By Corey Russell, Accountant, Moore Lewis & Partners
One of the questions I’m asked most often is, “How do I know if my business is actually doing well?”
It’s a great question because being busy and being profitable aren’t always the same thing.
I’ve sat down with plenty of business owners who are having their biggest year yet. The phone is ringing, orders are coming in and the team is flat out. Yet they still tell me it feels like there’s never enough money in the bank.
More often than not, the answer is in the numbers.
The good news is you don’t need to spend hours analysing reports or become an accountant overnight. There are five key numbers I encourage business owners to look at regularly because they give you a much clearer picture of how your business is performing and where your attention might be needed.
1. Cash Available
If I had to pick one number that causes the most stress for business owners, it would probably be cash flow.
You can be profitable on paper and still find yourself under pressure if cash isn’t coming into the business when you need it.
I’ve seen businesses delay purchases, worry about paying suppliers or lose sleep over payroll, even though they’re technically making a profit.
That’s why I always encourage clients to ask themselves a few simple questions:
- Do I have enough cash to comfortably cover my upcoming expenses?
- Are there quieter months I need to plan for?
- Have I set aside enough for BAS, tax and super?
Cash flow forecasting isn’t just about avoiding problems. It gives you the confidence to make decisions knowing where your business is heading.
2. Money Owed to You
Every unpaid invoice is money you’ve already earned.
It might sound obvious, but it’s surprising how quickly outstanding invoices can build up when everyone is busy.
If customers are consistently paying late, it can put unnecessary pressure on your cash flow, even when sales are strong.
Taking a few minutes each month to review your debtors can make a real difference. Following up overdue invoices early is usually much easier than trying to recover payments months down the track.
3. Gross Profit Margin
One thing I see quite often is business owners focusing on turnover. While growing sales is exciting, turnover on its own doesn’t tell you whether your business is becoming more profitable.
At Moore Lewis & Partners, we’re often more interested in your gross profit margin because it shows how much you’re actually making after the direct costs of providing your products or services.
- If your sales have increased but your margins are shrinking, it’s worth asking why.
- Have supplier costs increased? Are you discounting more than you used to? Have wages or materials crept up?
Sometimes a few small changes can have a much bigger impact on profitability than simply trying to generate more sales.
4. Payroll Costs
Your team is one of your greatest assets, but payroll is also one of the largest expenses for many businesses.
Hiring another employee is an exciting milestone, but it’s important to make sure your business can comfortably support that decision over the long term.
Regularly reviewing payroll costs also helps ensure you’re meeting your employer obligations, including Superannuation Guarantee requirements, payroll reporting and leave entitlements.
5. Net Profit
This is the number that really tells the story. Turnover is what people notice. Net profit is what allows your business to grow. If your revenue has increased but your profit hasn’t, it’s worth understanding what’s driving that result.
It could be rising operating costs. It could be pricing. It could simply be that your overheads have grown alongside your business. Whatever the reason, looking beyond revenue gives you a much better understanding of how your business is really performing.
Each of these numbers is useful on its own, but together they tell a much more complete story. For example, healthy sales with poor cash flow often point to slow-paying customers, while strong cash flow but declining margins might suggest your pricing needs reviewing.
Growing turnover with little change in net profit can indicate that costs are increasing faster than revenue.
That’s why I encourage clients not to focus on just one figure. It’s the relationship between the numbers that provides the real insight.
What next?
One thing I’ve learnt over the years is that the most successful business owners don’t wait until tax time to look at their financial reports. They check in regularly. They ask questions. They make small adjustments throughout the year instead of trying to fix everything at the end of June.
At MLP, we work with businesses at every stage, from start-ups to well-established family businesses. Some clients come to us for tax advice, while others want help understanding their numbers, improving cash flow or planning for growth.
If it’s been a while since you’ve sat down and looked beyond your bank balance, now is a great time to do it. You might be surprised by what your numbers are telling you.
