Making sense of the numbers in your business
Understanding the numbers in your business can be challenging for most business owners (unless they are accountants, of course!). But you don’t have be overwhelmed by it all, all you need is to understand a few of the key numbers in order to be able to make sensible, objective decisions.
So, we thought it might be useful to share a list of the most common (and useful) numbers in your business and what they mean.
Useful numbers to know
- Accounts payable: the expenses you need to pay for like suppliers.
- Accounts receivables: sales that you haven’t yet been paid for by your customers.
- Assets: items of value your business owns or derives value from.
- Current assets: Assets that are easily converted within one year to cash including bank accounts, debtors, stock etc.
- Fixed assets: Assets that have a longer life span and are not easily converted to cash like machinery and vehicles etc.
- Balance sheet: a financial statement that reports a company’s assets, liabilities, and shareholder equity.
- Breakeven point: the point at which its sales exactly cover its expenses.
- Budget: a plan you write down to decide how you will spend your money each month.
- Cashflow: the movement of money moving in and out of your business in terms of income and expenditure.
- Cashflow gap: the time between when you need pay your expenses and when you receive payment of the invoices for the items you’ve sold.
- Costs of goods sold (COGS) – The cost of goods sold refers to all the direct costs and expenses involved in producing or delivering your goods and services, usually variable in nature. It does not include fixed costs / overheads.
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- Equity: total assets minus total liabilities of an organisation.
- Expenses/ costs: What you need to spend to keep your business running.
- Fixed Expense – Expenses incurred whether or not you have sales like building rent, senior management wages etc.
- Variable Expenses – Expenses incurred because you have sales like materials, delivery costs etc.
- Gross Profit: the selling price of your product / service less the cost of producing / providing it
- Gross Profit margin – measures a company’s gross profit compared to its revenues as a percentage.
- Liabilities: something a person or company owes, usually a sum of money
- Current liabilities: Debts due to be paid within 1 year, typically supplier invoices (known as creditors)
- Long term liabilities: Debts to be paid over several years e.g. bank loans
- Margin: the difference between net sales and the cost of merchandise sold and from which expenses are usually met or profit realised.
- Mark up: an amount or value added to the cost price of something.
- Net Profit: the amount of money your business earns after deducting all operating, interest, and tax expenses over a given period of time.
- Payment terms: the terms that detail how and when your customers pay for your goods.
- Profit and Loss Statement: a financial statement that summarises the revenues, costs, and expenses incurred during a specified period.
- Revenue – total income generated from the sale of your services or products before deducting costs.
If you would like to find out more about managing the all-important numbers in your business, book your complimentary coaching session today.
