financial goals

  • 9 Financial key performance indicators that you should be tracking to grow your new business

    9 financial key performance indicators you should be tracking as a new business owner.

    I get it, you are just new in this business, and as a busy mom, reviewing the finances every now and again is not the most exciting thing that you do in your business. In fact, many people avoid looking at important financial key performance indicators for their business, because they are afraid of the reality that these indicators will show about their business.

    The tough news is that you are going to have to learn how to use numbers to grow your business and make key decisions. So this post series is for you if you are still trying to figure out the what, why, and how to use financial numbers to make better business decisions.

    Financial key performance indicators are simple ratios or percentages or actual figures that businesses use to measure their financial health. If you are not monitoring your finances closely, as I mentioned in this post, you could end up making decisions that not only hurt your business in the long run, but also don’t make sense.

    Here are my top 9 financial key performance indicators (KPIs) that you can start tracking today in your business!

    1. Profit margin:

    The profit margin helps to compare the performance of your business to the past, and to other competitors who post their financial performance regularly. Having a targeted margin will help in assessing how attractive potential new services and products are, as you should be able to calculate an expected profit margin for each product if you know how much expenses and revenue you expect from it.

    Profit Margin = Profit / Total Income

    2. Expense margin:

    This determines how much of your income you are using to pay for expenses. A higher expense margin means that you are using a lot of sales revenue to run your business. Generally, your expense margin should not change significantly over the year unless your business model has changed. Keep an eye over your expense margin, so that you are not overspending in your business.

    Expense margin = Expenses/ Total Income

    3. Cash on hand:

    This determines how much cash you have at any given time. You should have enough cash to pay for 6-12 months of overall expenses.

    Cash on hand = Available cash to business (Cash + Petty cash + Bank current accounts)

    4. Burn rate:

    This determines how fast a company uses its money to cover its expenses. It is usually interpreted in months, as an indicator of how long a company can continue running if there were no sales or income coming into the business.

    Burn rate (in months) = Cash/ Monthly expenses

    5. Return on equity

    This determines how much you have earned from the investment you have made in the business. This rate is usually very low or even negative in the first 3-5 years of a business.

    Return on Equity = Profit / Equity

    6. Working capital

    Working capital measures the amount of capital that a business uses to continue running its daily activities. The higher this amount, the more upfront financing will be required to operate the business. Working capital is usually calculated by considering the company’s current assets and liabilities. A ratio above 1 generally indicates that the business is in a good position.

    Working Capital = Current Assets / Current Liabilities

    9 financial key performance indicators you should be tracking as a new business owner

    7. Conversion rate

    This determines how many people eventually buy your product or service after seeing your promotion or visiting your website. In online businesses, anything between 3 and 5% is a fairly good conversion rate.

    Conversion rate = Number of buyers/ Number of visitors on page

    8. Revenue per customer

    This is an important financial key performance indicator because it tells you how much revenue you make for each customer. It gives an average figure of the shopping basket size, every time a customer buys from you. You can use this ratio to determine how many new customers you need to target using your marketing efforts, in order to meet your sales targets.

    Revenue per customer = Monthly total sales / Number of customers

    9. Cost of customer acquisition

    Cost of customer acquisition measures how much it costs in marketing to attract and get one customer to buy from you. If you use Facebook Ads, it provides a summary of the cost per conversion, another way of saying what the customer acquisition costs are.

    Cost of customer acquisition = Total marketing spend/ Number of customers

    Found this helpful? Don’t forget to share with your goalfriends using the social media share icons below. You can also download my easy peasy income & expense tracker, and start keeping your business finances in order!

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  • How to track your income and expenses for a thriving business

    How to track your income & expenses for your business to thrive.

    Do you know how much money you made last week in your business? Last month? The uncomfortable truth is that numbers and finances are the backbone of any thriving business. Knowing how to track your income and expenses can seem overwhelming with all the responsibilities that you have as an entrepreneur over and above the million and one things on your “mom” to-do list, especially when starting up.

    The good news is, you can end your overwhelm right now, pick up your pen and notebook, and start taking these notes on how to get your finances in order and to start tracking your income and expense, like a boss! Or, you could hire someone to do it all for you. BUT, you are better off learning the basics of your business finances (like I mentioned in this post) because an understanding of the hard-fact numbers could help you in making better business decisions.

    Heard of the phrase “numbers don’t lie”? The numbers from the financial performance of your business will tell you whether:

    • you are making enough money given the investment that you have made in your business
    • which products/ services are profitable
    • you need to set money aside for taxes (if your income is higher than your expenses)
    • you have reached your financial goals for your business

    Either way, it is important to put in a routine on how you will track your income and expenses. Otherwise, how would you know whether you have a 7-figure business if you can’t tell how much money you made (or lost) last month!

    Here is a step-by-step guide on how you can start tracking your expenses and income on a weekly basis, starting today!

    Step 1: File all your receipts, invoices and payment documents

    The first step is to create a method for filing all your business-related income and expenses. This could be an online file, e.g. if all your transactions go through your bank account and an online version of your bank statement is available. Make sure you update this file at least weekly; this way you will not get to the end of the month or year and experience overwhelm in trying to find where you kept all your financial records (which are very expensive and time-consuming to retrieve from the bank I must say!).

    Quickbooks is one of the most widely used online accounting/ bookkeeping systems for recording, uploading, tracking and reporting of financial data. They also have an app which you can use to

    • Take photos of your physical receipts;
    • Upload them to Quickbooks;
    • Record the expense or income item and store it in your account

    Step 2: Open a business bank account

    Open a business bank account or a new personal account if it’s not feasible to open a business account immediately. Remember to still open a business account as soon as you possibly can. Separating your personal expenses from business expenses will make weekly tracking and updating so much easier. You will also be thankful you did it when tax season comes, and you need to show your bank statements if asked about certain transactions.

    Step 3: Select a method of tracking your finances

    Select the method of tracking your finances. There is really no right or wrong option here. The key is to choose an option that you are comfortable with. You do not need to be an excel genie to master the art of tracking and monitoring your income and expenses.

    Choose the tracking method which suits your lifestyle, skills and comfort level

    • Handwritten
    • Printable
    • Google sheets
    • Excel

    Step 4: Select method of monitoring and maintaining your financial accounts

    • Manual
    • Quickbooks
    • Real-time finance system

    The more automated the system, the more expensive it will be. While many SMEs are embracing real-time finance systems to help them assess the performance of their business on a daily basis, it is not a necessity if you are just starting your business.

    Step 5: You are now ready to record!

    If you are using a manual method, then you can download this free printable below to help you record your income and expenses. It also includes all the important fields that you need to record for each transaction.

    If you are recording your transactions on a spreadsheet, you can create a column for each of the suggested fields below in a monthly income tracker, and start completing each transaction and its details:

    • Date
    • Name of Service/Product
    • Name of customer
    • Amount
    • Year to date total
    • Transaction number
    • Payment type – cash, check, credit card, etc
    • Account detail

    The columns required for expenses are similar to those required to record income:

    • Date
    • Description
    • **Category
    • Amount
    • Year-to-Date Total
    • Transaction/Check Number
    • Payment Type
    • Account detail

    Categories for expenses include:

    • Advertising
    • Mileage
    • Salaries
    • Your own drawings (or salary)
    • Meals & Entertainment Expenses
    • Office Expenses
    • Office Supplies
    • Professional Services
    • Rent, Utilities & Phone
    • Travel Expenses
    • Bank charges
    • Insurance
    • Depreciation

    Always indicate the category because of tax purposes. There are some expenses for which your local tax authority might not allow for you to deduct from your income for purposes of determining how much tax to pay.

    Step 6: Select frequency of updating your records

    e.g. Quickbooks allows automatic updates for specific banks that are supported on their platform.

    Otherwise, you can manually upload your bank transactions by using a spreadsheet or any other supportable format.

    If you do not have many transactions, and you are not able to upload your transactions, you could also record them in quickbooks, or even on a document which can be used by a bookkeeper for month end or year end preparation of financials.

    Step 7: Store all your financial information in one place

    There are many free online programs which you can use to store all your financial records, including Evernote, Notion, Quickbook and cloud drives, e.g. google, iCloud.

    The important thing is that you know how to track your income and expenses so that you know what type of information you need to save for all your financial transactions.

    What areas of tracking income and expenses do you find most stressful?

    How to track your income & expenses for your business to thrive.

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