Your Business Is Talking. Are You Watching the Right Numbers?

Your revenue doesn't tell the whole story. Making money in your business always feels great. Sales are coming in, employees are busy, and from the outside, everything looks successful. Despite bringing in more money, your business seems to be losing money. Many business owners understand how much money they generate, but don’t quite understand how the money is moving within their business. So, the big question is whether your business is really growing or not? Are you paying attention to what your business has been telling you?

What Are KPIs, and Why Should You Care?

What you track, grows. Having KPIs for your finances helps you understand what's really going on in your business. Having a financial system like Of course, is good for tracking your transactions and being able to see the numbers. Key Performance Indicators help you actually track your business growth. The right KPIs show the trends of your business. These trends give you the snapshot of your financial health, whilst the reports and statements you see are merely just the actions of your business. From generating revenue and keeping up with payables, you can see what you’ve done. KPIs, help you understand what it all means. Of course, you need the right KPIs for your business and industry. The correct indicators help you make the right decisions that pertain to your goals. For example, your income statement might show $80,000 this year, but your payroll-to-revenue ratio can help you determine whether those additional labor costs are growing proportionately with revenue. This helps in making decisions like hiring another employee, adjusting your prices, or improving your existing processes. KPIs are more than numbers to track, they show you the X's and O's of your business finances.

The Cost of Running a Business Without the Right Numbers

There’s a true cost to not tracking your numbers. Because tracking is for you to know how your business is actually doing, it is a task that belongs at the top of the priority list. Problems become expensive before they're noticed. Your business might already have declining margins for the past months. You would only be able to tell this by knowing what numbers and percentages to look at over time. Don’t forget that KPIs aren't just for the present tracking. Once you've been tracking for a while you will be able to compare your current finances to your past finances which gives you your own trends that occur within your business. As you track your numbers you will have a better sense of the moment your costs are increasing faster than revenue. KPIs can provide earlier warning signs. Secondly, decisions become educated guesses without tracking. Should you hire? Increase prices? Expand? Reduce expenses? Without reliable measurements, owners often make these decisions based on how busy the company feels rather than what its financial performance supports. Lastly, growth gets mistaken for profitability. More money doesn't equal more profit. More customers, employees, and revenue don't automatically mean more profit. Your growing company can become financially weaker if your expenses, collections, and productivity aren't managed alongside revenue. Fortunately, you don't need to become a financial analyst to understand your business. You just need to know which numbers deserve your attention.

The Numbers Every Business Owner Should Know

Growth: Is your business moving forward?

• Revenue Growth: Are sales increasing over time?

• Customer Retention: Are you keeping the customers you've worked to acquire?

• Revenue per Employee: How much revenue is the business generating relative to its workforce?

Profitability: Is your growth actually paying off?

• Gross Profit Margin: How much revenue remains after direct costs?

Net Profit Margin: How much profit remains after expenses?

• Payroll as a Percentage of Revenue: How much of your revenue is being consumed by labor costs?

• Operating Expense Ratio: Are operating expenses remaining proportionate to revenue?

Financial Stability: Can your business support its future?

• Accounts Receivable Days: How quickly are customers paying?

• Cash Reserves: How much financial breathing room does your business have?

• Budget vs. Actual: Are your results matching your financial plan?

Think about these numbers and how they move within your business. Revenue tells you about growth. Margins tell you about profitability. Cash flow and collections tell you whether the business can sustain its operations. You need all three perspectives to understand the bigger picture.

Having the Numbers Isn't Enough. You Have to Know What to Do with Them.

Having the right numbers is the beginning. Knowing what to do with them is when you see the progress. With the right numbers, you can create your target, understand your actual numbers hit, and what actions you should take next. Let’s take gross profit margin for example. Say your target margin is 45%. When you look back at your KPIs and only see you only actually achieved a 38% profit margin, that can tell you a few things. When you think about what happened, you see that your contractor costs increased while your service pricing remained unchanged. This circumstance would tell us that you should review your contract utilization. How much are your contractors costing you with how much you use their services. The next thing would be to check your service pricing and see where increases could be made. Because of what your numbers are telling you, your best next step is to think about these items before your next financial strategy meeting. The dashboard can only show you that something is wrong. The value comes from understanding why it’s happening and what to do about it.

Don't Track Everything. Track What Matters.

Now, having tons of metrics on a long, drawn-out spreadsheet is not exactly what you want to do. Having thirty or forty metrics can create more confusion than clarity. The best place to start is with the most important five metrics you actually need. Your metrics should focus on your current goals. Whether they be monetary or related to human capital, your goals may differ from the next business owner’s goals. If you are struggling with cash flow, pay attention to your accounts receivables and cash reserves. If you are more so looking to expand you might prioritize gross margin, payroll costs, or revenue per employee. The right numbers depend on the decisions you're trying to make. To keep up with your metrics, ensure that you check them monthly. Look at past months to see how they compare to each other and make the necessary adjustments as your business grows. Tracking everything can slow you down more than it helps you scale. Track what’s important and you will see progress.

Start listening to what your business is telling you. Financial clarity doesn't come from having more reports. It comes from knowing what to look for and how to respond. That’s where your KPIs come to save the day. Tracking the correct metrics for your business gives you confidence in your decisions. Your business is telling you a story through its numbers every month. Learning to understand that story can mean the difference between reacting to financial problems and making decisions that prevent them. At Atlanta Business Services, we believe financial information should do more than tell you what happened last month. It should help you decide what to do next. If you're ready to better understand the numbers behind your business, we are here to help you learn your business.