The 6 financial metrics you need to monitor every month

Being a small-business owner, most of your days are jam-packed with a never-ending list of chores that keep your business running smoothly.

It's unlikely that you'll drop down fatigued on the couch after work, only to go over your financial accounts.

You don't have the time, motivation, or training to understand complex financial data if you're like most busy entrepreneurs.

That, however, is a massive mistake.

Many small business entrepreneurs, in reality, concentrate entirely on their areas of expertise, ignoring the big picture.

Unfortunately, no matter how great or dedicated you are to your trade, product, or service, if you neglect the financial side of your business, it will most likely fail.

However, if you know how to use software for accounting, you probably have access to a plethora of financial reports that provide insight into the health of your company.

The following list of financial metrics that I am going to provide, doesn’t need any prerequisite on your part.

And you don’t have to be a certified accounting professional here, just the basic knowledge would be enough.

What’s more?

An accounting software solution will also give you a comprehensive report on each of the figures. Read till the end to know more about how financial software helps in ensuring this.

The 6 financial metrics you need to monitor every month

These financial metrics may help you to stay on top of your business goals

1. Cash Flow

Cash flow is one of the most difficult things for small business owners to grasp. It refers to the actual cash flowing into (revenue) and out of (expenses) of your business over a set period of time.

Operating cash flow gives you a bird's-eye view of your company's financial health.

This figure is calculated by subtracting your operating expenses from the revenue generated by your business during normal operations.

It adjusts for working capital, such as receivables and inventory, and includes depreciation in your net income.

You can have a cash flow problem even if your P&L displays a constant profit.

You're operating in the black when your operating cash inflow surpasses your operating cash outflow. If the opposite occurs, it's time to examine your income and expenses more closely.

Accounting experts recommend that you review your cash flow statement on a regular basis to ensure that you are properly timing your purchases and that your clients are paying on time.

2. Profit

This metric can be found on your P&L statement, which is a glimpse of your company's income (sales and revenue) excluding expenses over a specific time period, which is usually quarterly, half-yearly, or once a year.

a) Keep track of where you're spending your money on expenses and look for ways to cut back if it's hurting your bottom line.

b) Determine when you have less work and make less money throughout the year so you can know when to scale back or increase your sales efforts.

c) Help to forewarn your revenue trend—you may be increasing your revenue, but if your profits are being slashed due to expenses, you can sort this out and then fix it. You could, for example, try to cut costs or raise your rates.

3. Sales

Sales are the ultimate purpose of every business owner, making it a significant metric of growth.

It's crucial to keep a tight check on sales, as a drop could signal disaster. In the same way, it's vital to pay attention while sales are increasing.

It's easier to figure out why business is excellent when your firm is on an upward trajectory than it is to figure it out later.

When you respond promptly to an increase in sales, you can figure out what you need to keep doing in order to sustain growth.

In the same manner, you can check the profitability of each product or service you sell.

You'll be able to tell if your best-selling product is genuinely profitable. You may also see how discounts on certain products affect their profitability.

Financial reports, such as the item sales report, provide valuable information that can help you decide which goods are worth your time and attention and which aren't.

4. Inventory

Inventory numbers should be checked on a weekly basis. This is to ensure that the amount of stock isn’t increasing as that can mean only one thing- low sales.

You are able to spot problems early on to avoid the negative consequences of excess stock. The excess inventory gives rise to storage costs, reduced profits and wastage.

Investing in cloud accounting software shall ensure to make monitoring inventory is simple.

Accounting software comes with an Inventory management module that assists in several transactional inventory tracking.

Keeping track of your inventory ensures that items are available on time to be ready to dispatch.

Inventory management is useful to keep track of various types of inventory such as raw material inventory, consumables, and semi-finished and finished stock.

5. Price point

The decision that new, small business owners struggle with is how much they should price their products. A lot of things need to be considered before coming down to a particular pricing model.

New business owners can experiment with a few figures before settling down on the best one.

What’s important is the awareness of the cost that will occur while purchasing their goods as well as the cost of selling their goods for a profit.

While determining the price point, taking overhead expenses like payroll, utilities, and sales tax, into account is important.

6. Gross Margin

Gross margin is also known as gross profit. It is somewhat related to the price point. It shows how well management uses labor and supplies in the manufacturing process.

After subtracting the actual cost of your merchandise from the selling price, this figure shows how much money is left.

If this number is too low to pay your operational costs, such as salaries, rent, marketing, and utilities, you're probably charging too little for your goods and services.

Calculating this metric also helps you to compare your margin to the industry, allowing you to understand how your company stacks up against competitors.

Now that you have a clear idea of the metrics that you should be tracking, let’s talk about the accounting solution that would best assist this.

Conclusion:

The above metrics are the fundamental backbone of any business to keep going.

Therefore these metrics should be tracked every month on a priority basis. However, to simply keep track of it you need a good accounting system on hand.

Investing in robust cloud accounting software is a good omen for businesses, especially new ones.

This will help your business to be GST compliant, keep records and track all financial reports.

You can also upload files, carry out efficient invoicing, check profitability, and much more!