Five Financial Numbers Every Business Owner Needs to Know
In this episode of QuickBooks Mastery for Small Business Success, Lee Davis and Erica Northrup discuss five key financial numbers every business owner should understand.
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At the center of all of these numbers is one critical issue: cash flow.
Business owners need to know where their money is coming from, where it’s going, and whether the business is financially healthy enough to support growth and long-term success.
Two reports play a major role in understanding these numbers:
- The Cash Flow Statement
- The Profit & Loss Statement
Together, these reports provide the visibility needed to make informed business decisions.
1. Revenue
The first number every business owner should track is revenue.
Revenue tells you how much money is coming into the business—but it also raises an important question:
Are you missing revenue opportunities?
According to Erica and Lee, many businesses unintentionally lose revenue because:
- Invoicing is delayed
- Billing processes are inconsistent
- Follow-up systems are weak
Improving invoicing alone can often increase revenue and improve cash flow.
2. Net Sales
Net sales go beyond top-line revenue and help business owners understand profitability more clearly.
One major factor impacting net sales is the cost of employees and operations.
Timely invoicing is especially important here. If sales are not billed promptly, it becomes difficult to accurately measure performance and profitability.
This number also helps business owners better understand their profit margins.
3. Net Profit
Revenue alone does not determine whether a business is healthy. Net profit reveals whether the business is truly sustainable.
Your profit must be strong enough to:
- Support operations
- Cover expenses
- Reinvest into growth
- Support owner compensation
Erica and Lee also point out that many businesses overlook indirect expenses, such as depreciation, when evaluating profitability.
Ignoring these costs can create a misleading picture of financial performance.
4. Debt-to-Income Ratio
Another important number is your debt-to-income ratio.
This is calculated by comparing:
- Total monthly debt payments
to - Total monthly income
Banks generally prefer to see a debt-to-income ratio around 35%.
Why does this matter?
If too much of your income is going toward debt payments, it may indicate deeper financial issues within the business.
Lee also emphasizes an important point:
The best time to secure a line of credit is before you actually need it.
5. Owner Pay
Owner compensation is often more complicated than business owners realize.
Depending on your business structure, owner pay may be handled differently:
- LLCs → Typically use owner draws
- S-Corporations → Typically use payroll
In addition, business owners often receive indirect financial benefits through the business, such as vehicle payments or other company-covered expenses.
Understanding how owner compensation fits into the overall financial picture is essential.
Using Your Profit & Loss Statement Effectively
If you want a clearer understanding of your business finances, Erica and Lee recommend regularly reviewing your Profit & Loss Statement.
In particular:
- Compare reports month-to-month
- Look for trends over time
- Monitor changes in revenue, expenses, and profitability
Consistent review helps business owners stay proactive instead of reactive.
Final Thoughts
Your cash is your business’s score card. You really want to know the story, so you can make good choices. Without accurate information, your business could be running in a wrong direction. If you need help cleaning up your books to get more clarity, contact Lee at [email protected].
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