If someone asked what your gross income was for last year, you could probably spout it off within a few hundred dollars. After all, it’s part of your business’s bottom line–and an easy number to use to measure growth from year to year.
But if someone asked what your profits were last month or what your total overhead is in third quarter, you might have to stop and think a bit. And while you can’t expect to know all your business numbers off the top of your head, you should have them at your fingertips at all times
Those numbers are very telling in your business, and they can tell you more about your business than you might realize. Know your profit margin and overhead, and know what you can learn about your business by keeping your eye on the numbers in your business.
What’s coming in and going out?
You have to have a handle on your cash flow and be able to forecast what’s coming up in your business. If your forecast says that you’ll fall short of cash in a few weeks, it’s time to buckle down and find some new streams of revenue–or hold off on a new investment. And if you’re not keeping a watchful eye on your numbers, how will you know if all your clients have paid up this month? You need to stay on top of your accounts receivable so your accounts stay in the black and you know when the next check will hit your account.
Are you paying for something you’re not using?
When was the last time you did an audit of your monthly or yearly expenses? Chances are, you’re probably paying for some services that you’re no longer using, seeping cash out of your business on a regular basis. Or maybe you forgot to cancel the project management program you recently moved away from. Whatever it is, you’ll want to do an audit on your accounts so you can cancel any services that you no longer use–saving cash in the process.
Are you charging enough?
Numbers go beyond the money; they include your time as well. Be sure to keep track of how much time you’re spending on a particular project or with a specific client so you can calculate whether you’re charging enough for the work you do. This also helps you avoid scope creep: when you’re actually doing more work than originally agreed to in the contract. When you start to “do this real quick” for a client, your profit margins stall and you’re no longer making the profit you want. Harvest is a good tool for this, and it’s what I use, and Toggl is another good option.
As the business owner, it’s your responsibility to stay on top of the numbers. The health and longevity of your business depends on it. That doesn’t mean you should obsess about it, day in and day out. But do know the financial health of your business so you can make educated decisions about what you’re investing in and how you charge your clients.
