5 Numbers That Will Make or Break Your Business

Regardless of the type of business you’re running, actively monitoring a few key numbers is often what’s needed to keep your company growing and prosperous.

A company’s key indicators often fall into one or more of the following categories:

• Order volume. Find the metric of orders that makes sense for your business. Measure the number of orders versus last month and last year. Then look at year to date numbers and compare them to last year. Are you selling more units over time? Tracking revenue alone may present a false picture. After all, revenue may be growing because prices have increased. If unit sales are declining, you might be losing market share.
• Breakeven point. Determine how much gross margin (sales minus cost of goods) you need to cover your ongoing expenses. These ongoing expenses like rent, supplies, utilities, advertising, insurance and other expense should be totaled and divided by twelve to determine your average monthly breakeven point. You will need a gross margin that averages above this breakeven point to show a profit at the end of the year. If you’re dipping into reserves to cover revenue shortfalls, adjustments may be required. So calculate and know this number for your business.
• Liquidity. Knowing whether there is enough to pay your bills now and into the future is key. So create and maintain a 12 month financial forecast. This includes both your income statement and balance sheet. Then translate it into a statement of cash flow. If done correctly, you can see when you will need cash. Then plan accordingly to ensure the proper liquidity is available when you will need ti.
• Inventory Turnover. This number shows how many times your company sells and replaces inventory during a given period. The higher the number, the better. Assume your company’s cost of goods sold for 2024 was $100,000, beginning inventory on January 1, 2024 was $10,000, and ending inventory on December 31, 2024 was $15,000 (for an average of $12,500). Your cost of goods sold of $100,000 divided by $12,500 equals a turnover ratio of 8.0. Banks and investors love to look at this number as the higher the turnover, the less likely you cannot change the inventory back into cash by selling it.
• Payroll (and Contractor) Percentage. Take your total payroll costs (including benefits) add contractor costs and divide it by net sales. This percent of sales is then compared to budget and prior years. Try to maintain or shrink this percent. Don’t forget to add part-time and contract workers to this total, as many businesses are relying more on this source of workers in this tight labor market.

Over time your business’s vital numbers may change. The key is to know your company, identify changing conditions and adapt.