Five Numbers Every Business Owner Should Know.

It is easy to judge a business by sales, profit or whatever happens to be showing in the bank account that morning.

The problem is that those numbers can tell very different stories.

A profitable business can still experience cash-flow pressure if customers have not paid yet, while a healthy bank balance can look very different once VAT, payroll, suppliers and other commitments are taken into account.

Good financial management is therefore less about knowing one headline number and more about understanding how several figures fit together.

The five numbers at a glance.

1 How much cash does your business actually have available?

Start with the simplest number: the cash currently held by the business.

For many small businesses this will primarily mean the balance across their business bank accounts and other genuinely accessible cash.

But there is an important difference between cash in the bank and cash you can comfortably spend.

Some of that balance may already have a job.

VAT may need paying. Payroll may be due next week. A Corporation Tax or Self Assessment payment may be approaching. Suppliers may have invoices waiting.

Keeping those two ideas separate prevents a temporarily healthy balance from creating a false sense of security.

2 How much money do your customers owe you?

Revenue on an invoice is not the same as money in your bank account.

If you invoice customers on credit terms, you should know your current trade debtor balance: the amount customers owe the business for work already invoiced.

Better still, split that balance by age.

• Invoices not yet due.
• Invoices recently overdue.
• Invoices more than 30 days overdue.
• Older debts that may require active chasing.

This is one reason accurate bookkeeping matters. Business records should include not only income and expenses but information about debts owed by and to the business.

Regularly reviewing outstanding invoices also makes it easier to spot a customer-payment problem before it becomes a cash-flow problem.

3 What bills and tax are due in the next 30 days?

Knowing what is coming in only helps if you also know what is about to go out.

Look at the next 30 days and identify the cash commitments that already exist.

Depending on your business, these could include:

• supplier invoices;
• wages and salaries;
• PAYE and National Insurance;
• VAT;
• Corporation Tax or Self Assessment payments;
• rent and utilities;
• loan or finance repayments;
• insurance;
• software subscriptions; and
• other contracted costs.

This is the beginning of useful cash-flow forecasting: looking forward rather than discovering a shortage when the payment date arrives.

4 What is your monthly break-even point?

Break-even is the point at which revenue matches costs.

In practical terms, it answers a valuable question:

How much does this business need to sell each month before it starts making money?

The exact calculation depends on your cost structure.

A business with significant variable costs needs to take its gross or contribution margin into account rather than simply adding up fixed overheads.

Once you know that figure, a monthly sales target stops being an arbitrary number.

You can see whether current revenue is comfortably above break-even, only just covering costs, or falling short.

It can also help when reviewing prices, recruitment, premises, marketing expenditure and other decisions that change your cost base.

5 How much cash runway does your business have?

Cash runway is particularly useful for businesses that are currently spending more cash each month than they receive.

It estimates how long the business could continue at its current rate of cash consumption before the available cash is exhausted.

That does not mean the business will fail in four months. Revenue may increase, costs may fall or additional finance may become available.

The value of the figure is that it tells you how much time you have to make those changes.

For a business consistently generating positive cash flow, a traditional runway calculation may be less useful. In that situation, a rolling cash-flow forecast and the amount of cash headroom above future commitments are often more relevant.

What about profit?

Profit absolutely matters.

These five numbers are not intended to replace your profit and loss account, balance sheet, margins, tax planning or proper management accounts.

They are designed to give business owners a practical short-term view of financial control.

Profit and cash are related, but they are not the same thing. A business can make a profit while still experiencing cash-flow pressure because the timing of money coming in and going out does not always match.

How often should business owners check these numbers?

There is no single frequency that suits every business.

A stable business with predictable monthly income may not need the same level of monitoring as a fast-growing business, a seasonal business or one dealing with tight cash flow.

However, these figures are most valuable while they are still current.

Waiting until year-end accounts are prepared may tell you exactly what happened, but by then many of the decisions that could have changed the outcome have already passed.

A five-minute financial sense check.

If you run a business, see whether you can answer these five questions without having to search through old spreadsheets or wait for someone else to produce the figures.

1. How much cash is available today? Check the current business balances and identify amounts already committed elsewhere.
2. How much do customers owe us? Look at the total debtor balance and, crucially, how much of it is overdue.
3. What needs paying in the next 30 days? Include suppliers, payroll, tax, finance and regular operating costs.
4. What monthly revenue do we need to break even? Understand the minimum level of activity required to cover the business’s cost base.
5. How much financial breathing room do we have? If the business is consuming cash, calculate its approximate runway. If it is cash-positive, look at forecast headroom instead.

Better numbers should lead to better decisions.

The aim is not to give business owners another spreadsheet to maintain.

It is to make sure the information being produced actually helps you run the business.

When your financial information is current, you can make decisions earlier.

You can chase a slow-paying customer before cash becomes tight. You can prepare for a tax payment rather than react to it. You can see whether a new hire pushes up break-even too far. And you can recognise when there is enough headroom to invest with confidence.

That is where bookkeeping, management information and financial planning become more than compliance exercises.

They become tools for running the business.

Frequently asked questions.

This article provides general business information only. The figures and reporting measures most useful to your business will depend on its size, structure, sector and circumstances.