Seven Key Numbers to Drive Profit & Cash Flow

Financials in business are important but some numbers are critical to success.
 
Most of the Seven Key Numbers are not contained in typical financials, because they are Drivers rather than Results.  

How do these numbers become critical to success?

Revenue Growth Percentage

Most business owners focus their attention on Revenue and this is of course critical. Equally as critical, is what is it costing your business to increase your sales. When you sell something there are costs involved e.g. materials, staff and marketing. If the other numbers below aren’t being managed right, revenue growth will exacerbate cash flow issues.

Price Change Percentage

This means the percentage increase or decrease in price at which you sell your products or services. In a highly competitive market it’s tempting to sell for the cheapest price possible. That’s fine, but if you’re not covering costs you will not be profitable.  Many businesses fail to make regular small increases e.g. (CPI).  This can cause margin squeeze and gross profit suffers, due to reduced revenue, compared to the costs of delivering the goods or services. 

Customers can get a shock if there’s a large price increase, whereas regular small increases are more acceptable and recommended.  

COGS Percentage

Cost of Goods Sold means the costs incurred to get the product ready for sale. A small reduction in COGS Percentage can have as much impact on Profit as a large increase in Revenue.

Overheads Percentage

Many business owners focus attention on Overheads in the Profit & Loss Statement without comparing them, (by percentage) to Revenue.  If you just look at the Overheads dollar figure, you could be making more Revenue without increasing your Net Profit.  

Days Receivable

This is the number of days, on average, customers are taking to pay.  Managing this number can have a huge impact on cash flow.  Reduction in Accounts Receivable Days could be put thousands back into your bank account. 

To improve this number, focus attention on debt collection.  

Days Payable

Means the number of days, on average, you take to pay suppliers.  It’s tempting to pay suppliers who hassle for money and ignore potential better terms to be had from alternative suppliers, because you get focused on Revenue.  Some changes to Accounts Payables management can pay big dividends in your bank account.  

Days Inventory

This is the number of days, on average, that goods for sale, or raw materials are sitting in your store-room, from when they are delivered by suppliers, to when they are shipped to customers.  These goods often have to be paid for before they are sold.  This means you have spent working capital to have the stock waiting to be sold.  If you can reduce the number of Inventory Days, this can have a big impact on your bank account and working capital situation.

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