Savvy entrepreneurs with financial acumen are more likely to be in control of their businesses and are more likely to make smarter decisions. Financial literacy is based on knowing your numbers and being acutely aware of what success and failure look like to your specific business.
You need to be constantly aware of factors like your financial growth, how profitable your business is, and whether you can meet your company’s obligations. The main question is; “Are you managing your assets effectively?”.
To get answers to questions like this, you need to keep an eye on your key performance indicators. Here are some KPIs to monitor.
5 Key Metrics to Track
Revenue refers to money generated from normal day-to-day business operations. It is the top-line figure from which costs are subtracted to determine net income. Revenue is calculated by multiplying the average sales price of goods and services by the quantity sold. Tracking revenue is crucial for financial management and understanding the financial performance of your business. It aids in understanding the profitability of your business and helps when making decisions about business growth.
Cost of Sales
Cost of Sales is simply the cost involved in directly producing the goods or services you sell. If you sell a product for $100 and it costs $30 dollars to buy or produce, your COS is $30. COS is sometimes referred to as the cost of goods sold or COGS and takes into consideration the material costs, labor, overheads, shipping, taxes, and other expenses. Tracking the COS ensures that you are managing your pricing in a way to increase profitability.
When you subtract the cost of sales from revenue you get gross profit, also known as gross income. This is reflected on a company’s income statement and helps businesses understand the costs involved in generating revenue. It shows how efficiently a business uses labor and supplies when manufacturing goods or offering services. Keeping track of gross profit through accounting software or through other systems is essential for checking profitability and the performance of a business.
Expenses refer to the cost of running a business, everything from wages, maintenance, and rent to utilities. There are two categories of expenses, operating and non-operating. While operating expenses refers to cost accrued as a direct result of doing business like administrative costs, equipment, and marketing, non-operating expenses refer to expenses such as interest on debt, restructuring costs, or inventory write-offs. Understanding your expenses assists entrepreneurs in staying in control of cash flow and making informed financial decisions.
Net Profit is often the metric that garners the most attention. This is the amount of money a business earns and it is calculated by deducting all expenses from revenue. Often denoted as net income or net earnings, net profit is one of the pillar figures that company stakeholders are interested in as it keeps them abreast of how a business is doing. Net profit indicates your business’s health and is used to measure the overall profitability of a business.
The Recommended Accounting Software Solution
Financial literacy is a characteristic of a successful entrepreneur, however, it can be tricky to acquire. Sage accounting software makes financial management simple and automated, giving business owners one less thing to worry about. Sage has a simple user interface and can also easily be integrated with existing software, which is why it is known as one of the top accounting solutions worldwide.
The cloud-based software is cost-effective and makes accounting for entrepreneurs simple with the addition of easy onboarding, training, and ongoing support. The software keeps track of all financial details and is scalable, meaning it can grow or scale down with your business.
To learn more about Sage Accounting Software products click here.
To learn why Sage Software is the best solution for inventory management click here.
Once you know what to look out for in your financial records, namely revenue, cost of sales, gross profit, expenses, and net profit you are well-positioned to take charge of your cash flow and set up a business budget.
There are many benefits to budgeting including being able to identify your business’s available funds and estimating future spending.
This goes a long way towards making good financial decisions like possible ways to cut costs or tapping into new revenue streams. But for this to be successful you first need to stay abreast of your financial records.
Why Use Lescault and Walderman Accounting Services
Outsourcing to LWI offers entrepreneurs peace of mind and more time to focus on the core functions of their business by allowing them instant access to a team of experts instead of solely relying on the skills of an entrepreneur. The LWI team is made up of accounting and technology experts from a variety of industry backgrounds and are well-versed in new-age accounting software. As an official Sage Intacct Accounting Partner LWI gives business owners the opportunity to leverage their expertise and work with the world’s leader in ERP (enterprise resource planning) accounting software.
Are you looking for more help on key topics facing Entrepreneurs? Read articles from our CEO, Matthew Lescault to gain insights into business challenges.
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