5 Numbers Every Business Owner Should Check Each Month
It is the last day of the month. The phone keeps ringing, employees are waiting for their salaries, two clients still have not paid their invoices, and one supplier is reminding you about a payment that is already overdue. In the middle of all this, the business owner opens the company’s bank account, looks at the balance and tries to answer a seemingly simple question: was this a successful month or not? Very often, the first impression of a company’s financial condition is based on just one number - the amount of money in the bank account. If the balance is high, everything seems to be going well. If it is low, concern immediately sets in. However, the true condition of a business cannot be assessed using only one number. The bank balance may be high simply because a client transferred an advance payment today. A significant portion of that money may have to be paid to employees, suppliers, the bank or the government tomorrow. A business owner does not need to examine every detail of the accounting records each day. However, there are five key numbers that should be reviewed at the end of every month. Together, they provide a much more accurate picture than sales figures or the bank balance alone.
1. The actual balance in bank accounts and cash
The first number is, of course, the amount of money currently available to the company. However, it is important to look beyond one bank account and see the complete picture: balances in local and foreign currency accounts, cash on hand and, where relevant, money held in payment systems. Suppose the company has AMD 12 million in its bank account. At first glance, this may appear to be a comfortable amount. However, if the company must pay AMD 5 million in salaries and taxes within the next few days, transfer AMD 4 million to suppliers and make a loan payment of AMD 1 million, the actual unrestricted balance is only AMD 2 million. When receiving professional accounting services, a business owner should be able to understand not only how much money the company has, but also how much of that money is already allocated to upcoming obligations.
2. The amount owed by clients
The second important number shows how much money the company is expected to receive from its clients. A sale may already have been recorded, a service delivered and an invoice issued, while the actual money has not yet reached the company’s bank account. Sometimes a company’s accounting records show growing revenue, but the owner cannot understand why there is still a constant shortage of cash. The reason is often accounts receivable. In practice, the business is financing its clients by allowing them to receive goods or services today and pay later. However, the total amount of receivables is not enough on its own. The payment deadlines must also be reviewed. It is one thing when a client’s payment deadline has not yet arrived. It is quite another when an invoice should have been paid two months ago and the money is still outstanding. At the end of each month, the owner should know three things:
- - how much clients owe in total;
- - which clients owe the largest amounts;
- - which payments are already overdue.
Regularly reviewing this information allows the company to follow up on payments, reconsider its payment terms and prevent problematic debts from accumulating.
3. The amount owed to suppliers and other partners
The third number often receives less attention. Business owners usually remember how much money they are supposed to receive, but they do not always have an equally clear view of how much the company itself must pay. For example, a company may expect to collect AMD 15 million from clients while owing AMD 11 million to suppliers. Looking only at the first number may create a very optimistic impression. When both figures are considered together, the financial picture becomes much more balanced. Information about accounts payable also helps the business avoid uncomfortable situations. When the owner sees upcoming obligations in advance, it may be possible to negotiate different payment dates, speed up collection from clients or temporarily postpone non-essential expenses. Once an unhappy supplier is already calling about an overdue payment, the company has far fewer options. Late payment may affect not only the relationship with the supplier, but also future deliveries, pricing and the partner’s willingness to continue working with the company.
4. Monthly revenue compared with previous periods
The fourth number is the company’s sales or revenue for the month. However, it is important not to stop at the question: “How much did we sell this month?” A single monthly figure says relatively little on its own. It should be compared with previous months, the same period of the previous year and, where available, the approved budget or sales plan. Suppose the company’s revenue increased by 20% compared with the previous month. This appears to be a positive result, but it does not necessarily mean that the business became more profitable. The increase may have been achieved through larger discounts, higher marketing costs or the sale of products and services with lower margins. Professional accounting companies should provide the owner with more than a list of figures. They should also show how those figures are changing over time. The trend can reveal that sales are slowing, seasonality is changing, a major client is buying less or one particular business line is beginning to grow more quickly. When the owner looks only at the current month, many important changes may remain unnoticed.
5. The actual financial result for the month
The fifth and possibly most important number is the company’s monthly profit or loss. Many business owners try to calculate profit using a very simple method: they subtract all bank payments from all bank receipts. However, this calculation can produce a misleading result. To determine the actual financial outcome for the month, the company should deduct the expenses related to that period from the revenue earned during the same period. These expenses may include salaries, rent, professional services, the cost of goods sold or materials used, marketing expenses and other operating costs. The date of payment does not always match the period to which the revenue or expense relates. For example, a client may pay in advance for several months of service. A company may also purchase a large quantity of inventory that will be sold gradually over the following months. For this reason, cash movement and financial performance are not the same thing. If sales have increased but profit has decreased, the owner should investigate the reason. Costs may have risen, discounts may have become too generous, new employees may have been hired or customer acquisition expenses may have increased. The profit figure does not provide every answer, but it helps the owner begin asking the right questions.
Five numbers that tell one complete story
Let us return to the last day of the month. The company has AMD 12 million in its bank accounts. Clients owe the company another AMD 18 million. The company owes suppliers AMD 11 million. Monthly revenue was AMD 25 million, while the actual profit was AMD 2.5 million. The owner is no longer looking only at the bank balance. The full picture shows that the company is profitable, but the collection of client payments is not working efficiently. At the same time, upcoming obligations may create temporary cash pressure. This information leads to specific actions: contacting clients with overdue balances, reconsidering payment terms and preparing a payment plan for the next month. Accounting is not limited to preparing and filing tax returns. Properly organised accounting services should help the owner understand the real condition of the business and make decisions before a serious problem arises. A company does not need a large financial department or a report containing dozens of pages to review these five numbers each month. Sometimes one clear page is enough, provided that the figures are accurate, comparable and easy to understand. The next time you open the company’s bank account at the end of the month, do not stop at the available balance.
Ask how much the company is expected to receive, how much it must pay, how revenue has changed and how much the business actually earned. At that point, accounting information stops being a collection of numbers and becomes a practical tool for managing the business.
