How Profitable is your Business? Keeping An Eye on Finances
The biggest mistake freelancers and small business owners make are forgetting to keep track of their finances. It doesn’t matter how good, passionate, or committed you are to your business, if you don’t keep an eye on those numbers, your venture is likely to go belly up.
Here are some key financial numbers you need to know to ensure your business is going in the right direction:
1. Profit and Loss
Setting up a P&L (Profit and Loss) report is a must. This will give you insight into how well your business is doing by seeing how profitable you are. This is usually done monthly or quarterly by deducting expenses from your overall income.
The P&L statement will highlight if there are any problems. Are your expenses too high? Is there a way to reduce them? If not, perhaps you can raise your rates.
With this report, you can also see which months are more profitable so that you can focus your marketing and sales efforts accordingly.
2. Gross Income vs. Net Income
Understanding the difference between gross and net income is basic.
Your gross income is the total amount you earn from the sale of goods or services before tax and other expenses have been deducted. Net income on the other hand is your actual profit, what’s left after you’ve subtracted all your expenses.
3. Sales
Tracking your sales is incredibly important. Any dip in sales can be a troubling sign and should be addressed right away. Similarly, if you see a sudden increase in sales, it could be interesting to analyze and understand why that is; that way you can act quickly and hopefully sustain that growth.
Seeing what generates more profit is also relevant for any business. For instance, if you’re selling products, your sales report will highlight which items are bestsellers (this data is useful and invaluable for purchasing and restocking purposes).
4. Cash Flow
Your cash flow statement shows the actual cash entering and leaving your account in a given period (i.e. how much money you have in hand).
Even though your P&L report outlines that your business is profitable, it could be that you have poor cash flow. This usually happens when you have to invest in your business (purchasing product, equipment, hiring help, etc.) but are not yet receiving purchase orders from your clients or are waiting to get paid for a project you’re working on.
We strongly suggest you keep an eye on your cash flow statement; that way you can time any purchases/expenses accordingly and make sure you have the necessary cash on hand to cover necessary monthly business expenses.
5. Expenses
Running your own business means investing in equipment, products, staff, rent, advertising, supplies, and other services. Tracking your expenses gives you better control over where and how your money is spent. You need to make sure at all times that your expenses are not growing faster than your revenue.
If you need to cut back on expenses, having an expense report can be a lifesaver as it lets you review and reassess with ease which expenses are absolutely essential and which are not.
6. Price Point
What’s the right price for the products you sell or the services you offer? What margin do you need to make a profit?
Make sure you set the right price by taking into account all of your expenses (including direct cost when you purchase from your provider, payroll, taxes, utilities, rent, and so on).
7. Inventory
Recording your inventory on a regular basis can help you avoid overstocking. Having an excess inventory can be a massive problem for small businesses as it can result in waste, reduced profits, and high storage costs.
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Understanding your numbers and keeping track of finances on a monthly basis will let you know how your business is really doing; it will give you peace of mind and will let you plan more efficiently for the future.
Incomee can help with this. The platform features a smart dashboard where you can view your profit, overdue revenue, pending revenue, and average monthly income. It makes managing your freelancing projects and payments simple, fast, and enjoyable
Here are some key financial numbers you need to know to ensure your business is going in the right direction:
1. Profit and Loss
Setting up a P&L (Profit and Loss) report is a must. This will give you insight into how well your business is doing by seeing how profitable you are. This is usually done monthly or quarterly by deducting expenses from your overall income.
The P&L statement will highlight if there are any problems. Are your expenses too high? Is there a way to reduce them? If not, perhaps you can raise your rates.
With this report, you can also see which months are more profitable so that you can focus your marketing and sales efforts accordingly.
2. Gross Income vs. Net Income
Understanding the difference between gross and net income is basic.
Your gross income is the total amount you earn from the sale of goods or services before tax and other expenses have been deducted. Net income on the other hand is your actual profit, what’s left after you’ve subtracted all your expenses.
3. Sales
Tracking your sales is incredibly important. Any dip in sales can be a troubling sign and should be addressed right away. Similarly, if you see a sudden increase in sales, it could be interesting to analyze and understand why that is; that way you can act quickly and hopefully sustain that growth.
Seeing what generates more profit is also relevant for any business. For instance, if you’re selling products, your sales report will highlight which items are bestsellers (this data is useful and invaluable for purchasing and restocking purposes).
4. Cash Flow
Your cash flow statement shows the actual cash entering and leaving your account in a given period (i.e. how much money you have in hand).
Even though your P&L report outlines that your business is profitable, it could be that you have poor cash flow. This usually happens when you have to invest in your business (purchasing product, equipment, hiring help, etc.) but are not yet receiving purchase orders from your clients or are waiting to get paid for a project you’re working on.
We strongly suggest you keep an eye on your cash flow statement; that way you can time any purchases/expenses accordingly and make sure you have the necessary cash on hand to cover necessary monthly business expenses.
5. Expenses
Running your own business means investing in equipment, products, staff, rent, advertising, supplies, and other services. Tracking your expenses gives you better control over where and how your money is spent. You need to make sure at all times that your expenses are not growing faster than your revenue.
If you need to cut back on expenses, having an expense report can be a lifesaver as it lets you review and reassess with ease which expenses are absolutely essential and which are not.
6. Price Point
What’s the right price for the products you sell or the services you offer? What margin do you need to make a profit?
Make sure you set the right price by taking into account all of your expenses (including direct cost when you purchase from your provider, payroll, taxes, utilities, rent, and so on).
7. Inventory
Recording your inventory on a regular basis can help you avoid overstocking. Having an excess inventory can be a massive problem for small businesses as it can result in waste, reduced profits, and high storage costs.
---
Understanding your numbers and keeping track of finances on a monthly basis will let you know how your business is really doing; it will give you peace of mind and will let you plan more efficiently for the future.
Incomee can help with this. The platform features a smart dashboard where you can view your profit, overdue revenue, pending revenue, and average monthly income. It makes managing your freelancing projects and payments simple, fast, and enjoyable