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About This Episode

Many small business owners, especially in their companies’ early stages, are experts on the product or service they provide, not the financial numbers. Even experienced business owners may find themselves so busy making sure everything gets done that they rarely have time to sit down and dig into the numbers. We want leaders like you to understand the financial numbers in their business so you can make better decisions and improve the health of your finances.

In this episode, we’ll share the top three financial metrics that matter most in your business and how to use them to lead your business. Our guide will be BELAY’s financial guru Lisa Zeeveld, the current COO and former CFO of BELAY.

 

Your One Next Step

In each episode, we highlight one next step for you and provide an activation or delegation guide to help you immediately take action, start applying what you learn, and get your team to help you.

Your Next Step: Create your business scorecard using our Business Budget Template. This simple, fill-in-the-blank template will help you document and track your most important numbers. Visibility is key, and having a system in place will help you evaluate how things are going and clearly see whether or not you’re winning.

 

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1. You can’t manage what you don’t measure.

Finances are often a source of misery when they remain a mystery. You must start tracking the three essential financial metrics — revenue, cost of goods, and net profit. These numbers give you the information needed to decide what you sell, how much you sell it for, and what you pay to produce it. Empower yourself to be the best leader you can be by tracking the numbers, so they’re available to be referenced when you need them.

2. Set the line.

Decide to run a profitable business. Leverage industry research and professional contacts to determine the types of margin you can make on what you sell — the percentage of revenue kept by the organization after paying for the product or service to be produced. Then, set the portion you want as profit. The percentage left will be allocated to operating costs. After you do that, stand firm on those percentages to ensure you run a financially healthy business.

3. Review the numbers monthly.

Great sports coaches would never lead their teams well if they only checked the score at the end of the game, but that’s what many business leaders do. Running a business and leading a team requires you to modify plans, try new tactics, acquire more talent, etc. These types of adjustments demand you know how things are during the game, so you have an opportunity to influence the outcome. We recommend you review the top three metrics at least once a month via a profit and loss statement and profit and loss forecast. Also, a weekly cash flow projection would be ideal as it would prevent you from seeing any surprises at the end of the month.

On a scale of 1 to 10, with 10 representing ‘very well’ and one representing ‘not well at all,’ how well do you understand your revenue — where it comes from (best customer acquisition sources), what percentage of revenue is represented by each product or service you sell, etc.? What revenue streams would you like to better track and understand?
What component of your cost of goods and services do you least understand? What can you improve or start doing to better understand what you spend to create your product or deliver your service?
Who could potentially help you improve the management, tracking and/or reporting of your business finances?

Your metrics tell a story about your future.

Lisa Zeeveld

It's easy to run a healthy financial organization if you have great financial organization.

Tricia Sciortino

Profit equals peace.

Tricia Sciortino

Surround yourself with the people who know the things you don’t know.

Tricia Sciortino

BELAY

 

In this episode, we also threw out a few terms, many of which you’ll be familiar with, but we wanted to link to definitions in the show notes if you want to refresh your memory on terminology.

 

Revenue

Cost of Goods Sold

Gross Profit Margin

Operating Costs

Employee Burden Costs

Net Profit Margin

(04:10) Today’s listener question: “What financial metrics matter most?”

(05:10) The first essential financial metric — revenue, including the different types of revenues, when it’s time to retire a product or service, and how BELAY tracks their revenue

(10:29) The second essential financial metric — cost of goods or service, including what it is, why it’s important, and how it should inform your pricing

(16:04) The third essential financial metric — net profit, including what profit does for you as the owner and your business, how to calculate net profit, the relationship between budgeting and profitability, and how BELAY protects the bottom line

(22:59) Tricia’s advice and tips on financial management for CEOs and business owners 

(23:53) Lisa’s advice and tips on how to start knowing the numbers

(25:39) Today’s One Next Step: Download our Business Budget Template — a simple, fill-in-the-blank template to help you document and track your most important numbers.

In each episode, we highlight one next step for you and provide an activation or delegation guide to help you immediately take action, start applying what you learn, and get your team to help you.

Your Next Step: Create your business scorecard using our Business Scorecard Template. This simple, fill-in-the-blank template will help you document and track your most important numbers. Visibility is key, and having a scorecard in place will help you evaluate how things are going and clearly see whether or not you’re winning.

 

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Join Us Next Week

Thank you for listening to One Next Step.

We hope you’ll join us for next week’s episode when our guest will be Shark Tank entrepreneur Brian Riley. As the CEO and co-founder of Guardian Bikes, a Mark Cuban company, he tremendously evolved his initial business model. As a result, the business is growing faster than ever. Now, he’ll help us discover the art of the pivot by answering the question, “How and when should I change my business model?”