Understanding Your Numbers

Many business owners avoid their numbers. They delegate the financial side entirely to an accountant, look at the bank balance occasionally and hope the business is doing well enough. This is understandable — financial statements can be opaque, the terminology is off-putting and the accountant always seems to understand it better than you do.

But running a business without understanding your numbers is like driving with your eyes closed. You might get where you're going. You're much more likely to have an accident that could have been avoided with better information.

The six numbers that matter

Revenue. The total income before any costs. The most visible number — and the most misleading on its own.

Gross margin. Revenue minus the direct costs of delivering your service or product. This tells you whether your pricing and cost structure make sense. A low gross margin limits everything else.

Net profit. What's left after all costs. This is what the business actually earns. Profitable businesses that run out of cash are suffering from a timing problem, not a profit problem — which leads to the next number.

Cash position. What's in the bank, and what's expected in and out in the next 30–90 days. This is the survival number.

Debtor days. How long it takes clients to pay you. Every day over your payment terms represents money owed to you that's temporarily financing someone else's business.

Pipeline value. The probable revenue in your sales pipeline over the next 30–90 days. This is the early-warning number — if the pipeline is thin now, the revenue problem shows up in 60 days.

What to do with them

Track all six monthly. Know what each one was last year at this time. Set a target for each. When a number moves in the wrong direction, understand why before trying to fix it. The numbers don't run the business — but they tell you what the business is actually doing, which is the prerequisite for running it well.