Corporate America uses money as a health indicator because it's a common denominator by which to compare vastly different companies. Essentially, it makes apples and oranges comparable.
But small businesses aren't corporate America. We know more about the daily nuances of our business than a CEO with tens of thousands employees. And frankly, we don't need to deal with MBA jargon to know what's going on in our business. Military jargon might be sexy to civilians but MBA jargon just sounds douchey (is that a word?).
For instance, you are a small business owner and you've raised your prices in the last year. How can you compare revenue? It's gone up since you raised your prices, but how do you know how you're doing? What if you offer project and retainer options to your clients? Your P&L may not tell you how balanced your business is amongst those two products.
In this video, we discuss 2 tips for tracking the health of your business through metrics: measuring and tools.
First, find one simple metric to measure the health of your small business. Examples include the number of billable hours, retainer revenue vs. total revenue, and the number of project clients who become retainer clients.
Use Pivot Tables in Excel to track more information. Pivot Tables allow you to track a lot more metrics. YouTube is a great resource for videos demonstrating how to build and use them for those of you comfortable with Excel. If you're not sure what metrics you want to measure, that's okay. Wait until you are ready. There's no point wasting time tracking data you don't understand.
If you do want a simpler way to check the financial health of your business, I suggest reading Profit First, by Mike Michalowicz. It's a cash flow management system that will provide you instant clarification on your finances, and is the follow-up to the cult classic, The Toilet Paper Entrepreneur and The Pumpkin Plan, a simple strategy for growing your business.