If you're a business owner, then measuring your financial performance, keeping track of it is essential to your success.  But do you know how to measure it?  In this podcast, I'll explain two important metrics for measuring your business's financial performance.

If you want to make sure your business is on track financially, keep reading!

No one ever said that being in business was easy – it takes a lot of hard work and dedication to be successful. But one of the most important things you can do is measure your financial performance so you can stay on track and make sure your efforts are paying off.

So listen to find out more for tips on how to measure your business's financial performance!

Conclusion

The bottom line is, measuring your financial performance is necessary if you want your business to survive and thrive. You need to know where you're at so you can make informed decisions about the future of your company.

That's why I want to share this podcast with you.  In it, I talk about how to do a financial review, two key numbers and what benefits you can expect from doing one.

I also introduce my Numbers Know How Financial Story Plan Community where business owners like you can come together to help each other grow and succeed financially.

If this sounds like something you want to learn more about, join my Numbers Know How Financial Story Plan Community, connect to my I Hate Numbers YouTube channel,  I’d love to have you there!

Subscribe to I Hate Numbers now so you don’t miss an episode.  My book, I Hate Numbers will change your relationship with numbers and money, in a good way.  Check out what people have said, buy the book and make your own mind up, you won’t be disappointed.

If you found this podcast useful then share this episode on social, leave a review on Apple podcast.  Connect with me on Instagram, YouTube, Twitter, LinkedIn and Facebook.

Measuring your financial performance is an important part of running and growing your business. Many businesses, unfortunately, do not survive. They hit the skids because of poor financial management or planning. In this podcast, I'm going to outline two key numbers that should be part of your stable of performance numbers, how we calculate them, what we should do with those numbers once we've done the calculations, and some tips and tricks along the way.

You're listening to the I Hate Numbers podcast with Mahmood Reza. The I Hate Numbers Podcast mission is to help your business survive and thrive by you better understanding and connecting with your numbers. Number love and care is what it's about. Tune in every week. Now, here's your host, Mahmood Reza.

Hi, folks. Welcome to another weekly episode of I Hate Numbers. This is the podcast that's got a mission, and ambition to improve your financial awareness, help you win more battles than you lose for that battle between your ears, help you in your business, make more money, save time, and save taxes and bargain. What's not to love about that? Let's crack on with the podcast. As a footnote, folks. By the way, if you check out the show notes, I'm going to share some links to resources that you can tap into. And without further ado, let's continue with the podcast.

Now, a financial review is powerful because it can help you examine your goals, your aspirations, your plans for how you're going to go about not only running your business, but improving it. When you carry out a financial review of your business, you may be asking, why should I do that? Well, if we never review anything, if we never check out how we're doing, if we have no idea about how our progress is going, how we're performing in our business, how do we know if we're making strides to success? How do we know we're not going backwards?

Do we merely rely on intuition and feel? Intuition and feel are very powerful, but they're not going to cut it when it comes to running your business seriously and not seeing your business as purely as a hobby, but actually making some serious money as well so you can grow sustain, deliver your why, reduce the anxiety that goes on with not having money at the root of your business? So therefore, it's critical that we keep an eye on it. Now, let me not run away with this idea that making money is the only objective in business. It certainly isn't.

And if you change the money, then you're likely not to be very successful. Money will come as a result of doing all the right things in the right order to the right people. Underpinning all of this, we need to have some idea of a financial story plan; more of that later on in the podcast. Two key numbers that are vital for any business to keep an eye on is this idea of profitability. So we're not looking at the level of sales that we're generating. We're not looking at the revenue, the turnover. Don't you just love the way that accountants and finance people throw in jargon?

So whatever you sell, whatever you provide by way of a service or a product will have a monetary value attached to that. The total of those items that you're selling on to your customers combined to form your turnover. Now, that's important because it's from that that we recoup any money that we're spending out it's that that goes towards making a profit. But that is not our measure of success, or certainly shouldn't be. What we're interested in is this idea of profit. And it's not just an idea, it's an actual concrete thing. Let me revisit, first of all, the idea of what profit actually is, what it represents.

So let's say you provide a product to a customer. Let's say that product is an item of food. You run a cafe, you run a bar and a restaurant, and you serve food and drink to your customers. I like using these examples because we can all identify with them. So let's say we look at the cost of serving a round of drinks to a customer, and that's going to cost us, let's say, a fiver. We're going to sell that to our customer for more than £5. Let's say we sell it for 15. And that means we make a ten pound surplus, a ten pound profit on that item. We run a workshop. We look at the cost of hiring a venue.

We look at the cost of printing out the material that comes to a collective £200, for argument's sake. We have ten people attending this workshop, each paying £100 a time. That's £1000 worth of revenue, £200 worth of costs, and that gives us £800 worth of profits. Now, those profit numbers that we've just calculated are called gross profits or gross margins, if you want an alternative term. Now, the idea of gross is nothing to do with the horrendous nature of it, but it's saying, these are the figures before we consider any additional items of expenses, any additional figures that we need to consider, and take off those gross profits.

So if you visualise your business, every single time you sell a product, you deliver a workshop, you deliver an hour of your time, a day of your time. You sell something to a customer. Then imagine a fictional fish tank. And that fish tank, every time you sell something, all the gross profits you're making goes into that fish tank. What's this fish tank represent? This fish tank represents your running costs, your expenses, those things like your salaries for yourself and your staff. Those are the rental costs that you have to pay out for the cost of printing, stationery, advertising, software costs and the like.

All of those costs are in the fish tank, and they have to be covered and recouped before we can consider making any net or operating profit as it would be called. So the two key numbers that we've got to keep an eye on in profitability terms overall is the gross profit or gross margin and the net operating margin. Again, link in the show notes to some terminology, some jargon busting for you. That's all very well looking at those profits, we typically measure perhaps in pound notes, but in themselves they are absolutely of no benefit. So having looked at the idea that making profits is a good thing, having the idea that we're looking at gross and operating profit, and having the idea that we need to review our business performance is what do we do with these numbers once we calculate them.

Now, when performance is measured, performance improves, but when it's measured and reported, the rate of improvement accelerates dramatically. So what we need to do is to look at those profit figures that we've measured and draw some degree of context, some degree of conclusion as to what those numbers actually mean. So what we need is a reference point. What are we comparing those figures to? Now, one area that we can look at when we look at how we're actually doing is to look at our financial story plan. Our financial story plan expresses and represents our future journey, our business through the windscreen, as opposed to the rear view mirror of what the performance will look like financially over the next time period. It could be over the next six months, the next year, the next two years.

You make that decision. Typically, I would suggest a twelve month horizon. That financial planning story represents our business journey, our route map to get to our Northern Star translates into financial and cash terms. If we review what we're actually doing, our profitability against that benchmark, against that reference point, that will give us a really good idea about how our progress is going, whether it's good, whether it's bad, or whether it's indifferent. So by reviewing those profit numbers against your plan, that's only a good tick box as to one way to review your performance.

You can also look at it for previous periods, look at it what it was for last year. Obviously, if you're a brand new startup, that might be slightly more difficult. But if you're an established business, looking at what the historic performances is a good way to also review that. Now, before we continue, folks, remember this is gross profit and operating profit in overall terms. If you're selling a multitude of products, a multitude of services, it's really great insight to look at the profit performance based on your product groups, based on your service groups. That way we've got a better idea of those contributors to our financial success, how are they performing at that sort of group level.

Again, check out the show notes and I'll give you a link to previous podcasts where we've talked about creating your financial story plan. So, having got this idea of why profit is to be measured, what profit we can actually measure, having this idea why financial performance reviews are positive, what we can compare them against is critical that we actually form the habit of doing it regularly. Now, if this is something you're not used to doing, then my suggestion would be small footprints. Do it one measure at a time. So if you haven't calculated gross profit in your business, then make sure you've got a way that you can actually catch that data.

Make sure you got good accounting systems that can capture that information and make sure you review those documents. And if you're not doing them already, do them at maybe once a month. Once a month sit down, look at what the reports are telling you and just get used to actually looking at the figures. It may not mean a great deal to you to begin with. There may be lots of things you could do to improve that. But get into the habit of reading the numbers. They're your friends, they're not your enemies. They're there to support you and to help you realise your Northern Star.

If you're looking to make money, folks, remember you must keep an eye on your profits. There are other important numbers to watch out for as well. And in next week's podcast, I'm going to dive deeper and introduce a whole wide range of financial numbers and others that are important to look at to help measure your success, to measure your progress. If you'd like to get the lowdown on getting a better relationship with numbers, then step forward. Have a look at my book called I Hate Numbers. It's been described, with no bribery in my hand, as a very positive book.

But it's a very easy to read. It will give you a rewarding, productive relationship with numbers. It's an easy read, it's not aimed at numbers people, it's not aimed at us accountants. And you'll be surprised about the insights you can take away from the book. So, folks, let's wrap up where we are. So it's important to carry out reviews. Anything you do in your daily life, if you want to measure your progress, you're going to be checking against and you're going to be reviewing it. All of us ask the question, how are we doing? Well, the answer to that question is, what are your numbers saying?

That's certainly not the only answer, but it's part of the answers that we must provide. Look at gross and operating profits. Those are key numbers. The gross margin is something we can control more easily, that contributes and goes towards feeding all the overheads, the expenses. Whatever's left over is the operating or net profit that we end up with. Make sure you've got a good reference point, compare those figures to something else. And in next week's podcast and beyond, we're going to be looking about how to interpret what are those numbers actually mean. But to start with, capture the numbers, compare the numbers, look at what's going on,

and if there are fluctuations, then you have more questions to ask, but you'll get more powerful answers coming through. I hope you found this podcast useful. If you have, I'd love it if you give it a thumbs up, even make my day, and leave a comment and a review. If you got some thoughts on future episodes, what you'd like covered on I Hate Numbers, then by all means drop me a line. If you feel the podcast is of value and your friends colleagues can benefit from that, I'd love it if you could share. A lot to ask. I appreciate any one of those will suit me down to the ground. Until next week, folks. Happy storytelling.

We hope you enjoyed this episode and appreciate you taking the time to listen to the show. We hope you got some value. If you did, then we'd love it if you shared the episode. We look forward to you joining us next week for another I Hate Numbers episode.