Are you frustrated because you’re not hitting your financial goals? Maybe you’re clueless, trying to figure out what’s going on in your business and if your business is really growing? Well, you probably need to look at your numbers to answer some of these questions. Looking at your business’s financial numbers is a sure-fire way to check your progress toward tracking and achieving your goals.
I know exactly what you’re thinking “Yay! More tracking!” But fear not! There are only five numbers that business owners REALLY need to know, and knowing how to read these numbers will make a DRAMATIC difference in your business.
In this episode of the Andi Smiles Show I’m telling you the five most important numbers to track in your business, how to review these numbers, and what to do after you finally “know your numbers” so you can make strategic decisions about your money.
Watch the video below to get the whole shabang or check out the recap under the video.
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#1 How much money you made (5:44)
Let’s look at how your numbers can help you get a pulse for your business so that you can see what’s happening overall. The first number you want to track is how much money you made. This number is called your gross income. It’s pretty straightforward. Your gross income is the total lump sum of money that you’ve made.
When we talk about gross income the thing to keep in mind is that this number represents the money you make BEFORE expenses. It’s essentially what we call revenue. This is the inflow of pure undiluted money that comes into your business for the products or the services that you sell.
This is a really important number because at the end of the year, you want to look at this number and see how you did in terms of your overall business finances or if you hit your income goal. You can also look at this number to know if you’ve made more are less than the year before.
This overall big number gives you a gauge of the overall health of your business. You want to zero in on this number (no pun intended) on a monthly, quarterly and yearly basis.
#2 How much money you made (in detail) (7:55)
Now that we’ve talked about gross income in respect to all the money you’ve made, let’s look at your gross income broken down. Think of this as if you’re looking at a pie chart of your income. Looking at your money in this way allows you to see the different income streams and how much money you made from each of them.
When you look at your gross income from this perspective you’re able to see EXACTLY what’s driving the revenue in your business. Understanding the details is going to help you make those strategic decisions about where to invest your money, time, and energy.
Let’s say you have three revenue streams and one of them is driving 80% of the revenue in your business and another is only driving 5%. You’re going to want to put your attention into the one that’s driving 80% because that’s the one that’s really working. It’s all in the details!
#3 How much money you spent (9:15)
Let’s take a moment to move away from income and talk about expenses.
The third number you’re going to track is your total expenses. So, at the end of every month, quarter, and year, you want to look at your total money spent. For this number, you only want to see the overall figure. You’re not breaking it out yet. You’re just looking at how much you spent.
Ideally, what you spent is going to be less than what you made because if it’s not, your business is not profitable. You really want to understand what you’re spending on your business so you can start to understand what percentage of your revenue goes into your spending. This is how you can begin to manage your cash flow.
#4 Your Expense Category Numbers (10:12)
Now you’re going to look at those smaller details of your spending. Here, you’re going to be looking at your expense categories. With these numbers, you want to see exactly where you spent your money in DETAIL.
Generally, what I like people to do when they’re looking at this, is to locate their top three spending categories of the month, quarter, and year. As you do this, you’re going to find that you generally spend most of your money in the same areas.
Sometimes your top spending categories are project based. For example, last year when I re-branded my advertising-web site category was the highest category for last year. That’s a project based example but it’s not an expense that I’ll incur forever.
Sometimes you do have expenses that stick with you forever. If you have a VA and you know you’re going to stick with that person for a long time this could be a part of a non-project based expense category that you need to keep an eye on.
#5 Your Net Income (11:41)
The last number that you absolutely have to look at is what is called net income or profit. This is everything that you’ve made minus everything that you’ve spent and you want that number to be positive.
It’s really important you’re checking in with your net income on a regular basis because it helps you track the health of your business and the progress of your financial goals.
Knowing if your business is profitable means you understand if your business model is sustainable. For example, even if you hit your income goal of $100,000- if you spent $110,000 dollars then your net income is -$10,000. Just because you hit your income goal does not mean that your business is suddenly profitable or sustainable.
Don’t assume that because one number is where you want it to be that all the other numbers will be that way as well. This is one of the #1 reasons why we’re breaking this out into separated pieces.
Reviewing these numbers (13:55)
What are the differences? (14:00)
The first thing to do when you’re reviewing your numbers is to look at the differences. Look at your numbers and identify what’s changed since last month, last quarter or last year. Here are some things to ask yourself:
- Have you made more money? Have you made less money?
- Have you spent more? Have you spent less?
- Have your income streams changed?
- Has the balance of what drives money into your business changed since last year?
Looking at these differences, you can find out what was more or less profitable in your business and why. This is where we start to look at connections. If you were more profitable, you can uncover if it was because you made more money or because you spent less. This is where you begin to look at your wins and why things work together the way they do.
For example, you could look at the fact that you canceled a software subscription and how it now makes an impact on your monthly profitability. In a case like this, you can easily determine that your cancellation of the software was a good decision. Now you can see how finding the differences in your finances can impact the overall profitability.
What Stayed the Same? (16:01)
Next, you’re going to look at the opposite. This time you want to look at what stayed the same.
It’s easy to feel as if something bad is happening in our business if something stays the same. But that’s not always the case! Sure, if you’re trying to grow your income and it stayed the same, well you know whatever you’re doing isn’t quite working.
BUT if you’re trying to grow your income and maintain your spending then it’s awesome if your spending stayed the same. Don’t assume that by looking at what stayed the same it’s automatically a bad thing.
Are your numbers aligned with your goals? (16:57)
When you review your numbers the next thing to do is check in with your goals. You’ll be able to uncover if you’re on track with your goals or not. You especially want to do this if you’ve set specific milestones in your financial goal setting. For example, at the beginning of the year, you set a goal to make $100,000 this year. That’s $25,000 per quarter. If you make $30,000 in the first quarter then you’re on track for your goals.
You also want to look at your numbers through the lens of your goals because your goals are often what matters. I know we hear about everyone else’s business model and how much they made and blah blah blah but what really matters is what your goals are and the milestones that you’ve set for yourself.
Why are your numbers like this? (17:57)
Now the last one is actually kind of the hardest part.
This is when you look at your numbers and locate the big reasons behind WHY your numbers are in their current state. This is the part where you start critically thinking about your numbers. And I’ll be honest. This takes practice so don’t worry if you can only understand the basics at first. Just understanding that much in the beginning is a huge win.
Give yourself time to get used to understanding the why. Understanding the why is about connecting the dots in your business. For example, you want to be able to connect how taking a specific action caused a financial result.
This is super important because a lot of people’s biggest question about money in their business is whether they should invest in something or save money. When you start to understand the why behind your numbers you’ll start to understand when you should spend money and when you should invest.
Here’s an example: if you spent more money on advertising product A and your income went way up for Product A obviously you should continue spending money on advertising. But you have to look at the numbers and understand why something is working the way that it is.
Again, understanding the why takes some practice but I encourage you even now, in the beginning of your business finance journey, to just try to understand the why because eventually, you’ll totally get it and feel like a total badass.
What to do with your numbers (20:44)
Look for Trends and Make Changes (21:09)
This is the “what now” moment.
The first thing you’re going to do after you’ve looked at your numbers is identify financial trends in your business and make changes based on these trends. If you’re doing this on a regular basis, like on a monthly or even a yearly basis, you’ll start to notice trends and this is when your overall financial strategy gets really tight.
I’ll give you an example of what this looks like: You’re looking at your numbers from last year and notice it’s really tough for you in the third quarter of the year. Your income plummets, you have big bills due then, and your profitability is pretty low. You feel that cash flow wise things are tight. Then you look at the year before and you notice the same thing.
Now, you can then anticipate what you need to do in the third quarter to feel more financially spacious. You can plan to save for the third quarter earlier in the year or figure out some way to have cash infusion during your slow time. This is how you start to make strategic financial decisions rather than reactive ones.
Set realistic financial goals. (23:37)
The next thing to do is set realistic financial goals. We just talked about overarching trends. So, if you know that in the second quarter of the year every campaign that you run is gold and people just buy everything you offer- then set financial goals around those few months that will elevate your business.
Again, you’re looking at what is true for your business and setting goals around that truth.
Now, this doesn’t mean that you don’t stretch yourself when you’re setting your goals. Setting realistic financial goals in no way means shrinking back from stuff because you’re scared.
Setting realistic financial goals means looking at your trends and saying, “You know what- I’m going to run the biggest campaign in my business in April because I know that’s when most people buy from me.” Instead of running the biggest campaign in July where no one buys from you, you’re using the reality of your business to set yourself up for success.
Now you know the 5 most important numbers you need to track in your business, how to review these numbers so you actually know what’s going on in your biz, and how to use this information to set your financial goals. These numbers will help you make decisions in your business that are realistic and intentionally aligned with your with your goals.
Check out my Annual Financial Review template download that walks you through the steps of looking at your numbers. It’s a super rad PDF tool to use for tracking your annual numbers. Enjoy!