The Importance of Knowing Your Numbers
An individual’s health and well-being are evaluated by studying data from various tests that are conducted. This data is then used to make informed decisions about the way forward. In the same way, an organisation’s financial health and well-being are determined by studying its financial data and then using this information to make decisions about the future of the organisation.
However, financial data encompasses a vast amount of information and not all numbers are necessary when making key decisions about a business’ growth, development, and long-term goals. Knowing which numbers are relevant is affected by the industry in which the business operates, how long the business has been operating, and what the business’ growth aspirations are. Nevertheless, at any given time, revenue or turnover and the expenses of the business should be known.
Three key numbers, no matter the industry, are revenue, profit, and cash. To keep revenue and profit at its optimum, ensure that there is a budget for the business to keep track of income and expenses. A budget allows one to measure actual income and expenses against budgeted figures to hold oneself accountable so that yearly goals can be reached. Another way to keep profit at its optimum includes reviewing key expense items regularly to ensure that the business is operating effectively and removing unnecessary costs. We will cover the importance of monitoring cash in another article.
There are various ways increase your business’ capabilities and potential profitability. These include implementing a strategic marketing plan; moving into a more digital marketing focus (e.g., social media); entering new markets that were previously not considered; expanding your existing products and services; reviewing your current margins and increasing these by a nominal amount; and streamlining the delivery of your products and services.
Knowing and tracking the numbers in your business will help grow and develop your business. Understanding what the numbers mean and the impact that they can have on your overall business will allow you to make more informed decisions, ultimately contributing to the overall health of your business.
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