Small business success comes from planning, goal setting, and progress checkups. Businesses, small and large, use metrics to measure the progress of meeting goals. A metric is used to gain insight into how well your business is performing and to map the location of each project along the path to success. In this article, we discuss some of the most important metrics that startup companies should use.
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The data that metrics produce are usually hard facts, but they can also be subjective. Don’t be afraid to look outside of your company for an unbiased opinion about which metrics your company needs. Companies like Ruota Consulting empower new startups to succeed. Consultants are more than accountants; they are business specialists that help startups look at the figures and address production efficiency so that your company remains profitable.
Cash Flow Monitoring
Knowing the cash flow process of a business allows managers/owners to make informed decisions about investing in products, expanding, or to highlight periods when negative cash flow may occur.
To figure out cash flow, you need to do some accounting. The first thing to determine is cash flow from financing. Add this to the cash flow from investing (if you have investments). Add the result to cash flow from operations. The total of all three allows for cash flow monitoring.
Profit and Loss Statement
P&L is a time-based metric that shows revenues versus costs, versus expenses. The P&L tool shows you and lenders/investors the profitability of your company. It is also a tool that can show you where cuts need to be made to maximize profits. It is easy to calculate P&L. It is simply the selling price of a product or service minus the cost of producing it. This metric is good for the entire company or a single product or service.
Net income is found by subtracting total costs from total sales, and represents the profit that a company makes after payment is made for costs. Net income is the number that shows up on your company’s bottom line. It is sometimes called net earnings.
Revenue is the total amount of sales. It is found by multiplying the total quantity of products or services sold by the price of said product or service. This is a metric that allows you to see how much total income you have and how much the company may earn in future sales.
The gross margin of a company is fairly easy to determine. It is simply the total cost of goods sold subtracted from the profits of selling said goods. This is an important metric because first, it shows you what you can expect from sales, and second, it serves as inspiration for finding more efficient ways of operating. If you can lower the cost of goods sold (COGS) then your margin increases.
Metrics empower leadership to make informed decisions about what to change, how to proceed, and how to manage a company. Which metrics does your startup need?