For small business owners, keeping a close eye on key financial metrics is the difference between thriving and merely surviving. Understanding the numbers that drive your business helps you make informed decisions, spot potential issues early, and position yourself for long-term success.
While revenue and profit often steal the spotlight, there are other financial indicators that are just as crucial—if not more so. Below, we’ll break down five essential numbers every business owner should monitor regularly. These metrics provide a clear picture of your company’s financial health and allow you to take proactive steps to improve performance.
Whether you manage your own books or work with a small business accountant in NJ, keeping these numbers top of mind will help your business grow.
1. Order Volume: Are You Gaining or Losing Market Share?
Tracking revenue alone doesn’t always give a complete picture of business performance. While increasing revenue sounds great, it could be misleading if price hikes, rather than increased sales volume, are driving the growth. A declining order volume could signal a loss of market share, which is why this metric must be tracked separately.
What You Can Do Right Now:
- Compare order volume month-over-month and year-over-year.
- Identify trends in product or service demand. Are certain offerings losing traction?
- Assess pricing strategy. Are higher prices making up for fewer sales, or is it time to adjust?
By monitoring order volume alongside revenue, you can ensure that your business isn’t just growing on paper—it’s actually expanding its customer base. A small business accountant in NJ can help analyze these trends and guide pricing and sales strategies.
2. Breakeven Point: Are You Covering Your Costs?
Every business needs to know the minimum revenue required to cover expenses. This is your breakeven point—the amount you need to bring in just to keep the lights on. If you’re consistently dipping below this threshold, adjustments are needed.
How to Calculate Your Breakeven Point:
- Determine fixed costs. This includes rent, salaries, insurance, and utilities.
- Calculate your gross margin. Subtract the cost of goods sold (COGS) from sales revenue.
- Divide fixed costs by your gross margin percentage. This gives you the sales level needed to break even.
What You Can Do Right Now:
- Review breakeven calculations quarterly. If expenses increase, adjust accordingly.
- Ensure gross margins exceed breakeven consistently. Dipping into reserves is unsustainable.
- Work with an accountant. A small business accountant in NJ can fine-tune financial models to ensure sustainability.
When you understand your breakeven point, financial decisions become clearer—whether it’s adjusting pricing, reducing expenses, or increasing marketing efforts.
3. Liquidity: Can You Pay Your Bills on Time?
Running out of cash is one of the top reasons small businesses fail. Liquidity measures whether your business has enough cash or assets to cover expenses when they come due. It’s essential to track short-term cash availability and ensure there’s enough in reserves for emergencies.
What You Can Do Right Now:
- Develop a 12-month financial forecast. This should include income, expenses, and expected cash flow.
- Translate this into a statement of cash flows. Forecast future shortfalls and plan accordingly.
- Secure financing before you need it. A line of credit or business loan can prevent cash flow crises.
By working with a small business accountant in NJ, you can create a customized cash flow strategy that ensures financial stability—regardless of seasonal fluctuations or unexpected expenses.
4. Inventory Turnover: Is Your Stock Moving?
For businesses that carry inventory, turnover rate is one of the most important financial indicators. A low turnover ratio means cash is tied up in unsold goods, which can hurt cash flow and profitability.
How to Calculate Inventory Turnover:
- Determine your cost of goods sold (COGS).
- Calculate average inventory: (Beginning Inventory + Ending Inventory) ÷ 2
- Divide COGS by average inventory.
Example:
If your COGS for 2024 is $100,000, and your average inventory is $12,500, your turnover ratio is 8.0. This means your inventory is turning over 8 times per year—an indicator of strong efficiency.
What You Can Do Right Now:
- Reduce overstock. Liquidate slow-moving inventory through discounts or promotions.
- Improve demand forecasting. Align purchasing with customer demand.
- Work with an accountant. A small business accountant in NJ can help analyze inventory efficiency.
High inventory turnover suggests efficient operations, while low turnover may indicate problems that need addressing.
5. Payroll & Contractor Percentage: Are Labor Costs in Check?
Payroll is often one of the biggest expenses for small businesses. Tracking labor costs as a percentage of revenue ensures that expenses stay within a reasonable range. This is especially important in today’s tight labor market, where businesses are relying more on part-time workers and independent contractors.
How to Calculate Payroll Percentage:
(Total Payroll + Contractor Costs) ÷ Net Sales = Payroll Percentage
What You Can Do Right Now:
- Compare labor costs to industry benchmarks. Are you spending more than similar businesses?
- Optimize staffing. Balance full-time, part-time, and contract workers for cost efficiency.
- Review budgets quarterly. If payroll percentage is creeping up, adjustments may be needed.
Labor costs should remain in proportion to revenue growth. A small business accountant in NJ can provide insights on maintaining a lean and productive workforce.
Work with a Small Business Accountant in NJ
Monitoring these five key numbers will help you keep your business on track, improve profitability, and avoid financial pitfalls. But tracking metrics is only half the battle—interpreting them and making the right adjustments is where expert guidance comes in.
At Stephen P. Gunby & Associates, CPA’s PC, we help small businesses in New Jersey make sense of their financial data and implement strategies that lead to long-term success. Whether you need help analyzing financial trends, managing payroll, or optimizing cash flow, we’re here to help.
Contact us today for a no-cost consultation and see how a small business accountant in NJ can help you grow your business while keeping your finances in check.
Stephen P. Gunby & Associates, CPA’s PC
277 Fairfield Road, Suite 100
Fairfield, NJ 07004
Phone: 973-276-0833
Website: www.GunbyCPA.com
