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Daniel was ready to expand

His store had been running for over a year. He had regular customers, some products were selling faster than others, and his monthly sales were higher than when he started.

Opening a second location seemed like the next step. But before making the decision, Daniel sat down with his numbers. That was when he realised he knew how much he was selling, but he didn't really know how well the business was doing.

He wasn't sure how much was left after expenses, whether his profit was growing or how much money customers still owed him. Sales had been good, but that wasn't enough information to decide whether expansion was the right move.

If you run a business, there are a few sets of numbers worth checking regularly. They can tell you much more about how the business is doing than sales alone.

1. Revenue

Start with your sales.

Revenue is the total amount your business makes from selling its products or services during a specific period. Don't look at one month alone. Compare your sales with previous months to see whether they are moving up, down or staying around the same level.

If you made $8,000 last month and $12,000 this month, sales have increased. But don't stop there. Look at what caused the change. Maybe you received more orders, gained new customers or sold more of a particular product.

Knowing why your sales changed is just as useful as knowing that they changed.

2. Expenses

Next, look at what you spent to keep the business running.

Stock, delivery, packaging, advertising, salaries, subscriptions and other costs can quickly add up. For example, your sales may have increased from $10,000 to $15,000. But if your expenses also increased from $6,000 to $11,000, you didn't keep the full $5,000 increase in sales.

That is why growing sales don't automatically mean the business is doing better. Your costs need just as much attention as your revenue.

3. Profit

Once you know your sales and expenses, you can see what is left.

If your business made $15,000 and spent $11,000, your profit is $4,000.

This is where revenue alone can give you an incomplete picture. A business can make a lot in sales and still have little left after paying its expenses.

Keep track of your profit each month. You want to know whether it is growing, falling or staying around the same level.

4. Profit margin

Profit margin shows how much of your revenue remains as profit.

Two businesses can each make $15,000 in sales and end up with very different results. One could make $4,000 in profit while the other makes $1,500.

If your sales are increasing but your profit margin is falling, your costs may be taking up more of your revenue. That is worth looking into before assuming that higher sales mean better performance.

5. Cash flow

Profit and cash are not the same thing.

You could record a $15,000 sale, but if the customer has not paid yet, that money isn't available to you. At the same time, you may have bills, supplier payments or other expenses that need to be paid now.

Cash flow helps you see the money coming into and leaving your business. It gives you a clearer idea of what you have available to spend and what still needs to be paid.

6. Outstanding payments

If customers can pay later, keep a record of what they still owe.

For example, your business may have $5,000 in unpaid customer invoices. You expect to receive the money, but you can't use it until the customers actually pay.

Keep track of who has paid, who still owes you and when payments are expected. This makes it easier to separate money you have from money you are still waiting for.

7. Your numbers over time

One month doesn't tell you everything.

Compare your numbers from month to month. Look at revenue, expenses, profit, profit margin, cash flow and outstanding payments.

You might find that sales have been growing steadily. You might also discover that expenses are rising faster than sales or that your profit has barely changed.

Looking at these changes over several months gives you a better picture of where the business is improving and where you may need to make adjustments.

Measure more than your sales

You don't need complicated financial reports to keep track of your business performance.

At the end of each month, review your revenue, expenses, profit, profit margin, cash flow and outstanding payments. Compare them with the previous month and keep a record of the changes.

This can help when you're deciding whether to increase your stock, hire someone, change your prices or expand.

More sales can be a good sign, but they don't tell you everything about the business.

Zidwell brings your income, expenses, payments and profit together with your online store, making it easier to keep track of your business performance in one place.

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