What Numbers Should Every Small Business Owner Know?
You don't need to understand every figure in your accounts to run a successful business. But there are a handful of numbers every small business owner should know.
At a minimum, you should understand sales, gross profit, net profit, cash flow, money owed to you and upcoming tax liabilities.
Together, these give you a much clearer picture of how your business is performing than simply checking your bank balance.
For small business owners in Warrington, knowing these numbers can help answer some of the questions that really matter: Are we actually making money? Can we afford to grow? Are our prices right? And is there enough cash for what's coming next?
1. How Much Are You Actually Selling?
Turnover – or sales revenue – is the total income your business generates before expenses are deducted.
It's an obvious number to monitor, but don't look at it in isolation.
Compare it with:
Previous months
The same period last year
Your budget or target
Changes in your costs
Changes in profit
A business can increase its sales significantly without becoming more profitable.
That's why “How much did we sell?” should always be followed by “How much did we actually make?”
2. What Is Your Gross Profit?
Gross profit is broadly the amount left from your sales after deducting the direct costs of delivering the products or services you've sold.
Your gross profit margin shows that figure as a percentage of sales.
Why does it matter?
Because it can reveal whether your pricing and direct costs are working.
Imagine your sales are increasing, but your gross profit margin is falling. You may be busier than ever while making less from each pound of revenue.
That could prompt you to investigate:
Supplier costs
Staff or subcontractor costs
Pricing
Discounts
Which products or services you're selling
Monitoring the trend is often more useful than looking at one figure on its own.
3. How Much Net Profit Is the Business Making?
Net profit is what's left after the wider costs of running your business have been taken into account.
This is where turnover can become misleading.
A business turning over £500,000 isn't necessarily financially stronger than one turning over £300,000. What matters is what it costs each business to generate those sales and what remains afterwards.
If turnover is increasing but net profit isn't, ask why.
Have overheads increased?
Have you recruited?
Are margins getting tighter?
Are some services taking more time to deliver?
Or has the business simply become less efficient?
Understanding the answer can help you decide what needs to change.
4. How Much Cash Does Your Business Have?
Profit and cash are not the same thing.
You can run a profitable business and still experience cash flow problems.
For example, you might have made a sale and included the income in your accounts, but the customer hasn't paid you yet.
Meanwhile, wages, suppliers, VAT and other bills still need paying.
That's why your current bank balance is useful – but it shouldn't be the only number you look at.
The better question is:
How much cash will we have after the commitments coming up?
A simple cash flow forecast can help you see what's likely to come in and go out over the weeks and months ahead.
5. How Much Money Do Customers Owe You?
If you invoice customers, keep a close eye on your outstanding debtors.
Don't just look at the total.
Look at how old the debts are.
A customer who is two days beyond their payment terms is very different from one who hasn't paid an invoice from three months ago.
Regularly reviewing overdue invoices can help protect cash flow and highlight problems before they become significant.
Good bookkeeping makes this considerably easier because you can see what has been invoiced, what has been paid and what still needs chasing.
Our bookkeeping services help businesses keep their financial records accurate and up to date throughout the year.
6. How Much Tax Should You Be Putting Aside?
Money in the business bank account isn't necessarily money available to spend.
Some of it may already effectively belong to HMRC.
Depending on your business, you may need to plan for liabilities such as:
Corporation Tax
VAT
PAYE and National Insurance
Self Assessment
Knowing approximately what's coming can make a considerable difference to financial planning.
HMRC provides guidance on the different taxes businesses may need to pay through GOV.UK.
Rather than waiting for a tax bill to arrive, build future tax payments into your cash planning.
7. What Are Your Monthly Overheads?
How much does it cost simply to keep your business running each month?
Consider costs such as:
Salaries
Rent
Software
Insurance
Utilities
Finance
Professional fees
Marketing
Subscriptions
Knowing your regular cost base gives you useful context for other decisions.
For example:
How much do we need to sell each month?
Can we afford another employee?
What happens if sales fall for three months?
How much cash should we keep in reserve?
It's also worth reviewing these costs periodically. Small increases across numerous expenses can quietly eat into profit.
8. Which Products, Services or Customers Make You the Most Money?
This is where the numbers can become particularly useful.
Two customers might each generate £10,000 of annual revenue but require completely different amounts of time and resource to service.
Likewise, one service may generate lots of sales but relatively little profit, while another has a much healthier margin.
Where possible, try to understand profitability across different parts of your business.
It can help you decide:
Where to focus your marketing
Which services to grow
Whether your pricing needs reviewing
Where you're using too much time
Which work you actually want more of
That's much more useful than simply trying to increase turnover.
Do Small Business Owners Need to Check Their Numbers Every Day?
Usually, no.
Constantly checking the bank account isn't the same as managing your finances.
The right frequency depends on your business, but many owner-managed businesses benefit from reviewing a small set of key numbers monthly, with cash flow monitored more frequently where necessary.
The important thing is consistency.
If you review the same useful measures regularly, you begin to spot trends rather than discovering problems months later.
What Numbers Should I Ask My Accountant to Explain?
If your accountant sends you reports you don't understand, ask questions.
Useful ones include:
What is our gross profit margin?
Is our profitability improving?
Which costs have changed most?
How does this compare with last year?
Is our cash position healthy?
What tax payments are coming?
Is there anything in these figures I should be concerned about?
What would you be looking at if this were your business?
You shouldn't need an accountancy qualification to understand whether your own business is doing well.
A good accountant should be able to explain the numbers in plain English and help you understand what they mean for the decisions you're making.
Which Business Number Is Most Important?
There isn't one.
Turnover without profit can be misleading.
Profit without cash can cause problems.
Cash without considering future bills can give false confidence.
The real value comes from looking at a small group of numbers together and understanding the story they're telling you.
At Purple Accounts, we believe accounts should be useful for running your business – not simply something produced to meet a deadline.
As a Warrington accountant, we work with small and growing businesses to keep their finances organised and help business owners understand their numbers throughout the year.
A Final Thought
You don't need to know hundreds of financial ratios.
Start with the basics:
Sales. Profit. Margin. Cash. Debtors. Costs. Tax.
Know where they are now.
Know whether they're getting better or worse.
And, most importantly, understand what they're telling you about your business.
Because better business decisions usually start with better information.
Get in touch with Purple Accounts on 01925 979500 or email: enquiries@purpleaccounts.com
