All micro-business financial metrics discussed below are known to pretty much every retailer in the world of commerce. However, this guide seeks to shed more light on these critical aspects of running a business.
So what are some key metrics a small firm owner should check?
Income is the equal of your total sales. Without revenue, your business is as bad as dead. You can’t pay staff, order product delivery or sustain operations. So income straight away qualifies as the first metrics to put a tail on. If possible, track your daily, weekly, monthly, quarterly, and yearly income to monitor your entity’s progress.
Again, income is critical because it is one of the numbers commercial lenders use to determine your eligibility for business funding and the amount you are entitled to.
You can categorize your commercial expenses into many groups, and it’s your accountant’s job to see to it that this happens without confusion. The bottom line here is to ultimately know how much you spend to stay in business regardless of whether or not you earn sufficient income to meet those day-to-day expenses.
Remember, the difference between your revenue and expenses is what determines if you’re running a profitable venture or not. Nevertheless, isn’t profits one of the primary reasons you are in business?
Don’t get comfortable with the amount you hold in your business checking account per month; it helps to understand how your small firm’s Cash Flow Metric.
You can calculate this by dividing your total assets by your liabilities—which means your accountant must be able to define those two factors clearly to help you get your cash flow metrics. The goal for cash flow metrics is to get a 2:1 ratio or in other words, posses two times as many assets as liabilities. And while it is a challenge to get a 2:1, make sure you are not falling anywhere below 1:1 as this is a red flag you have severe problems with your cash flow.
4-Accounts Receivable Aging
You cannot ignore the significance of this metric. It factors in you how long your customers take to settle their invoices? Are they consistent in making payments as per your company’s terms (30, 45 or 60 days)?
Start accepting late payments and you begin losing profits. And though these timeframes might not apply to your small firm, it helps to investigate your situation to determine your Account receivable aging.
5-Accounts Payable Aging
It refers to the average number of days you take to meet your micro-business’s financial obligations. Retailers who effectively manage their Accounts Receivable, cash flows, and revenues shouldn’t have a problem keeping their accounts payable current. In fact, they even get to benefit from the prompt payment terms their suppliers offer.
Retailers who wish to operate a thriving business should strive to have a handle on the above metrics, if possible, dig even dipper; they may give you other useful insights.