In business, bookkeeping involves monitoring your company’s financial records and accounts to check how your business is performing financially and how your business finances are impacting your business. Many business owners track and report these metrics over time to assess growth or address challenges, whether on a monthly, quarterly, or annual basis. This approach provides a clear picture of your business’s performance on a month-to-month (MOM) and year-to-year (YOY) basis. By monitoring key bookkeeping metrics, you can better understand your business operations, predict future financial trends, and make more informed decisions. Let’s explore crucial bookkeeping metrics that can help you make data-driven choices, avoid financial surprises, and plan for growth.
What are the key performance bookkeeping metrics for tracking?
Without measurable performance metrics, you won’t be able to know where your company stands from a bookkeeping point of view. Here are a few factors that you need to consider when measuring business success:
- Cash flow of a company
Cash flow is one of the most crucial business bookkeeping KPIs because a positive cash flow will avoid making you run out of cash. This is calculated by subtracting the expense (outflow of cash) from the income (inflow of cash). With cash flow, you can determine how your business is performing, how much you are spending and how much revenue you are making. By daily tracking cash flow, you can make the right business decisions, such as where to assign resources, enhance your financial estimation, and stay prepared for future opportunities to grow your business. A bookkeeper for small businesses can help you track the cash flow of your company so you can find new ways to improve the cash flow of your company.
Revenue
Tracking your revenue or top line gives you a clear picture of how much money your business generates over time. This key bookkeeping metric helps you understand the performance of your business, products, and services. It provides a figure to assess your financial position. It is crucial to remember that revenue differs from profit, but it plays a key role in calculating both your net and gross profit margins.
Net and gross profit margins
Revenue represents the total income from your sales, while gross profit is what’s left after subtracting the Cost of Goods Sold (COGS) from that revenue. Net income, or the bottom line, is your revenue minus all business costs, both operational and non-operational. When revenue exceeds your expenses, you know you are making a profit.
For businesses, net and gross profit margins are essential bookkeeping KPIs. They allow you to track and manage expenses, providing insights into how well your production process and pricing strategy are performing. Higher profit margins mean your business is earning more from each dollar of sales after covering production costs. If you are based in Melbourne, working with experienced bookkeepers in Melbourne can help you accurately track these figures and optimise your financial health.
Return On Investment (ROI)
If your business is making any financial investments, whether in shares or marketing efforts, it’s crucial to track your return on investment (ROI) to ensure profitability. Without monitoring this, you won’t be able to assess how well your investments are performing.
Expenses
Expenses, as the term suggests, are the outflows of money from your business. These include costs like rent, utility bills, and employee wages. Tracking your expenses is essential for maintaining an accurate cash flow statement and is also important for taxation purposes. Taxation accountants can help ensure you are maximising deductions and staying compliant with tax regulations, making it a key task for any business owner to keep track of.
Conclusion
Tracking key bookkeeping metrics is essential for maintaining the financial health and growth of any business. By regularly monitoring cash flow, revenue, profit margins, return on investment (ROI), and expenses, business owners gain valuable insights into their company’s performance and financial stability. These metrics help make informed decisions, plan for the future, and identify potential areas for improvement. Whether you are a small business owner or managing a larger enterprise, getting help from reliable bookkeeping services can help you understand your company’s financial status.