It is an unspoken business rule to review the financial books every day, usually at closing hours. And the why is so that the business owner can know exactly how much sales were made and how much expenses were incurred.
The life of a business owner is usually between making profit and incurring expenses. While the race is to have minimal money spent on expenses, the profit that comes from sales can hit the roof and beyond.
Who does not like high returns and maximal profits? Nobody. Small business owners want to make a profit. While this is true, the path to maximizing sales and revenue is not by mere words. It must be followed with keen monitoring and assessment. This is to know the business state and performance.
For this blog post, we will pay more attention to profit because that is the bedrock of your business. Tracking your profit daily gives you a clear sense of whether your business is generating revenue or not. Let’s see the ways to do a profit check.
How Can You Assess Your Daily Performance
1. Know your daily expenses range
For a small business, you should have a daily expense limit. In the early days of a business, expenses are not the metric you want to accumulate into a huge pile. It is advisable to keep expenses as low as possible. Your business can certainly have it, but it should not be the life of the party.
After setting your daily expense limit, you now have to check your accounting records daily to see if you shoot beyond or below the set limit. One way to keep tabs on daily expenses is to have bookkeeping software that helps you take every tiny record of expenses.
When you shoot beyond your expense limit, set out measures to monitor it for the next business day so you can stay within the limit. This however does not rule out the fact that there are days you might have no choice but to spend more. But such days should not be excessive.
Kashbuk’s bookkeeping app specifically works for small business owners and can be used on the go to record expenses, sales, debts, inventory, and many more. It is a mobile-friendly app that meets every business’s needs.
Simple Sales And Expenses Recording Tips
2. Daily sales
Profit in simple terms is calculated by subtracting sales from expenses. In advanced terms, it might include deducting capital. Whichever way profit is what you gain after making sales.
Knowing how much you gain from daily sales can help you assess your business performance. This is the point where you know if your business is healthy or otherwise. When left unchecked, it could be a disaster by the time you discover it.
So keep a habit of monitoring this key business metric.
3. Track capital
When starting a business, a certain amount is invested in stocking inventory and setting up (administrative costs). For admin costs, it might take a while to recover them as over time, they might diminish. But for inventory capital, you need to be keen on details.
Inventory capital is the backbone of a business. That is the first reason for having a business running. So after getting excited about huge sales, check if your capital is in good shape.
In my second point, you could see I mentioned how calculating profit might require deducting capital. This is where it becomes useful. The true profit you make from sales is after deducting the cost of procuring that product.
If after your daily sales, your capital is still intact and you’ve made a profit, you’ve made an excellent step forward. When the case is otherwise, what you need to do is pump a portion of your profit back into capital and identify why capital diminishes.
5 Types Of Inventory Used By Small Businesses
4. Profitability rate
You should know your business’s capacity for profit-making. Keep a daily record of profit after deductibles. The benefit of doing this is that you know your business’s current sales capacity. With this information, you can make informed decisions about boosting profits.
Profitability is a key metric for business owners planning expansion or growth. It keeps you on your toes and pushes you to boost sales and business visibility. Although, determining the profitability rate may not be a daily routine. You can however take note of your daily profits so that you have data at hand to calculate profitability periodically.
5. Cash flow
Cash flow in simple terms is the money that goes out and comes in for a business. This is a very significant one for every business when assessing financial performance.
The cash flow for a business can be negative or positive depending on which one has more weight than the other. To build a healthy and successful business, you need to stay on the positive side of cash flow. It gives investors a good impression that you are optimal with capital.
What anyone wants to hear or see about your business is that it is making profit. To have enough profit that can keep the business running, overhead cost has to be barest.
