Why do so many businesses fail within their first year? Well, there are many answers to that question, but one blaring reason is that many businesses do not know their numbers. What do I mean by numbers? I’m referring to the financial terms of every business. Sometimes, we as business owners are so caught up in the product or service that we tend to forget how important it is to understand your numbers. However, numbers tell a story.
So, what are some numbers that we as entrepreneurs should know that will help us to understand how financially healthy our businesses are? Well, here are just a few to begin with…
- Asset – Something that has value that your business owns (i.e. – cash, property, investments, jewelry, etc).
- Liability – What your business owes (i.e. debt).
- Cashflow – The way money moves into and out of your business.
- Net Income – How much revenue exceeds expenses; The amount of money earned in a given period of time, minus taxes, expenses, and interest. (bench.com) One of the best ways to monitor the financial health of your business. Net income increasing? You’re probably on the right track. Decreasing? Time to reassess. Net income = total income – total expenses
- Profit and Loss – Snapshot of your company’s income (sales and revenue) ninus expenses during a specific time (i.e. – quarterly, every six months or annually)
- Price Point – How much it will cost you to purchase your goods and what you’ll need to sell those goods or services in order to make a profit.
And there are more! Don’t get overwhelmed though. The savvier you become with these financial terms and understanding what they mean to the success of your business, the better chances of success.
Cheers to knowing your numbers!
You can do it.
You are becoming the vision.