MBA2532 The 3 Key Numbers You Need To Know & Track in Your Business

0:05Hey everyone, welcome back to the$100 MBA show. I'm your host Omar Zen home and in today's lesson you're going to learn something that might just make or break your business. This might be the most important video you'll watch when it comes to your business, because it can be the difference between you failing and going out of business to actually fulfilling all your dreams, having the wealth you're looking for, having a business that actually makes an impact. And the topic is, what are the three key numbers you need to track in your business? These numbers are essential. They are important beyond measure when it comes to how well your business is doing.

0:46It's going to allow you to understand your business's health, its performance, and your long-term sustainability. I'm really going to give you exactly what you need to know. You don't need to know a billion numbers. You need to know these three numbers. If you know these three numbers and you're tracking them and they're going in the right direction, you can't lose. It's just math. It's that simple. OK, and I had to learn this the hard way for a very long time. I had this mentality like, oh, I'm not a big numbers guy. You know, I'm OK at math. I'm an ideas person. I like to implement. I like to do wrong.

1:20Do not do this. OK, this is a recipe for disaster. This is a recipe for death in your business. OK, what you want to do is just make sure you master tracking these three numbers, making sure they're going in the right direction and that everything else is going to fall into place. OK, you are now a numbers person. If you've told yourself a story before, just forget that story. The new story is these numbers are your best friend. I'm also going to explain why these metrics matter and how you can keep a close eye on them. And don't worry, I got your back. You don't need to create some sort of sophisticated spreadsheet or know all the formulas.

1:51I created it for you, OK? You can download a free profit and loss sheet template that is in Google Sheets that you can just go ahead and grab. I've created it already for you with all the formulas in place so you can track these three numbers that we talk about today. Just go to 100mba.net slash templates. It's absolutely free. It is a great tool for you to help track these numbers, but also make sure that you are moving in the right direction. You know I love a good stat, so here's a stat for you. Did you know that nearly 82 % of businesses fail due to poor cash flow management? 82 %! They didn't fail because of a bad business idea, or horrible employees, or a bad market.

2:31No, because bad cash flow management, because they didn't know how to track these three numbers. OK, that's according to a study by U.S. Bank. Not tracking the right financial metrics can lead to serious problems. We're talking about disaster. OK, and I'm not only talk about your business going out of business. This could put you behind 10 years financially, personally. OK, so or more. So don't worry. I got your back today. I'm going to show you how these three numbers can be leveraged to your advantage, how you can track these numbers, how you can make sure they're moving in the right direction.

3:05Let's get into it. So let's break down the three key numbers you should be tracking in your business right now. The first number, pretty obvious, but it's important, revenue, okay? The money that comes into your business. Revenue is the lifeblood of your business. It tells you how much money is coming in from all the different revenue streams you have, okay? You might have one revenue stream if you're just getting started, like you're selling products and you're getting money from those products or a service. But as you start growing, you'll start having different revenue streams. And it's important for you to know where this money is coming from, how much money is coming.

3:41Tracking revenue helps you understand the growth trends, the seasonal fluctuations, and the effectiveness of your sales strategies. When you do something to market your business, to sell your products or services, you want to know if it's working or not. And by tracking your revenue, you'll know. Now, don't make the mistake of a lot of amateur business owners. I'm talking about most people do this. This is like a disaster. I don't know why people do this, but they do it. They think tracking revenue is checking the bank account. I'm going to check my bank account in the morning. Now I know how much money I made today or how much money I made this month.

4:14That is not a good idea. Why? Because you're not actually tracking exactly what's happening when it's happening. And then you can't compare that revenue. Okay. Can't compare that revenue to other metrics. The other two metrics that we'll talk about today so that you can know how they work hand in hand, right? How your efforts are paying off. So you want to take revenue and you want to just pull it out and put it on the spreadsheet. Don't worry. I told you, you can get it for free over my website, 1 0 0 MBA.net slash templates. You can grab that spreadsheet and pop in your revenue. Whatever revenue you make, whatever revenue streams you have, there's going to be a place for it.

4:52Let me give you an example. If you notice a dip in revenue during certain months, you can investigate whether it's due to a seasonal trend or other factors that needs addressing. Maybe your staff is slagging off during those months. Maybe your sales team is not motivated or incentivized properly during those months. Maybe your traffic or your SEO on your website needs improvement or is being hit by some sort of update. You need to know what's going on at all times. This is like your dashboard. You know, I like to see it as like a pilot on a plane. They have a dashboard, right? And they see all the dials.

5:25They know if they're moving in the right direction, they know if they're going to get to the destination by keeping track of the dashboard. And this number revenue is so important. A lot of people focus on other things in their business and they forget that if you make money, if you make more and more revenue, this is going to solve a lot of problems. There's a saying that says sales solves all problems. And it's true. Okay. So you want to track revenue and know what's working so that when you find, Hey, revenue is going up. What did I do right now that made revenue go up? Double, triple down on that.

5:56How do you get your revenue? Don't go to your bank because your bank is going to be deducting fees, interest. You know, there's other things coming out. It's a little bit confusing. You want to go where you're actually processing the sale, whether it's an accounting software like Xero or QuickBooks, or if you're using a payment processor like Stripe and you can see the revenue coming in. So you might have multiple ways of collecting money from customers. Just make sure that you're popping in all those numbers, okay, into the spreadsheet. For example, with this podcast,$100 MBA show, with this business,$100 MBA, I make money from memberships from our program.

6:31I make money from sponsorships. So that money's coming from different places. I I need to pop that into the spreadsheet. So first key number is revenue. Number two, profit margin. What's profit margin exactly? Profit margin shows you how much profit you make from each dollar of sales after you account for all costs, okay? So profit margin really shows you how well your business is doing. This is the health of your business because if you're making a lot of money, but your expenses are just as much or more, you're not making money. You're actually not keeping money. Getting wealthy is about keeping money.

7:06It's about making money and keeping it. So that's what you want to do here is you want to have as much profit margin as possible, meaning that the difference between how much you're making and how much you're spending to make that money is quite large. So there's two types of profit margins I want to talk about. The first one is gross profit margin. This is calculated as revenue minus cost of goods sold over revenue. OK, so basically what we're looking here is it shows how effective you are producing your goods or services. Let's say you're running a marketing agency and you have an ad specialist and this ad specialist will cost you, let's say, five thousand dollars a month.

7:46And the amount of money that you actually make from this service is X amount of dollars. Let's say it's thirty thousand dollars. So you have to take away how much it actually costs you to fulfill this service because that's really your profit per the actual transaction, per the actual product or service. Now, this is really important because some businesses have very high, very good gross profit margins. A good example of this is like a software company where it doesn't cost them too much more to be able to fulfill that product, to give them the software. Another example is like an online course.

8:22Once you create it once, you can sell it over and over. And every time you sell it, you don't have to actually pull out money to fulfill that sale so that the customer can get that course. So digital products are usually very high gross profit margin businesses. Services, on the other hand, are going to be a little bit different. OK, they're going to be there's going to be some difference between how much it costs you to fulfill it and how much it costs you or how much money you're making from that transaction, I should say. The next profit margin is net profit margin. This is calculated as revenue minus all expenses over revenue.

8:57This indicates how much profit you're making after all costs, including all your staff, your rent, your web servers, your taxes, your interests, whatever it might be. So this really gives you a holistic understanding of how much money you're actually taking home. So why is it important to track your profit margin? Well, it allows you to understand how much money you actually can expect to have in the bank and get to keep at the end of the day. And it allows you to know when cost creep starts coming in. What's cost creep? Well, when costs are creeping up. So sometimes you don't even see it, but maybe a software that you're subscribed to ups its prices and that increases your costs.

9:40And then maybe you need to have some raises with your team. So your team members need some raises. You need to give them a little bit more salary. That kind of creeps up your profit margin. And then maybe a supplier increases their prices. So you need to have an eye on your profit margins because if it's shrinking, it could indicate that you need to start raising your prices. You need to start increasing how much you charge. It also might indicate that you need to be a little bit more efficient with your business. Maybe you're overspending in areas that you don't need. Maybe you need to cut out some expenses.

10:14Maybe you need to merge some expenses or use your resources a little bit more wisely. So we talked about revenue. We talked about profit margin. What's the third key metric, the third key number you need to know? Very simple, cash flow. In business, cash flow is oxygen, okay? You need cash flow in order for you to, one, pay your bills and stay in business, two, pay all your employees and yourself and all that kind of stuff so you can survive, three, so that you can continue to invest in your business and grow, like invest in marketing and sales, all that kind of stuff. Cash flow is what makes your business happen, okay?

10:49And it's actually one of the best perks of having a business is that it constantly is giving you money. It's constantly having that flow of cash allow you to have opportunities to improve not only your business, but your life. Essentially, cash flow is about the movement of money in and out of your business. Positive cash flow means you have more money coming in than going out, which is essential for paying bills, like I mentioned, or investing in your business or expanding. if your business is profitable on paper, but negative cashflow, this can lead to serious problems. And this happens more often than you think.

11:26Let me give you an example. A business with a positive profit margin, but negative cashflow might struggle to pay its bills that are coming in every single month. So you might be thinking, how is this even possible? How can I have a profitable business, but negative cashflow? Well, you can have a great month with really good sales, but then a bad couple of months later on, and that cashflow slows down. and therefore you run out of cash that you made. And maybe you overspent in the first month because you made so much money. You thought, hey, I got plenty of money. I can go ahead and reinvest in my business.

11:57This is why in our spreadsheet, we account for cashflow. This way, you know how much money you have on hand. So that way you can know if you should be spending, holding onto that cash because you don't know if next month is gonna be as good as this month. It carries over the cash that you made last month. So you can say, okay, I made this much money this month. I spent this much money, this is my profit this month Okay, this is how much I have This is how much I have from last month This is the total amount of money I have accumulated over the months This allows you to understand Okay, I have a little bit of leeway I have a little bit of runway Or no, I need to be really frugal this month Because I'm not sure how much money I'm going to be making My revenue might be stagnant It might be a slow month If you're in the toys industry Maybe January is going to be slow So you know that So you got to make sure that you have enough cash on hand to pay your bills for January, knowing that it's slow.

12:49So why is cash flow or tracking your cash flow so important? Well, it allows you to identify maybe some weak areas in your business model. When you have up and down cash flow and it's unpredictable, it's hard for you to actually plan ahead and reinvest in your business. And it starts you down a path to start thinking, how can I make sure my revenue is more consistent? Maybe I need to start selling annual plans. Maybe I need to start billing my clients in advance in a year. Maybe I need to have some sort of reoccurring model. This is why software as a service, the software company I had, Webinar Ninja, was a SaaS, is so valuable.

13:24Software as a service is so valuable because it is reoccurring revenue. People pay monthly every single month, just like Spotify or Netflix. And it's very predictable. You know what's going to happen because you have X amount of users and you know how much they're paying every single month. And you know how much is going to come in. So it's very easy for you to plan and predict and invest in your business and in the future of your business. Tracking your cash flow is going to actually help you change and improve the fundamentals of your business so that it's actually not only a high cash flow business, but a high value business.

13:55One day that you want to sell this business, it's going to be a no brainer for the buyer because it's predictable revenue. Cash flow is also going to allow you to answer questions like, can you afford to give when you're a team member a raise? Can you afford to give yourself a raise? right? Are you able to take a dividend? This is something that's so important and allows you to really live a better life and lower the stress in your business because you have more visibility on what's going to happen. I want to wrap up today's episode or today's lesson with some tips when it comes to all of this, how to actually manage all of this.

14:26My first tip is this spreadsheet, my profit and loss sheet for the business. I look at this every day, every day. I've been doing this for 10 years. That profit and loss sheet that I share with you and the numbers that you're going to be plugging in and you're tracking these key metrics, your revenue and your profit margin and your cash flow, right? That sheet, I look at that sheet in my business every day. I've been doing it for 20 plus years. I do it because it's so important. I can't neglect it. It's the bloodline. It's the stats. It's the scoreboard, right? To know if I'm winning or losing.

14:57If I don't have that in front of me every day, I don't know if I'm doing well. I don't know if I'm winning. So don't outsource it. Don't give it to somebody else. Don't tell your bookkeeper. Okay, you do this P &L thing. No, you can include them in the process and inform them and give them access. And they can even plug in the numbers for you. But you need to look at it every day. So you know, if your business is doing well, and what changes you need to make next, it's gonna take you about 20 minutes for you to be able to just fill in this information, 20 to 30 minutes, fill in this information to get started.

15:26Once you get started, and you have the information, most of the expenses that you have are going to be the same, you might add a few here and there, then about every month, I take about 15 or 20 minutes and I update the sheet. I put in the information for that month and then I take a look at my numbers, of course. But every day I'm looking at these numbers, I'm making sure everything is working well, everything is moving smoothly and it informs my decisions in a lot of ways. Now, you might need to update the sheet more frequently if you're getting more revenue or you're getting revenue more frequently.

15:54So if you get revenue once a month, you're not gonna update it as often, right? You're gonna update it once a month. But if you're getting revenue more than that, like every day or every week, you're going to need to update it according to your revenue schedule. Also with expenses, expenses come up all the time. As soon as I'm paying for something for my business, a service, a consultant, a new software, as soon as I charge my card or as soon as I send that money on a bank transfer or whatever, I go to my P &L and I add it to my expenses. Again, you can get somebody else to do this. You can get your bookkeeper to do this and play in the numbers.

16:25I personally like to do it myself. I like to be all over this because I know how critical this is. This is one thing I do not outsource because I know how important it is. That's just me. This is my paranoia of making sure I'm on top of my business. By focusing on these three key numbers, your revenue, your profit margin, your cashflow, you're going to gain a comprehensive view of your business. You're going to know how healthy your business is. You're going to be able to make better decisions, better long-term decisions. But here's the biggest benefit. Okay. Here's the truth. This is why I do it.

16:54It lowers the stress. It makes your business so much easier because you have clarity. There's transparency. You know exactly what's happening. You know how much money you're making and that your cashflow and you know exactly what's going on. Okay. And it's okay if it's not going great. It's good to have that information so that you can fix it. And then when it is going great, you're not just paranoid. You're not worried. You're not kind of in the dark. It just keeps things relaxed. It keeps things calm, which I love because business is as hard as it is. You don't need to make it hard on yourself, make it easier and don't forget you can download our free pnl template and all our templates we got a whole bunch of other templates you could download over at 100mba.net slash templates it's a great resource it's just fast tracks your uh financial health in your business by just using our template it costs you nothing and the reason why i share with you is because it took me years to create a great one why not share it thanks for tuning into the hundred dollar mba show if you found this episode valuable and you're ready to start tracking your essential metrics in your business and you're pumped for that clarity and that calm.

17:58If you want more valuable lessons, we have more on our website over at 100mba.net. I'm Omar Zinhome, and I'll check you in the next episode.