5 Numbers Every Business Owner Should Know

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Revenue is the total amount your business earns from selling products or services before expenses are deducted. If your business generated $30,000 in sales this month, your monthly revenue is $30,000. Tracking revenue helps you understand whether your business is growing, slowing down or remaining relatively consistent. Rather than looking at one month in isolation, compare your revenue over time.

Ask yourself:

· Is revenue increasing compared with last month?

· How does this month compare with the same month last year?

· Are certain products or services generating more revenue than others?

· Are there predictable busy and slow seasons?

· Is your revenue growing enough to support increasing expenses?

Revenue is an important number—but it doesn’t tell the whole story. A business can generate impressive sales and still struggle financially if its expenses are too high. That brings us to number two.

Expenses are the costs required to operate your business. Depending on your business, these could include:

· Rent

· Payroll

· Advertising

· Insurance

· Utilities

· Software subscriptions

· Vehicle expenses

· Professional fees

· Supplies and inventory

· Bank and credit card fees

· Equipment and repairs

Knowing your total expenses is important, but understanding where your money is going is even more valuable. For example, imagine your monthly revenue increased by $5,000. That sounds great. But if your expenses increased by $7,000 during the same period, your business may actually be less profitable despite having higher sales. Review your expenses regularly and look for changes.

Have software subscriptions slowly accumulated? Have supplier costs increased? Is payroll growing faster than revenue? Are advertising costs producing enough business to justify the expense? Small expenses can add up quickly, especially when they aren’t being monitored. Accurate bookkeeping makes it much easier to see these patterns.

Revenue gets a lot of attention, but profit tells you what your business is actually earning after expenses. At its simplest: Revenue – Expenses = Profit

For example:

Revenue: $30,000

Expenses: $22,000

Profit: $8,000

Two businesses could each generate $500,000 in annual revenue but have completely different financial situations. One might generate $150,000 in profit while another generates only $25,000. That’s why focusing only on sales can be misleading.

You should also pay attention to your profit margin, which shows what percentage of your revenue remains as profit. For example, if your business generates $100,000 in revenue and $15,000 in profit, your profit margin is 15%. Monitoring profit and profit margin over time can help you determine whether your business is becoming more efficient and financially sustainable.

This is one of the most important—and sometimes misunderstood—numbers in business. Profit and cash are not the same thing. Your Profit & Loss statement might show that your business is profitable, while your bank account tells a very different story. Why? Because cash can be tied up in unpaid invoices, inventory, loan payments, equipment purchases and other areas of the business.

Knowing how much cash your business actually has available helps you answer practical questions such as:

Can I comfortably make payroll?

Can I pay upcoming GST and other remittances?

Can I purchase new equipment?

Can I handle an unexpected expense?

Can I afford to hire another employee?

Do I have enough cash to get through a slower season?

A profitable business can still experience serious problems if it doesn’t manage its cash flow carefully. Your bank balance shouldn’t be the only financial number you watch—but you should always understand how much cash your business has available and what upcoming obligations that cash needs to cover.

If your business invoices customers and allows them to pay later, accounts receivable is another number you should monitor closely. Accounts receivable represents money your customers owe your business for work you’ve already completed or products you’ve already provided. For example, your accounting records might show $40,000 in revenue this month. But if $15,000 of those invoices haven’t been paid yet, you don’t actually have all $40,000 available to run your business. That’s why regularly reviewing your Accounts Receivable Aging Report can be so valuable.

It typically separates outstanding invoices into categories such as:

· Current

· 1–30 days overdue

· 31–60 days overdue

· 61–90 days overdue

· 90+ days overdue

The longer an invoice remains unpaid, the more attention it deserves. A consistent process for sending invoices, tracking due dates and following up on overdue accounts can make a significant difference to your cash flow. 

The real value comes from looking at these five numbers together rather than individually. Imagine your revenue is increasing. That’s good news. But then you notice expenses are increasing even faster, which is reducing your profit. At the same time, accounts receivable is climbing because customers are taking longer to pay. Suddenly your cash available begins shrinking. Looking only at revenue might make the business appear to be doing extremely well. 

Looking at revenue, expenses, profit, cash and accounts receivable together gives you a much clearer picture. Make a Monthly Financial Check-In Part of Your Routine. You don’t need to spend hours reviewing financial reports every week. 

Start by setting aside time each month to review these five numbers:

1. Revenue — What did the business generate?

2. Expenses — What did it cost to operate?

3. Profit — What was left after expenses?

4. Cash Available — What cash does the business actually have?

5. Accounts Receivable — How much money are customers still owing?

Then compare them with previous months and, when possible, the same period from the previous year. Over time, you’ll begin noticing trends that can help you make more informed business decisions.