How much profit did you make last month? If you had to stop and think, you are not alone. You do not have to be an accountant to understand your business numbers. But if you own or manage a business, you need to know what your numbers are telling you.
Prefer to watch? Anita Okonji, Financial Controller at Credit Direct, explains the 5 numbers in this short video.
The questionmany owners cannot answer
Many business owners can tell youhow much they sold last week. They know their biggest customer, how much stockthey have, and perhaps how much money is currently sitting in the bank.
But ask
- How much profit did your business actually make last month?
- Which part of your business is making you money?
- Are your costs growing faster than your sales?
- If sales increase by 30%, would you have enough cash to support that growth?
For many owners, the answers are notso clear. That is a problem.
Why your numbers matter
Numbers are not just for preparingaccounts or keeping your accountant happy. They are one of the best tools youhave for making business decisions.
You do not need to learn everyaccounting term. You only need to understand the few numbers that tell youwhether your business is healthy, where the money is going and what you shoulddo next.
Start with these 5 numbers
1. Sales: Howmuch are you selling?
Sales tell you how much yourcustomers are buying from you. But sales alone do not tell you if the businessis doing well.
Imagine two businesses that eachmake ₦10 million insales in a month. One spends ₦8million to generate those sales, while the other spends ₦5 million.
They have the same sales, but theyare very different businesses. Sales matter, but they are only the startingpoint.
2. Gross profit:How much is left after the direct cost of what you sell?
Say you sell a product for ₦10,000, and it costs you ₦6,000 to buy or make it. Your grossprofit is ₦4,000.
That ₦4,000has to help cover salaries, rent, transport, electricity, marketing and otherrunning costs. This number shows whether what you sell earns enough to supportthe rest of the business.
3. Operatingexpenses: What does it cost to run the business?
These are the costs you incur tokeep the business operating. Think about salaries, rent, internet, transport,electricity, marketing, software subscriptions and other overheads.
The important question is notsimply, "How much are my expenses?"
Ask: "Are my expensesgrowing faster than my business?"
If your sales increase by 10% butyour operating expenses increase by 40%, you need to understand why.
4. Profit: Whatis actually left for the business?
Profit is what remains after thecosts and expenses of running the business have been taken into account. Thisis the number that tells you whether your business model is actually working.
But remember, profit is not the samething as cash. We will explore that in the next edition.
5. Cash: Howmuch money can the business actually access?
Cash is what pays your staff,suppliers, rent, taxes and other bills when they become due.
A business can be profitable andstill have very little cash. That is why you need to look at profit and cashtogether.
Your monthly checklist
At the end of every month, writedown:
- ☐ Total sales
- ☐ Gross profit
- ☐ Total operating expenses
- ☐ Profit
- ☐ Cash available
Then ask yourself 3 question
- What improved?
- What got worse?
- What needs my attention next month?
You do not need a complicateddashboard to start. A simple spreadsheet or notebook is better than makingdecisions without the information.
Expert perspective
Try this
In our launch issue, we asked you towrite down last month's sales and the cash you have today. Now add the otherthree numbers.
Before the next month begins, createa simple five-line financial scorecard for your business:
Sales | Gross Profit | Expenses |Profit | Cash
Track it every month.
The goal is not to produce perfectaccounts overnight. The goal is to start using your numbers to run thebusiness.
Subscribe to Business Brief newsletter
%20compressed.png)