There are thousands of metrics you could track when growing your business but let’s be honest: you’re a busy CEO and you just don’t have time for that.
However, there is a core set of numbers you need to know how to read and understand so that you can gauge how well your business is faring.
Having a clear handle on your finances enables you to make better business decisions, so let’s examine the numbers you really need to focus on.
Profit and Loss
Your profit and loss (P&L) statement tells you whether you’re making or losing money.
It almost goes without saying that this is one of the most important numbers to track as a CEO.
You should analyze your P&L at least once a month, or even more often than that.
This will enable you to make informed decisions about the direction your business is heading in.
Identifying trends is very helpful. For example, if your profits are slowly decreasing, you should examine why this is. Is it a seasonal trend? Are you spending more or selling less? What can you do to rectify this?
This way, you can take immediate action before your business suffers too much.
Accounts receivable refers to money that you are owed by your customers.
This is directly linked to your cash flow.
If there is a lot of money owed to you, your business’ finances could really suffer.
It’s important to stay on top of your invoices and send reminders so that your customers pay you on time.
Accounting software such as Xero can provide invaluable insights into your accounts receivable and send automatic follow ups for you, so it’s a good idea to take advantage of this.
If you’re frequently getting paid late, then it may be time to review your payment terms and introduce late fees or other punitive measures.
Your business’ cash flow is affected by many factors and it can feel very complex at first.
Rather than looking at it on a monthly basis, try to examine your cash flow on a weekly or even daily basis if possible.
That way, you can gain a deeper understanding of the situation and take action before things get out of hand.
You should also periodically check that your bank account is being reconciled properly.
It’s important to remember that cash is king – if you don’t have it, then your business cannot function.
It’s entirely possible to be consistently making a profit and yet run out of cash if your money is tied up in accounts receivable or illiquid assets.
Profit Per Customer or Profit by Customer Group
It’s worthwhile to take a look at your profitability per customer.
This will help you identify which customers are the most profitable for your business.
You can then focus more of your efforts on these customers and bring in new ones who fit into this mold as well.
The best way to do this is by creating an average gross margin per customer and then examining it over time.
You could also group your customers into categories like Top end, Wholesalers, Semi Wholesalers, Mini marts and new prospects to gain a clearer picture of who is most profitable for you.
When you break down your sales by item, this can allow for an even greater level of detail.
It will help you figure out which products are the most profitable and what’s driving those profits.
As with many aspects of business, it pays to be proactive when analyzing these numbers.
Identifying trends early on enables you to maximize your profits by focusing on your most lucrative products or services and eliminating those which are weighing you down.
Whether you’re a business owner or CEO, it’s important to understand how the numbers in your company generates can help you to do better.
If you take time each week or month to analyze profit and loss statements, accounts receivable balances and cash flow reports, then it will be easier for you to make informed decisions about what is working best for your company and identify trends that need attention before they become too large of a problem.
It always pays to be prepared.
If you want to Maximize your Profits and get Cash Flow under control, come and have a chat with CFO Coach today.
We will map out your unique roadmap and help you look for the opportunities to push for a sustainable Cash flow.
Get in touch with me to learn more by SMS on +260967924720 or email to Irfan.Sayed@cfocoach.co.zm or Visit www.cfocoach.co.zm
Alternatively you can choose your preferred date to set up a free 15 minute Power Discovery Call at your convenience by clicking the link – CFO Coach.
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