011: The Top 3 Metrics Businesses Need to Measure Financial Health

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.