Numbers you need to know
Knowing your financial figures can help you reach your business’ goals and avoid surprises with the money flowing in and out your business.
Other people involved in your business will also be interested in these numbers and will expect you to know at least the key figures.
Lenders and investors will want to see and talk about your financial figures to see if it’s worth giving you money.
And you’ll be able to have more in-depth and valuable discussions with your financial advisor, mentor or board of directors, if you have one.
You can also use these numbers to compare your business to others in New Zealand. It’s a great way to put a dollar value to your business, especially if you are seeking investors or looking to sell up and move on.
Set up your equations
To track your business performance, set up calculations in your statements or accounting software, or ask your accountant or advisor to do this for you.
Accounting software companies typically offer a range of standard and customisable equations, charts and graphs – and you can set alerts if you approach a limit you’ve set.
These equations are often called ratios, as they measure the difference in size or amount between two things.
A simple example is a coffee cart that aims to spend $80 a day to sell $100 worth of drinks. This ratio is 0.2 or 20%.
You can:
- focus on key figures in your statements
- set up your own equations
- use the equations explained below.
Which equations will be most useful depends on your business, industry type, and any risks you spot in your financial statements.
Breaking down income statements
Dani took over her parents’ bakery and explored expansion options. With her accountant, she analysed income statements and contribution margins to compare walk-in sales with business sales. Selling to other businesses proved more profitable, so she chose to focus there while keeping walk-in sales to support bulk buying.
Compare your business to others
Various benchmarking tools are available. Check with your accountant – many can run the numbers for you as they subscribe to paid services, for example RANQX and the University of Waikato’s benchmarking survey.
If ratios are given for your industry, note that these figures for New Zealand businesses often fall below global best practice. But it’s still a handy way to work out if your numbers are low or high.
Don’t look at equations and ratios without checking benchmark figures for your business type or industry.
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