Year in review – what numbers matter.

As we draw the curtains on another financial year it is important to do a review on what your year looked like.  Did you reach your goals? Are you growing or stagnating? And what numbers should be looking at? Because let’s face it, there is a lot of data and numbers we can explore and it can get a little confusing.

You need to understand the key numbers in your business as these are crucial for making decisions that drive growth and profitability moving forward.  The value of your numbers as a management tool can’t be underestimated.

So what numbers are the most important for you to understand? Here are our top 6 that will provide you with a clear picture of where you are and how you are tracking.

Revenue 

This is the total income generated from sales or services. Revenue represents the money coming in and by reviewing your revenue numbers, you can determine if you have enough being generated to cover your expenses.
 
Cost of Sales
These are the direct costs associated with making your sales. These could be things like material, labour, printing, parts etc. They are the cost of doing business and by understanding how much it costs, you can then determine what price you need to charge.

Gross Profit
Gross Profit is the profit a company makes after deducting the costs of making and selling its products or the costs of its services.  Essentially it is the difference between the above two items. 

A useful ratio being gross profit divided by revenue is your gross profit percentage.  The higher this percentage the more profitable your sales are.

These numbers are important because you can compare them with your businesses performance year on year to see how efficient your company is at creating its products.

Expenses
These are the costs incurred in running your business that are not directly related to your income-generating activities. These include overheads such as rent, electricity, internet, bank fees, marketing costs etc.

Net Profit
Net profit is the bottom line of your business. Income less your cost of sales and expenses gives you your net profit. Net profit is a key indicator of the business’s profitability.



Ultimately this is how much money you actually make so it’s the most important metric to understand

Accounts receivable
This is what money is owed to you. If your Accounts Receivables are too high they can impact cash flow which is the oxygen for businesses. It would indicate your customers are slow in paying.  Consider changing payment terms and your debtor process to help reduce this number.

Other important constituents of cash flow will be inventories held and amounts owed to creditors.

At the end of the year, you want to take some time to look at the numbers that really matter. We think these top 6 numbers have the biggest impact on your business so before you start another financial year, take the time to review the current year to see what you can improve.