Pi Day comes but once a year, always on March 14th for obvious reasons (3.14 if it’s not so obvious), and exists to represent the mathematic ratios that define the world’s most understood language. While Pi is not necessarily something you need for business, it is an excellent way to remind yourself that business accounting has plenty of numbers and math involved.
In celebration of Pi Day, there are some essential business accounting you must know to run a business.
5 Numbers Every Business Owner Should Know
- Cash Flow
Your company’s operating cash flow is there to tell you how healthy your business is, and what needs improvement.
Cash flow is easy to calculate, just subtract expenses from the money you generated through normal business activities. This includes depreciation of income and adjustments for working capital (i.e. receivables and inventory).
A successful business has adequate cash flow in checking accounts and payroll accounts.
- Profit and Loss Numbers
Known as the P&L Statement, this is a snapshot of your business. It takes your income (from sales and revenue), then subtracts all expenses during a period (i.e. quarterly, bi-annually, or annually). The result is your profit versus your losses over time.
- The Company Budget
Every business needs a budget. Your budget should detail projected income, expenses, and forecasted payroll numbers. You will have columns for fixed costs versus variable expenses, and then you must track your expected versus actual amounts for the month. Staying on budget is key, and having a solid budget plan may help you obtain financing in the future.
- Accurate Inventory Counts
Stock levels, asset tracking, valuation, and demand anticipation all come from stock. Overordering can hurt any business, while under-ordering means customers do not receive their order promptly.
Staying on top of your inventory counts, knowing when peak demand will hit, and anticipating orders for the future can help.
Also, monitoring inventory may prevent shrinkage, theft, and loss control issues.
Total inventory counts go for more than just sellable goods, it also includes:
- Raw materials
- Maintenance items
- Rental or moveable equipment
- Furniture and equipment
- Cars or trucks
- Sellable inventory
- Employee Wages
Knowing who gets paid, and what they are being paid is critical for projecting your budget. It also is what you can use to determine quarterly bonuses, or if an employee deserves a raise.
In honor of Pi Day, what accounting numbers will you focus on? Share your thoughts!