Financial Metrics Every Small Business Owner Should Track

Everyone dreams about leaving their 9-5 job to start a business and be their own master. However, it is easier said than done. In addition to being responsible for selling and providing services or products, you also become responsible for ensuring statutory compliance. It is why many business owners hire accounting and bookkeeping services.

Tax preparation is one of the hardest tasks that can stress and keep you awake at night. To discharge it satisfactorily, you have to be on your toes and record all your financial transactions from day one. You have to do it promptly and accurately to ensure that your financial data is pure and useful.

Whether you multitask or not, you need to know your financial responsibilities towards your business. Not discharging them on time may get you in trouble. Experts advise every newbie business owner to know about and keep an eye on the financial metrics for small businesses.

If you are not tracking these metrics for your existing business, you should start at the earliest moment.

Cash Flow

Your business' cash flow reflects its financial agility. It covers several indicators that you need to keep an eye on. It primarily shows money entering, moving within, and leaving your business. Actual cash flow is an important metric as it indicates the true financial health of your business.

You also need to pay attention to the business cash cycle. You have to track different parts of the cash flow, their occurrences, and their timing. The information is useful for solving the glitch in the cash flow. It helps you avoid running low or out of cash in hand. Such a happening can drastically affect your cash liquidity and may cause you problems and lose opportunities.

Integrating info from all of these metrics gives you business' profit and loss positions. You should document it carefully and at the end of each quarter by preparing a detailed report.

Accounts Receivable

Accounts receivable is a critical metric from the point of view of cash flow management. It primarily encompasses the amount due to your business. It is incoming money.

To get a better understanding of it, you need to analyse your receivables for the outstanding payments and the duration it takes you to get paid. You need to track both your key and new customers.

Detailed knowledge enables you to formulate effective payment terms that you can mention on your invoices. It also enables you to offer easier payment terms to your major customers, like discounts, extra credit periods, etc. Or fine and late fees to the habitual late-paying customers.

The analysis also gives you an idea about how long customers prefer to associate with you.

Accounts Payable

Here you do the opposite. Here you track the money going out of your business. Accounts payable is the money your business owes to others. It is an important activity, and failing with it can harm your relationship with them. It can raise questions about your business acumen ship or credibility.

Tracking your business' accounts payable enables you to plan the payment of your dues. Among other things, it helps you pay salaries to your employees without affecting the financing of your projects.

Updating your records as often as possible gives you a chance to track your expenses, compare them against the budget, and understand the period it takes you to pay them off fully. You get to analyse their impact and decide on whether to pay them once and for all or pay them off in small chunks or instalments.

Profits

You can also use the profit of your business as a metric to judge its performance. If you have the data at hand, then you can compare it with your projected profit. It gives you a chance to understand the difference or variance and the reasons behind it.

You should also track the cost of acquiring a customer and the profit per customer. Generally, the cost of acquiring a customer is too high than retaining one. You can offer loyalty discounts and special plans to retain your existing customers.

Yes, tax preparation, accounting, and bookkeeping for your business are tough tasks. If you are new to it, hiring an experienced accounting and bookkeeping services provider can solve your problem and set you free to manage your business without stress.