First-time entrepreneurs often have a hard time figuring out company financials—but you don’t need to be an accountant to do the basic math.
The value of knowing your key financial numbers while starting and growing a new company is priceless. If you have an intimate understanding of your financial numbers, then you will feel more in control of your business and your life. Also, the numbers tell you how you can make the most money with the least amount of time and effort, which should be a goal of any entrepreneur.
There are many stories of entrepreneurs who go for lengthy time periods without paying themselves or their taxes. Others find themselves paying their bills late, forcing creditors to chase them down. Many of these problems can be avoided by proper planning and discipline. You do not need to have a CPA license to do this effectively—basic math and a lot of discipline will take you a long way with this task.
What Numbers Are You Watching?
To accurately determine your company’s financial health, track your three most important numbers:
1. Net profit. Net profit is also known as the “bottom line.” In the end, you are in business to make a profit; it doesn’t matter how many sales that you’ve made if you continually spend more than you make. To calculate this number, take your company’s total revenue and subtract your total expenses from that. [Net Profit = Total Revenue – Total Expenses]