Some professionals may argue that money, money and money are the three most important components to a healthy, successful small business. While this may not be precisely true, it does illustrate the point that a strong financial plan is vital toward the overall growth of a company.
Above all else, it is important for owners and entrepreneurs to take this aspect into consideration when operating on a daily basis. 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. This can come into play whether a small business owner is aiming to sell, expand or simply soldier on.
With that in mind, here are five key metrics that should really matter to all small business owners:
1. Total revenue
Revenue is an extremely vital metric for all companies, according to Inc. magazine. 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 that are close to selling or gaining new investors. The reason why is because it can demonstrate positive growth, and that will increase the confidence of outside professionals with an eye on the firm. Even better, strong revenue could fetch a higher sales price from the right people.
2. Discretionary earnings
The cash flow of any business is extremely important. Inc. magazine noted that discretionary earnings are indicative of 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 that figure is often used by larger companies. 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 on an annual basis.
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 likelier chance of hitting goals.
4. Revenue per client
Small business owners are faced with good, bad and awful clients on a daily basis. While this only leads to additional headaches in many cases, sometimes it could complicate the organization's money management. As a result, that makes revenue per client an extremely vital metric, the news source noted. Tracking this statistic can shed some light on which products and services are most useful, and where the highest-paying target markets are located. Knowing those answers will make end-of-year budgeting easier as well.
5. Monthly trends
While following spending on a daily and yearly basis 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.