Some professionals may argue that money, money, and money are the three most important components of a healthy, successful small business. While this may not be precisely true, it does illustrate that a strong financial plan is vital to a company’s overall growth.
Above all else, owners and entrepreneurs need to consider this aspect when operating daily. Ignoring one part of the firm’s finances could spell disaster elsewhere, and the chance for problems increases the less a person keeps a close watch. Whether a small business owner aims to sell, expand, or simply soldier on, this can come into play.
With that in mind, here are five key metrics that should matter to all small business owners:
1. Total Revenue
Revenue is an extremely vital metric for all companies. This helps measure the size and potential of the firm, and not understanding this statistic can spell disaster. Revenue is even more important for businesses close to selling or gaining new investors. The reason is that it can demonstrate positive growth, which will increase the confidence of outside professionals with an eye on the firm. Strong revenue could fetch a higher sales price from the right people.
2. Discretionary Earnings
The cash flow of any business is essential. Inc. magazine noted that discretionary earnings indicate this element and represent net income before taxes, interest, and other expenses. Therefore, a closely related metric is EBITDA, which stands for earnings before interest, taxes, depreciation, and amortization, but larger companies often use that figure. Discretionary earnings are key because they demonstrate the financial health of a firm and how many funds will get deposited into a business banking account annually.
3. Daily Money Earned
While metrics like discretionary earnings are good for a broad picture, the day-to-day operations should also be analyzed. According to Business 2 Community, not enough entrepreneurs know what they’ve made each day. Without an understanding here, there is a good chance financial losses could slip through the cracks. This is because paychecks often don’t come on a set schedule early on, and keeping tabs could be more difficult than for other types of employees. Following this daily can lead to increased motivation, a more stable financial plan, and a better chance of hitting goals.
4. Revenue Per Client
Small business owners face good, bad, and awful clients daily. While this only leads to additional headaches in many cases, sometimes it could complicate the organization’s money management. As a result, the news source noted that revenue per client is an extremely vital metric. Tracking this statistic can shed some light on which products and services are most helpful and where the highest-paying target markets are. Knowing those answers will make end-of-year budgeting easier as well.
5. Monthly Trends
While the following spending daily and yearly is important, small business owners shouldn’t forget about the middle man – monthly trends. Gathering information about the ups and downs of a venture on a 30-day scale can highlight some interesting trends, Business 2 Community explained. Ideally, it will illustrate peaks and valleys so management can plan spending accordingly. In many cases, entrepreneurs tend to spend at inappropriate times, so it could be better to flip that and save when money is tight while letting loose a little bit when income is at its highest.
Benefit Your Small Business With First United Bank & Trust
First United Bank & Trust is your go-to team of banking professionals eager to help your business easily control its finances. Contact our team or find your nearest branch online to set up your business banking account today!