Okay, so let’s start with something that might surprise you.
I don’t actually think business owners need to know hundreds of financial numbers.
You don’t need to understand every accounting standard.
You don’t need to memorise your chart of accounts.
And you definitely don’t need to become an accountant.
What you do need is enough understanding to make good decisions.
Because that’s your job.
Not producing the accounts.
Not submitting the VAT return.
Not reconciling the bank.
Your job is making decisions.
And good decisions need good information.
So if I walked into your business today and said,
“You can only look at four numbers this month…”
…these are the four I’d choose.
1. Turnover
This is the easy one.
Turnover is simply how much money your business has invoiced or sold.
It’s usually the number everyone knows.
“We did £500,000 last year.”
“We’ve just hit a million.”
Fantastic.
But here’s the problem.
Turnover tells you how much money came in.
It’s a measure of activity, but not success.
It tells you absolutely nothing about whether you actually made any money.
I’ve seen businesses double their turnover…
…and halve their profit.
So turnover is important.
But on its own, it’s a terrible measure of success.
2. Gross Profit
This is probably the number I wish more business owners understood.
Gross profit is what’s left after you’ve paid the direct costs of delivering your product or service.
Imagine you sell something for £100.
It costs you £60 to make or deliver.
Your gross profit is £40.
Simple.
Why does this matter?
Because this tells you whether your core business actually works.
If your gross profit isn’t healthy, selling more often just makes the problem bigger.
I’ve seen businesses celebrating record sales, only to discover later they were making very little – or even losing money – on the work they were doing.
In that case, more sales actually just meant bigger losses.
That’s not growth, that’s a disaster waiting to happen.
3. Net Profit
We take your gross profit, and then take off the costs of running the business.
Things like:
- Rent
- Insurance
- Software
- Staff costs
- Phones
- Vehicles
- Utilities
All the overheads to operate your business.
What’s left is your net profit.
This tells you whether your day-to-day trading is generating a profit after the costs of running the business.
Notice I didn’t say whether the bank account is growing.
Because there’s an important point here.
Net profit isn’t the same as the movement in your bank balance.
That’s because there are other things that affect cash but aren’t included in your profit calculations.
Things like:
- Loan repayments
- Director loan movements
- Buying assets like equipment or vehicles
- VAT payments
- Tax payments
These don’t all flow through your Profit & Loss account in the same way, but they do affect how much cash you have available.
So if you’ve ever been told you have made a profit, but don’t feel it in the bank, this may be why.
And it’s also why understanding both profit and cash is so important.
4. Cash
Finally, let’s talk about cash.
This is usually the first number business owners look at.
And for good reason.
Cash pays the wages.
Cash pays the suppliers.
Cash pays the VAT bill.
Cash pays you.
If there’s no cash, you’ve got a problem.
But here’s the thing not a lot of business owners understand:
Cash and profit are not the same thing.
A business can make a healthy profit and still be short of cash.
Equally, a business can have plenty of cash in the bank but not actually be making a profit.
How?
Because lots of things affect your bank balance that aren’t part of your trading profit.
For example:
- Customers might not have paid you yet.
- You might have bought a new van or a piece of equipment.
- You might have made a loan repayment.
- You might have paid your VAT bill or Corporation Tax.
- You might have taken money out of the business.
All of those affect your cash position, but they don’t necessarily change your net profit in the same way.
That’s why looking at your bank balance alone can be misleading.
Cash tells you whether you can pay your bills today.
Profit tells you whether your business is making money over time.
You need to understand both.
Why these four matter together
Here’s the important bit.
Don’t look at these numbers in isolation.
They tell a story together.
For example…
Your turnover goes up – Fantastic.
But your gross profit stays the same – That’s interesting.
Maybe your costs have increased.
Maybe your pricing needs looking at.
Maybe you’re selling more of the wrong thing.
Or perhaps your profit looks great…
…but your cash keeps disappearing.
Now we’re asking different questions.
Are customers paying late?
Have you bought equipment?
Are you growing faster than your cashflow can support?
The numbers aren’t there to judge you.
They’re there to help you ask better questions.
So… what should you do?
If you only do one thing after reading this article, make it this.
Once a month, write these four numbers down.
- Turnover
- Gross Profit
- Net Profit
- Cash
Don’t worry if you don’t completely understand them yet.
Just start looking at them consistently.
Over time, you’ll begin to spot patterns.
You’ll start asking better questions.
And instead of making decisions based on how the business feels, you’ll start making decisions based on what the numbers are actually telling you.
That’s a habit that will serve you well throughout your business journey.