5 Numbers Every SME Should Know

Running a business isn't just about making sales. It's about understanding what those sales are actually doing for your business. You don't need to be an accountant to understand your numbers, but you do need to know which numbers matter. This week's Tuesday Tip looks at five numbers every SME owner should be tracking regularly to understand the financial health of their business and make better decisions.

1. Revenue - How much are you actually selling?Track your revenue monthly and compare it with previous months, quarters and years.

2. Gross Profit Margin - How much do you actually make from what you sell?Your gross profit margin shows what's left after the direct costs of delivering your product or service. If your sales are increasing but your margins are shrinking, growth could actually be putting pressure on your business.

3. Cash Flow - How much cash is actually available?This is one of the most important numbers to understand because profit and cash aren't the same thing. You may have made sales and recorded a profit, but if customers haven't paid yet, that money isn't available to cover salaries, suppliers or other expenses.

4. Debtor Days - How long does it take customers to pay you?Track how quickly invoices are being paid and identify customers or trends causing delays. Shorter payment cycles mean cash reaches your business sooner, helping improve working capital.

5. Monthly Debt Repayments - How much of your monthly cash flow is committed to debt? If your business has existing loans, credit facilities or other finance, know exactly how much you're committed to paying each month.

The bigger picture:

A business can be profitable on paper but still have very little cash available, while rapid growth can put significant pressure on working capital. These five numbers tell you far more than how much money your business made last month. Together, they give you a clearer picture of:

- Whether your sales are growing.

- If you're generating enough profit from those sales.

- If you have sufficient cash to keep operating.

- How quickly customers are paying you.

- How much of your cash flow is already committed to debt.

Something to consider:

When you're considering business funding, having a clear understanding of your numbers can also help you have a more informed conversation about what your business can realistically afford.

Bottom line - The better you understand your numbers, the better decisions you can make about the future of your business. Don't just know your turnover, know the numbers behind it.