s financial reports, it is important for you to know which numbers are the most important as well as what they mean in terms of the health of your business and the decisions you make in order to help it thrive. We will be going over some of these key financial metrics below, and if you are interested in outsourcing your business’s accounting and bookkeeping services, reach out to our team at Beyond Basics Accounting Resources in Nashville today!
Profit & Loss
Each quarter, you should be refreshing your business’s profit and loss report in order to understand both your tax reporting needs and your bank needs. It is a snapshot of your business’s bottom line that you are able to use to drive your own decisions and also show to an outsider for them to get a better gauge of your strength. If you keep a reconciled balance sheet, it will ensure that everything in your profit and loss report has been captured.
Many people consider cash flow to be the most telling metric of them all, which is understandable as cash is the lifeblood of a company. If you aren’t keeping track of your cash flow, you could end up finding yourself unaware when it comes to making essential payments. This is why measuring your cash flow (and cash burn) is so important as a part of your regular business health check.
Budget Vs. Actual
If you keep a personal budget for yourself, this is often a key part of that process. You will want to do the same for your business in order to see if you are sticking to your plan based on what you actually spent in order to give you a better idea of whether or not you are staying on track and if you need to make any adjustments in your spending to stick to your budget in the future.
Average Cost of Customer Acquisition
We all want customers for our business, especially the customers who keep coming back or spend big. While it can be tempting to take on a ‘whatever it takes’ attitude, you should know the average cost of acquiring profitable customers and then make an assessment as to whether or not you can cut those costs to make them even more profitable. Knowing this valuable information can also help you determine what to spend on customer retention and the value of upselling.
Fixed Burn Rate
Whether we like it or not, there is always a chance that business owners, regardless if they are small, medium, or large businesses, will encounter some sort of unforeseen circumstance or drop in business that is going to drive the need to cut costs (*cough, cough*, the COVID-19 pandemic). The best way to go about doing this is to take a good look at your fixed burn rate and ensure that it is not too high. While it may be tempting to sign on to a long-term contract to save a little bit of money, committing yourself to a payment plan that you cannot afford may lead you to regret that decision in the future. You may be better off taking some of those expenses off of a contracted status so that you can eliminate them if you need to. For more information on this process, please don’t hesitate to reach out to our experienced CPA at Beyond Basics Accounting Resources.
Operating Cash Cycle
If you are looking to expand your business at some point, it is important not to go about it blindly. You will want to have a good handle on how long it actually takes for cash to become available to you after your capital investment so that you can feel good about your ability to go through with your plans. Those who fail to measure their operating cash cycle risk joining the ranks of small businesses that fail due to having poor cash flow management.
Outsource Your Business’s Financial Services With Beyond Basic Accounting Resources
We understand that all of this information can be a lot to digest, especially if you don’t have a background in financial analysis. The truth of the matter is that we only brushed the surface of the key metrics that small business owners should be keeping track of. At Beyond Basic Accounting Resources in Nashville, our passion is helping small business owners with their finances so they can focus on the day to day operations and customers of their businesses. We would be more than happy to help you with all of these metrics and more — to learn more about what we can do for you, reach out to us today!