Did you know that monitoring financial performance is key to maintaining a healthy business? Keeping tabs on your company’s finances doesn’t have to be stressful or time-consuming. As an entrepreneur, it’s your responsibility to ensure the health and future of your business, which comes from keeping track of essential financial and business metrics.
With so many responsibilities as a company owner—from paying taxes to marketing and advertising—keeping track of your financial performance might seem unnecessary. However, doing so can help you identify your business’s performance warning signs. This blog post will walk you through the top financial performance and business metrics every business should keep track of at all times.
The first business metric your business must track is its profit. Profit is the difference between the revenue generated by a company and the costs incurred while creating its products or providing its services.
When calculating profit, you must track your revenue and expenses at the individual level. This can be done by creating a profit and loss (P&L) statement but it can also be tracked on a month-to-month basis with a spreadsheet. While calculating profit may seem simple at first, certain factors may affect this metric—such as taxes, and inflation may affect this metric which is often overlooked. Accounting for these factors will help you make more informed business decisions.
A loss occurs when a company’s revenue is less than its expenses. When calculating loss, consider fixed and variable expenses, such as taxes, rent, and employee salaries. Variable expenses fluctuate depending on the company’s revenue, such as marketing and utility bills.
Cash flow is the amount of money flowing into and out of business over a specific period. Generally, cash flow is measured over a month of operation. A few metrics can help you track cash flow, including net sales, gross profit, and net profit. Net sales refer to the amount of money a company receives after deducting sales tax and returns.
Gross profit is the revenue after deducting the cost of producing/acquiring the product. Net profit is the subtraction of fixed costs. In all these things, invoicing is vital, which is why you need an invoice generator.
Creating simple and professional invoices in minutes will be a huge help in getting customers to pay on time. You can separate your invoice from the mass of generic black-and-white payment requests with a dash of color and some company branding. Using online software to make a banner template is an effortless step to adding your branding at the top of every invoice.
4. Asset & Liability Tracking
Asset and liability tracking is crucial for monitoring the overall health of a business. The difference between assets and liabilities is referred to as equity.
Liability refers to the amount of debt a company has incurred. If a business has a high level of liabilities, it has taken on significant debt. This will affect the company’s equity—the difference between a company’s assets and liabilities.
5. Marketing Tracking
When marketing a product or service, companies will often track their marketing expenses to determine the return on their investment. Marketing costs can include advertising fees, salaries, and other expenses related to promoting a company. To track marketing expenses, create a marketing budget. Then, include an itemized list of all marketing-related costs—from design and branding to online and offline advertising.
By tracking marketing expenses, you’ll better understand where your money is going. In addition, this is an excellent metric for businesses that have already started marketing their products or services.
6. Sales Tracking
Sales are the lifeblood of any business. Without sales, a company cannot generate revenue and eventually go out of business. For this reason, it’s essential to track your sales numbers regularly. You can use a few metrics to track sales, such as the number of sales made, the average value of each sale, and the conversion rate.
The number of sales made refers to the total number of products or services sold. The average value of each sale is calculated by dividing the total revenue generated by the number of sales made. The conversion rate is the percentage of leads that result in a sale.
7. Customer Tracking
Customers are the people who buy your products or services. They are the lifeblood of your business, so it’s essential to track your customer base. You can use a few metrics to track customers, such as customer acquisition cost, lifetime value, and churn rate.
Customer acquisition cost is the money spent on acquiring a new customer. Customer lifetime value is the total amount of money a customer will spend on your products or services throughout their lifetime. Customer churn rate is the percentage of customers who stop doing business with you over a given period.
8. Employee Tracking
Employees are the people who work for your company. They are a crucial part of your business, so tracking their performance is essential. You can use a few metrics to track employee performance, such as employee turnover rate, employee satisfaction, and employee productivity.
Employee turnover rate is the percentage of employees who leave your company over a given period. Employee satisfaction is a measure of how happy employees are with their jobs. Employee productivity measures how much work employees can complete in a given period.
9. Business Expense Tracking
Business expenses are the costs incurred to run a business. These costs include office rent, utilities, employee salaries, and marketing expenses.
To track business expenses, create a budget that includes all your business-related costs. This will help you keep tabs on your spending and make more informed decisions about where to allocate your resources.
10. Business Growth Tracking
Business growth measures how much your business has expanded over a given period. You can track your business growth metric by measuring the increase in revenue, the number of new customers, or the number of new employees.
11. Business Performance Tracking
Business performance is a measure of how well a company is doing. You can track this by measuring the company’s profit, loss, cash flow, assets, and liabilities.
Monitoring your business’s financial performance is vital to ensuring its long-term success. By tracking the right business financial metrics, you’ll be able to identify warning signs and make informed decisions about the future of your business.