The Numbers Every Successful Business Owner Should Know
Running a business keeps you busy. Between serving clients, paying bills, keeping up with customers, and handling everything else on your list, it is easy to judge how your business is doing by one thing: the money coming in.
But revenue only tells you part of the story.
A business can bring in more money than ever and still feel like there is never enough cash in the bank. On the other hand, a business with slower sales can actually be financially healthier because it is managing expenses and keeping more of what it earns.
This is where good bookkeeping becomes more than something you do for tax season. Your numbers can help you understand what is happening inside your business and make better decisions about what comes next.
Here are the financial numbers every small business owner should know.
1. How Much Revenue Is Your Business Bringing In?
Revenue is the total amount your business earns before expenses are deducted.
It is usually one of the first numbers business owners look at because it tells you how much you are selling. Comparing revenue month to month and year to year can also help you see whether your business is growing, slowing down, or experiencing seasonal changes.
But revenue should never be looked at by itself.
A business bringing in $20,000 per month is not necessarily doing better than a business bringing in $10,000 per month. You have to understand how much of that revenue is actually left after running the business.
2. How Much Profit Are You Actually Making?
Profit is what remains after your business expenses are deducted from your revenue.
If your business brings in $20,000 this month and has $18,000 of expenses, your profit is $2,000. That $20,000 revenue number might sound exciting, but the $2,000 tells you much more about how the business actually performed.
This is one of the reasons I encourage business owners to review their profit and loss statement regularly instead of only checking the balance in their bank account.
Your profit and loss statement gives you a much clearer view of the relationship between what your business earns and what it costs to operate.
If you use QuickBooks Online, your P&L is one of the reports I recommend getting comfortable with. It gives you a simple place to review revenue, expenses, and profit and compare how those numbers are changing over time.
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3. Where Is Your Business Spending Money?
Knowing how much your business spends is important, but understanding where that money is going is even more helpful.
Some expenses are easy to remember, like payroll, rent, inventory, contractors, or advertising. It is often the smaller recurring expenses that quietly add up over time. Software subscriptions increase. Services get added. Vendors raise their prices.
Reviewing your expenses regularly gives you the chance to catch those changes.
That does not mean cutting every expense you possibly can. Plenty of expenses help your business grow or save you valuable time. The goal is simply to understand what you are paying for and whether those expenses still make sense for your business.
4. Does Your Business Have Healthy Cash Flow?
Cash flow is the money actually moving in and out of your business.
This is different from profit, and that distinction is important.
Your business can be profitable on paper and still struggle to pay its bills. For example, you might invoice $15,000 this month, but if your customers have not paid those invoices yet, that money is not available to cover payroll, rent, credit cards, or other expenses.
Watching your cash flow helps you understand whether your business has enough money available for what is coming next.
This is also why I am a big believer in keeping business and personal finances completely separate. A dedicated business bank account makes it much easier to see what cash actually belongs to your business and understand what is coming in and going out.
Bluevine Business Checking is one option for business owners looking for an online business banking solution.
If cash always feels tight even though your business appears profitable, cash flow is one of the first places I would look.
5. How Much Money Do Customers Owe You?
If your business invoices customers, you should know your accounts receivable balance.
Accounts receivable is simply the money customers owe your business for work you have already completed or products you have already provided.
Making the sale is only the first step. You still need to collect the money.
Regularly reviewing your unpaid invoices helps you catch overdue balances before they become much harder to collect. It also gives you a more realistic picture of the cash you are expecting to receive.
Your accounts receivable reports in QuickBooks Online can help you see which invoices are still open and how long they have been outstanding.
6. How Much Money Does Your Business Owe?
You also want to know what is going in the opposite direction.
Accounts payable represents money your business owes to vendors and suppliers. You should also be aware of upcoming credit card payments, payroll obligations, loan payments, taxes, and other bills.
Looking ahead at what your business owes makes cash flow much easier to manage.
Instead of finding out that several large payments are due at the same time, you can see what is coming and plan accordingly.
7. What Is Your Profit Margin?
Profit margin tells you how much of your revenue your business actually keeps as profit.
For example, two businesses could each earn $10,000 in profit. But if one needed $50,000 of revenue to produce that profit while another needed only $25,000, those businesses are operating very differently.
This is why growing revenue is not always the same thing as growing a healthier business.
Ideally, you want to watch both your revenue and profitability over time. If sales are climbing but your profit margin keeps shrinking, it is worth taking a closer look at pricing and expenses.
8. How Much Should You Be Setting Aside for Taxes?
Taxes should not be something you start thinking about a few weeks before your return is due.
Keeping your bookkeeping current gives your tax professional better information to work with throughout the year. They can use your actual financial results to help estimate what you may owe and whether estimated tax payments are necessary.
From there, you can set money aside instead of hoping there is enough cash available when a tax payment is due.
Some business owners find it helpful to keep tax savings separate from the money they use for everyday operations. Bluevine makes this easy by allowing you to create sub-accounts within your business banking account, so you can keep money for taxes separate without opening an entirely different bank account.
I especially like this for setting aside tax money as you earn it. That way, the money is still there when tax payments come around, but it does not look like extra cash available to spend in your everyday operating account.
And if you are considering Bluevine, there is currently an extra perk for Oak and Ledger referrals. Eligible businesses can receive 3 months of Bluevine Premier free (a $285 value) plus a $500 signup bonus after meeting the applicable eligibility requirements.
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You Do Not Need to Obsess Over Your Numbers
You do not need to open QuickBooks every morning or memorize every number in your financial statements.
But you should be able to answer some basic questions.
How much are we bringing in? Are we profitable? Where is our money going? Do we have enough cash for what is coming? Who owes us money? What do we owe? Are our margins improving?
When your bookkeeping is current, those questions become much easier to answer.
And that is really what bookkeeping should do for your business. It should not just create clean records for tax season. It should give you financial information you can actually use to run your business.
If your books are behind, your reports do not make sense, or you simply want someone else keeping everything organized so you can focus on running your business, Oak and Ledger can help.
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