“If you could only look at six numbers, here’s the most important ones for you to keep an eye on. They’re going to help you understand the health of your business and how things are going in relation to where you are and the activities that your business is undergoing to get you to that end result of what it is that you are trying to achieve with the business.”

– Andrea Jenson

Welcome back to a new episode of the Cash Flow CFO Podcast! Today, we’re diving deep into the six key numbers every business owner should focus on at the end of each month. These metrics are crucial for understanding the health of your business, and I want to make sure you know exactly what to look for. We’ll break down each number so that you can confidently review your financial reports and make informed decisions.

Join me to learn the whole story!

“There are some crazy statistics out there that nearly 30% of the businesses that go under do so because of cash flow problems, and the number one source of cash flow problems generally leads back to a bad business model and too high of a percentage of cost of goods sold.”

– Andrea Jenson

Sales, Expenses, and Profit

The first metric is a combination of three interconnected numbers: sales (or revenue), expenses, and profit. These are the basics of your profit and loss (P&L) statement. Sales tell you how much money your business brought in, while expenses show what you spent to run your business. The difference between these two is your profit. Understanding the relationship between these three numbers is essential because it gives you a clear picture of how well your business is performing. Are you selling enough to cover your expenses and still have money left over? That’s the key question this metric answers.

Cost of Goods Sold (COGS) as a Percentage of Revenue

Next up is the cost of goods sold (COGS) as a percentage of revenue. This metric tells you how much it costs to produce the goods or services you sell, relative to the income you generate from them. If your COGS is too high, it could indicate that your pricing isn’t set correctly, or you’re spending too much on production. Ideally, your COGS should be between 40% and 50% of your revenue. This ensures that you’re keeping a healthy margin and that your business model is sustainable. If your percentage is higher, it might be time to reassess your costs or consider raising your prices.

.

Marketing Expenses as a Percentage of Revenue

The third metric to keep an eye on is your marketing expenses as a percentage of revenue. This measures how much of your income is being reinvested into generating new leads and sales. A good rule of thumb is to keep your marketing expenses between 7% and 10% of your revenue. This ensures that you’re spending enough to grow your business, but not so much that it cuts into your profits. It’s important to regularly review this percentage to make sure you’re getting a good return on your marketing investments.