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4 Numbers you Need to Know to Manage Your Business

Some people hate figures, maths and numbers.  Whilst you can delegate the bookkeeping and accounting for your business, you still need to stay on top of a few numbers just to know whether your business is healthy.  You only need to have seen a few episodes of Dragon’s Den or The Apprentice to know that this is the case.

When I was studying to be an accountant I became a tad sceptical about the usefulness of all of the numbers I was learning to crunch.  It all seemed very backward-looking and it doesn’t take a genius to work out that in terms of business health, past performance isn’t always the best indicator of future success.  This is why Eric Ries Lean Startup explanation of why traditional accounting doesn’t work for startups was music to my ears.

Based on the businesses I have worked with, there are just a handful of measures which, across the board, regardless of the type of company, will give you and your team an indication of how you’re doing.  This is why I developed a tracker for customer growth and retention.   So as a new startup or small business owner, what are the most important things to measure?

1 Customer growth - new customers

In order to get your business off the ground and keep it growing you will need to attract new customers.  By counting the number of new customers you can track whether the business is growing and whether your advertising or promotions are worth the cost.  So it is important to understand whether new customers have come from:

  • word of mouth

  • advertisements

  • website traffic - use analytics to work out where from

This measure should be made available to everyone within your team so that everyone can see what is and isn’t working.

2 Customer retention - repeat customers

It sounds obvious, but it is going to be cheaper, and therefore more profitable, to hang onto existing customers than to keep ‘buying’ new ones.  If you have designed a product which seems to be a one-off purchase, then think about whether you can create a value-adding repeat purchase element, such as after-care support, advice or maintenance.  Whilst you can’t expect all of your customers to come back, losing a high number needs investigating so that you can understand:

  • which elements of your product or service aren’t quite hitting the spot

  • how to tailor promotions to specific customers

Again, everyone needs to see this measure to know whether their actions are helping to retain customers.

3 Units sold of your most profitable product

You need to know which of your products or services are most profitable and try to upsell to your customers.  A sustainable balance is where your most profitable product is also the one which your customers value the most, which makes for long-term win-win.  It would be easy to get lost in the detail in this area and do nothing else, but periodically you need to undertake an inventory of your products to understand where to focus and which products you perhaps need to shelve because they are costing rather than making you money. Factor in

  • costs to produce

  • materials, packaging and postage

  • labour

By everyone seeing this measure, they can see whether they are successfully focusing their efforts on the most value-adding products for the business.

4 Cash

The one thing which is true for every business of every size is that cash is king.  Businesses mainly fail because they run out of cash or can’t repay their debts or other financial commitments.  Your regular incomings should be comfortably covering your regular outgoings.  In addition, you need a cash safety net.  In the same way that employees hold savings of 3-6 months in case they lose their job or are unable to work, your business needs a cash safety net balance - this is the amount you have worked out that you need to hold in case of any emergencies or if your business was unable to trade.

Online banking has made all of this much easier to manage and these numbers should be at your fingertips or the forefront of your mind:

  • Your daily business bank balance

  • Any big payments/receipts due in the next few days, weeks and months

Depending on your values and the culture you are creating, you may also want to share the cash balance with your staff so that they feel fully involved.

 

Make it so...

Google sheets is a very easy way of recording these key numbers and have them at your fingertips.  For a low-tech option you can write it down on a piece of paper or a whiteboard that gets stuck on a wall where everyone can see it.


If you absolutely cannot track these numbers yourself, i.e. if you have dyscalculia, then you need to get someone else who can, or you need to figure out an alternative way of getting an indication of the same thing without numbers.  I’m sure there are other creative ways of getting to the same thing which doesn’t involve spreadsheets so we’d love to hear about them.