Finance - Apr 10, 2017

Three numbers every small-business owner should know

They’ll help you keep track of your money and manage your finances

©istockphoto.com/gradyreese
©istockphoto.com/gradyreese

If you’re an entrepreneur about to launch a business, you’ll soon discover that managing your company’s finances is an ongoing activity. And as you probably realized when you developed your business plan, knowing your numbers is essential.

With so many aspects of your finances to consider – expenses, income, profits, losses, etc. – it can be a challenge to determine which numbers require the most focus. Here are three to note.

Your burn rate

Smart entrepreneurs anticipate and estimate their “burn rate”: the rate at which a company spends its capital to finance itself before generating positive cash flow. Knowing your burn rate will help you ensure your monthly expenses are on track, and help you determine how long it will take for your initial capital to run out.

Your break-even point

For your business to succeed, it needs to generate enough income to cover all of its operating costs. When those numbers match, you’ll have reached your break-even point and be better positioned, financially, to start earning a profit.

A good thing to keep in mind is that this number is flexible. Adjustments in overhead, material costs, the prices you charge and more can have a significant impact on when your business will break even.

Your cash flow

Cash flow is the money that flows in and out of your business through receivables and payables. When you’re starting a business, this number can be hard to determine. A new client may take longer than 30 days to pay. Your labour costs may be more or less than expected. A boost in sales may result in increased material and shipping costs.

Knowing your cash flow, even an estimate, will give you insight as to changes you may need to make, including sales targets, inventory and which expenses your company can afford.

Rogers understands how challenging starting a small business can be and is ready to help with a set of 12 Small Business Tools, including:

• The Rogers Burn Rate Calculator, which will help you determine how long your business’s initial capital will last

• The Rogers Break-even Calculator, which will help you figure out how much you need to sell to achieve a desired financial return

and

• The Rogers Cash Flow Forecast Calculator, which will help you estimate your business’s payables and receivables on a month-by-month and annual basis.

Ready to determine your important financial numbers – and explore other items necessary for starting and running a business?

Check out all of the Rogers Small Business Tools by clicking here.