Every business should know seven numbers; with these seven numbers, you can manage, measure, and drive your business forward.
Let’s have a look at what they are
1) Revenue Growth
What is it? – The amount that revenue has increased or decreased.
How is it calculated? – the difference between annual current year-to-date revenue and the prior year.
Why is it important? – Businesses typically want to grow; this checks that the trend is moving in the correct direction. Remember, though, that turnover is vanity and profit is sanity – sales to the wrong customers or at the wrong price should not be pursued.
2) Gross Profit Percentage
What is it? – How profitable the main business activities of a business are.
How is it calculated? – The profit from providing goods or services compared to the revenue, expressed as a percentage.
Why is it important? – It measures the performance of the buying process, the pricing process, and the efficiency of the production or service delivery. It also makes a tremendous benchmarking ratio.
3) EBITDA – Operating Profit Percentage
What is it? – This measures how profitable the business is as a whole.
How is it calculated? – The net profit of the business, excluding interest, tax, and depreciation, expressed as a percentage of revenue.
Why is it important? – It measures the overall business performance and is suitable for target setting and benchmarking.
4) Revenue Per Employee
What is it? – How much each employee contributes to revenue.
How is it calculated? – The revenue is divided by each full-time equivalent employee [including the business owners].
Why is it important? – Gives a holistic view of your business and how efficient your team is.
5) Core Cash
What is it? – The ideal amount of cash to have in hand.
How is it calculated? – Simply the amount of cash in hand.
Why is it important? – By comparing the actual cash to the ideal amount, you can determine how stable the business is and what surplus cash is available to invest
6) Cash Days
What is it? – How long does it take for every pound you spend to return to the business?
How is it calculated? – Debtor days plus stock days less creditor days.
Why is it important? – It gives a clear understanding of the working capital funding requirement to assist with cash flow forecasting, particularly in periods of planned growth.
7) Business Return
What is it? – The return on investment of the business.
How is it calculated? – The operating profits divided by the value of the business expressed as a percentage.
Why is it important? – This can measure whether the business owner would better invest the value elsewhere.
All businesses should be measuring these key seven numbers, and we have processes in place to help you measure these and can work with you to improve them all. We can help you with this from as little as £157 plus VAT per month, and we can offer a monthly meeting to hold you accountable for £457 plus VAT per month.
We can offer you a free initial meeting to look at where you are now and where you want to get to and then help you devise a plan to achieve your objectives.
Click on the link to set up a free business improvement initial meeting.