Only a handful of financial metrics are needed to understand a company’s health.
You can certainly get fancy and go crazy with ratios, charts, and dashboards, but keeping it simple will get you 80% to understand your company.
Cash balance
Knowing the cash balance daily helps you understand if you have enough to fund operations.
It’s a good indicator of whether you must ramp up cash collections or slow down cash expenditures.
Checking it daily will help with any surprises you didn’t plan for. A 5-second glance is all it takes.
Cash Burn
How much cash does it take to operate your business—just the regular, recurring expenses?
Knowing this number and how much cash you have in the bank is key to helping you make decisions.
If your cash burn is $80,000 monthly and you have $25,000, uh-oh. That’s not good. But if your bank balance is $500,000, you can fund operations for about 6 months—much more wiggle room.
Net Income as a % or revenues
Net Income as a percentage of revenue tells you how profitable (or not) you are.
It’s a simple to calculate:
Net Income / Total Revenues
If your business is stable, you should expect this percentage to stay fairly consistent.
Takeaway
- Monitoring your company’s help should be easy and not a chore.
- Focus on key metrics, and you’ll know about 80% of your company’s health.
- Key metrics: cash balance, cash burn, and net income as a percentage of %.
- Keep it simple. You can get fancy with ratios, charts, and dashboards, but they may only bring incremental knowledge that’s not worth the cost to produce.