Running a business is about more than passion and determination – it also requires solid financial management. Many small and medium-sized businesses struggle to balance creativity and control, especially when there are numerous projects and tight deadlines.
The solution lies in focusing on what truly matters: Key financial numbers that provide an overview and lay the foundation for smart economic decisions.
In this article, we’ll guide you through five key financial numbers that give you better insights and help you prioritise what creates value in your business. Of course, there are many more numbers to keep track of, but you have to start somewhere, right?
1. Cash flow, 2. Project margin, 3. Billable rate, 4. Overhead cost per employee, 5. Outstanding invoices
Before you can use key numbers as a management tool, it’s important to start with the basics:
It can feel overwhelming to keep track of many key numbers at once. Start small: Choose one or two numbers that are most relevant to your business situation right now. Once you’ve gained control, you can gradually include more numbers.
Cash flow might be one of the more obvious key numbers, but it’s also one of the most critical. This figure shows the difference between incoming and outgoing payments during a given period. By closely monitoring cash flow, you get a clear overview of how much money is actually available to cover ongoing expenses or invest in the business.
Without control of cash flow, even profitable businesses risk running into liquidity issues.
Want to learn more about how to ensure profitable projects? Download our free guide to improving project profitability for practical tips and strategies.
The project margin shows how much of the revenue remains after covering all costs. It’s calculated by subtracting costs from revenue and dividing the difference by revenue.
The project margin indicates how profitable your projects are and how much actually contributes to the company’s bottom line after all expenses are paid. It also provides insights into how well you control costs and improve efficiency in project work.
The billable rate measures the percentage of billable hours that are actually invoiced to clients. This key number provides a clear indication of how effectively your team uses its time on revenue-generating work.
A low billable rate can indicate inefficiency – meaning time is spent on tasks that don’t generate revenue. By monitoring this number, you can identify areas where the team’s time can be used more effectively.
Dive deeper into how to improve billable rates in our blog post: 4 practical methods for measuring billable rates.
Overhead cost per employee refers to fixed costs that aren’t tied to a specific project. This includes expenses like IT equipment, office rent, and administrative costs, distributed across all projects.
Overhead costs can represent a significant portion of your business’s total expenses. Keeping these under control helps identify inefficiencies, cut unnecessary expenses, and optimise operations to ensure profitability.
Outstanding invoices show the total amount of unpaid invoices from your clients. This key number provides a clear overview of how much money your business is owed and how quickly clients pay for your services.
Outstanding invoices directly affect cash flow. If clients take a long time to pay, it can cause liquidity issues, even if your projects are profitable. Monitoring this number regularly helps you collect payments faster and identify trends – such as which clients or periods often lead to delays.
Regularly tracking outstanding invoices not only improves cash flow but also allows you to refine payment processes to reduce the risk of future delays. Read more in our blog post aboutimplementing efficient invoicing procedures.