Small Businesses Should Know What to Monitor in Their Finances

When it comes to running their businesses, many owners across the country may know the ins and outs of their industries extremely well, but experts generally agree that when it comes to the numbers side of things, not every entrepreneur does as well as they probably could, though it’s no fault of their own. The actual number-crunching isn’t always easy, and as such owners might need to do more to figure out exactly what they should prioritize in this regard.

There are a number of key data points that are more important than others for owners to ask about or examine more closely when meeting with an accountant or other such professional, or even doing the work oneself, according to a report from Sageworks. Knowing which things should be tracked as closely as possible can, in turn, help to improve the overall health of a business.

“I find that entrepreneurs are usually very good at the daily operations of their businesses, but understanding their financial statements is not as obvious to most of them,” said Brian Hamilton, chairman of Sageworks, a financial information company. “You may be tempted to think about your financial statements only during tax time, but smart business owners will use their financial information anytime they are making a decision about their business.”

So which should be prioritized?
Perhaps the most important single number owners should know about is their net profit margin, which shows them just how much they make on every dollar of sales they handle, the report said. Gross profit margin, meanwhile, will factor in the cost of doing business, and should also be tracked closely as well. Along similar lines, cash flow from operations will show just how much money is coming in during any specific time period, and this number in particular is often important in determining just how valuable a business is overall.

Owners who want to make sure their companies are running as smoothly, and profitably, as possible might need to do a little work to streamline their expenses. For instance, taking the time to find more affordable small business insurance policies, such as those for commercial insurance, might go a long way toward improving bottom lines because this alone can save thousands of dollars per year. That money can then be devoted to improving other aspects of the business, or simply shoring up finances overall.