Every story you have to tell about your business shows up in your financials. Keeping accurate financial records can help you make better financial decisions and ensure that your business is healthy. Here is a list of 9 financial metrics that you should track and review on a monthly basis.
1. Gross Revenue - The total amount of money collected before any expenses are paid.
2. Monthly Overhead Cost - The total amount of monthly expenses directly related to operating your business. These are the costs you will have regardless of how much money you earn that month. Ex. accounting fees, insurance, rent, telephone, software, salaries, etc.
3. Net Income (Profit) - Net earnings remaining after all expenses have been paid.
4. Minimum Monthly Gross Revenue Needed - Minimum monthly gross revenue you need to make in order to have the cash available to cover operating costs and pay yourself enough money each month to cover your personal expenses.
5. Owner's Compensation - The amount of money the owner is able to pay himself each month from the business.
6. Average Amount Spent on Marketing per Month - Add up the amount you have spent on marketing over a specified time period and divide by the number of months.
7. Average Number of New Clients per Month - Add up the number of new clients you have gained over a specified time period and divide by the number of months.
8. Average Cost of Acquiring a New Client - This number can be calculated by dividing the average amount you spend on marketing each month by the average number of new clients you obtain each month. You can use this number to determine if the number of new clients justifies the amount you spend each month for marketing.
9. Average Revenue per Client - The average amount you will collect monthly from each client. Is the amount that you earned from each client greater than the amount you spent to acquire that client?
After reviewing the above list you may be wondering where you can get these numbers from. You need to implement a system to keep track of all money coming in and going out of your business. This can be tracked using paper and pencil, Excel, or an accounting software such as Xero.
If you do not currently have a bookkeeping system in place or need assistance calculating financial metrics important to the success of your business, please schedule a free strategy session.