The 3 Numbers Every Business Owner Needs to Know
Ever feel like you’re flying blind in your business? You’re working hard, making sales, and keeping busy - but somehow, you’re not sure where your money is really going. The good news? You don’t need to be a financial expert to understand your numbers. You just need to track three key metrics that can tell you exactly how healthy (or at risk) your business is.
1. Profit Margin (%) - Are You Actually Making Money?
Why it matters: Just because money is coming in doesn’t mean you’re keeping it. Many new entrepreneurs mistake revenue for profit and don’t realize they’re barely breaking even - or worse, losing money.
How to calculate it: (Net Profit / Revenue) x 100 = Profit Margin %
Example: If you make $10,000 in sales but after expenses you’re left with $2,000, your profit margin is 20%.
Tip: A healthy profit margin varies by industry, but if yours is too low, it’s time to review pricing or cut unnecessary expenses.
2. Cash Flow - Do You Have Enough Money to Keep Going?
Why it matters: Your business can be profitable on paper but still struggle if cash isn’t flowing in when you need it. Poor cash flow is one of the biggest reasons small businesses fail.
What to Watch:
Are clients paying you on time?
Are your expenses predictable, or do you have surprise costs?
Tip: Use a simple cash flow tracking system to ensure you always have enough to cover expenses. You could use something as simple as a spreadsheet to track money coming in and going out. Or use a simple accounting software like Wave or QuickBooks Self-Employed to automatically import and categorize these transactions, allowing you to simply look at the data without having to do time-consuming data-entry.
How to Track My Cash Flow:
Track Daily or Weekly - Update the sheet whenever you receive the sheet whenever you receive income or pay an expense. Knowing your numbers at all times is the key to successful financial management.
Monitor Your Balance - Make sure your balance never dips too low to cover upcoming expenses. Just like in your personal budget, make sure you have enough ash to pay the bills.
Spot trends - Over time, you’ll see patterns, like slow income months or high expense periods, so you can prepare.
Pro Tip: Always keep 3-6 months of business expenses in a separate savings account to protect against slow months. This is like the typical emergency fund strategy that I’m sure you’ve heard of for your personal finances. Do the same thing for your business so you’re never caught off guard.
3. Break-Even Point - How Much Do You Need to Sell to Stay Afloat?
Why it matters: Many entrepreneurs price their products or services without knowing exactly how much they need to sell just to cover costs. This can lead to underpricing and financial stress.
How to calculate it:
(Total Fixed Costs / (Price per Unit - Variable Costs per Unit)) = Break-Even Point
Example: If your monthly expenses are $5,000 and you sell a service for $100 with $30 in costs per sale, you need to sell 72 units per month just to break even.
Tip: Knowing this number helps you set realistic sales goals and pricing strategies. Don’t just set some arbitrary goal! Know what your minimum is so you can stay in business and then set your larger goals on top of that so you can work towards actual growth.
The Bottom Line:
Tracking these three numbers gives you confidence, control, and clarity in your business. You don’t need to be an accountant - just an informed entrepreneur who understands the basics.
Master the Basics
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