Know Your Numbers: The Top 4 Financial Metrics Every Entrepreneur Should Know

Let's chat about something super important yet often overlooked – the key financial numbers that you absolutely need to keep an eye on in your business. I want you to view these as your business’s vital signs. Just as you would get your vitals checked at the doctor, you have to stay on top of them for your business. Understanding these numbers can be the difference between success and challenge. So, let’s break down the top 4 important business analytic numbers for your business. 

1. Personal Credit Profile & Business Paydex Score

Your personal credit profile & business Paydex score is like a report card for how well you handle your personal & business finances. Just like in school, a good score opens doors – in this case, to loans, credit lines, and better interest rates. A solid credit score tells lenders, “Hey, I’m trustworthy!” Keep an eye on this number. 

• Pay your bills on time, 
• Manage your debts wisely, and 
• Check your credit report regularly for any errors.

Not knowing your personal & business credit score can be harmful. A low score, which you might not be aware of, can slam the brakes on your ability to secure funding! It can lead to higher interest rates, which means you pay more over time. Worse, it could completely shut you out of crucial funding opportunities, slowing down your growth plans. In short, staying on top of your credit score is not just good practice – it’s essential for the financial health and expansion of your business. So, make it a priority to keep up with and understand your credit score – your business’s future could depend on it!

2. Debt-to-Income Ratio (DTI)

You may be thinking that because your credit score is great, you’re ready to go to the bank and ask for funding. It’s more complicated than that, though. DTI is another metric you need to know first.

Your DTI ratio is all about balance. It’s a simple calculation: your total monthly debt payments divided by your gross monthly income. This little figure shows how much of your income is already spoken for. Lenders love this number because it tells them how much more debt you can handle. Keeping your DTI ratio low is a sign of good financial health.

You know I LOVE an example - so for instance, let's say your business brings in $10,000 a month in gross income, and your monthly debt payments, including loans, credit cards, and other liabilities, total $2,000. 

Your DTI ratio would be 20% ($2,000 ÷ $10,000). 

This is generally considered a healthy ratio, showing that you have a good balance between debt and income. In all cases, you want to have your DTI to be under 35%.

On the other hand, if your monthly debts are $5,000 with the same income, your DTI jumps to 50%, which might raise red flags with lenders, suggesting you're already stretching your finances! Understanding and managing your DTI ratio helps in maintaining a strong financial position and makes your business more appealing to lenders.

3. Cash Flow

Cash flow is the amount of cash coming in and going out of your business. 

Positive cash flow means you have more money coming in than going out, which is exactly where you want to be. It’s crucial for covering your expenses, investing in growth, and keeping your business afloat during lean times.

Keeping track of your cash flow is important. Growing your numbers starts by KNOWING your numbers!

So how does this play out for someone who wants funding to start their business and doesn’t have cash flow yet? Verifiable income from a 9-to-5 can also be considered as part of your cash flow for certain funding options. The word “verifiable” is the most important word in that sentence, however, and there may be more intense examination of your business plan so the bank’s know you will be able to pay them back. This is something a funding specialist can help you understand and prepare for.

4. Profit Margin

Your profit margin isn’t just about how much money you’re making; it’s about how much of that money is actually profit after all your expenses. A healthy profit margin means your business is not just making sales - it's doing so efficiently. To improve this number, look at both increasing sales and reducing costs. It could take a while to figure out, but getting it right is key to long-term success for you and your business.

In Summary

To bring it all to a close - a knowledgeable business owner is a successful one! This is YOUR money story. Understanding these numbers gives you a clearer picture of where your business stands and where it’s heading. It’s about being in the driver’s seat, steering your business with confidence and clarity.

Knowing your numbers is a vital part of preparing for funding. If you're ready to put your numbers to work for you and get up to $100k in funding for your business, join us at our next 2-hour funding masterclass.