Where Is All The Money Going Series: Chapter 11 - The Numbers Every Family Business Owner Should Actually Know
Written by: Melissa Cunliffe (CA)
You don't need more reports. You need the right information to make better decisions.
Many business owners receive plenty of financial information: profit and loss statements, balance sheets, BAS reports, tax returns, debtor reports, bank statements, payroll reports, budgets and cash-flow forecasts. Yet when asked 'How is the business actually going?', the answer is often 'We're busy', 'There's money in the bank' or 'I'm not really sure'.
| Good financial reporting should not make your business feel more complicated. It should make the business easier to understand. |
Your Financial Information Should Help You Make Decisions
There is a difference between reporting numbers and using numbers. Useful management information should help answer what is happening now, why, where we are heading, what needs attention and what we should do next.
Start With the Goal — Not the Report
There is no perfect dashboard for every business. The right numbers depend on what you are trying to achieve. Profitability, debt reduction, growth, sale readiness and retirement all require different emphasis.
1 — Revenue
Revenue tells us about demand, customer activity, market position and scale. But look beyond the headline number: where is the revenue coming from, and what quality does it have?
2 — Gross Profit
Gross profit shows how much is left after the direct costs of producing sales. If there is not enough gross profit, there may simply not be enough left to fund the rest of the business.
3 — Gross Profit Margin
Margin tells us how much gross profit is generated from each dollar of sales. Small changes can have a very large impact, and trends are particularly important.
4 — Net Profit
Net profit matters, but needs context: is it increasing, sustainable, and sufficient after allowing for appropriate owner wages and investment in the business?
5 — Real Owner-Adjusted Profit
What would the business earn if everyone, including the owners, was paid a commercial amount for the work they perform? This helps reveal the return on ownership.
6 — Cash Generated From Operations
How much cash is the core business actually generating after movements in debtors, stock, WIP and creditors?
7 — Cash Available
Cash in the bank is not necessarily cash available. Allow for GST, tax, superannuation, wages, suppliers, debt repayments and upcoming capital expenditure.
8 — Debtor Days
How quickly are customers paying? A relatively small change in debtor days can release or consume substantial cash.
9 — Stock and Stock Turnover
How much stock are you holding, how quickly does it turn, and how much is slow-moving or obsolete?
10 — Work in Progress
How much completed work has not yet been turned into an invoice? Growing WIP can absorb substantial working capital.
11 — Labour Cost
Understand total labour cost, labour as a percentage of sales, productivity, utilisation and whether the business model is recovering the true cost of employing people.
12 — Break-Even Sales
How much revenue does the business need just to cover costs? The distance between current sales and break-even is a useful measure of resilience.
13 — Debt
Track total debt, interest cost, repayments, security, guarantees, remaining terms and the purpose of each facility.
14 — Debt Servicing
How much cash must the business generate each year just to service debt? This reveals how much financial flexibility remains.
15 — Tax Commitments
Estimate upcoming GST, PAYG, income tax, payroll tax, superannuation and other material obligations so they are planned rather than surprising.
16 — Owner Withdrawals
Understand the total value leaving the business for the family and compare it with what the business can sustainably afford.
17 — Business Value
You may not need a formal valuation every month, but you should understand the drivers of value: sustainable earnings, margins, recurring revenue, management, systems, customer diversity and owner independence.
18 — Family Net Wealth
Add up business interests, property, superannuation, investments, cash and other assets, then subtract liabilities. Is the family's financial position strengthening over time?
19 — Wealth Outside the Business
If nearly all family wealth is tied to the trading business and associated property, the family remains highly concentrated. Track diversification too.
20 — Your Freedom Number
What financial position would give your family genuine choice? No personal debt? Passive income? A business that operates without you? Enough capital to retire? Define the destination.
You Probably Don't Need All 20 Numbers Every Month
The answer is not to create an enormous dashboard. Different numbers matter at different times. The goal is the right information for the decisions you are currently trying to make.
Your Dashboard Should Fit on One Page
Measure | Actual | Target | Last Year | Trend |
Revenue |
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Gross Profit % |
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Net Profit |
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Cash |
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Debtor Days |
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Stock / WIP |
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Labour % |
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Debt |
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Tax Provision |
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Owner Withdrawals |
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Actual Versus Target Changes the Conversation
A number by itself tells us very little. Compare actual against target against history. That turns numbers into information.
Don't Wait Until Year-End
If meaningful information arrives only once a year, most of the decisions have already happened. The customer has been underpriced, the stock bought, the employee hired, the debt taken on and the cash spent. Timely reporting allows earlier action.
Ask Yourself
What are your current sales?
What is your gross profit margin, and is it improving?
What is the business's sustainable underlying profit?
How much cash is the business actually generating?
How quickly are customers paying?
How much money is tied up in stock or WIP?
What does labour cost relative to revenue?
What is your break-even point?
How much debt do you have and what are the annual repayments?
What tax obligations are coming?
How much is the family taking from the business?
Is the business becoming more valuable?
Is family net wealth increasing?
How much wealth exists outside the business?
What financial position are you ultimately trying to reach?
| If you cannot answer all of them, it simply tells you where greater visibility may help. |
3P'S FUTURE PROSPERITY INSIGHT
PRESERVE
The right information helps identify where money is being lost or trapped: margins, cash, tax, debtors, stock, labour, withdrawals and debt.
PROTECT
Good information is an early-warning system. Falling margins, increasing debt and declining cash can often be seen before they become major problems.
PROSPER
Once the financial foundation is clear, the numbers can help guide bigger decisions about growth, debt reduction, investment, wealth, retirement and the next generation.
| Instead of asking your accountant 'Did we make a profit?', ask: What are the numbers telling us about where our business and family are heading — and what should we do about it? |
Book your meeting today and take the first step towards a stronger, more informed business.
Disclaimer
This article does not constitute financial advice and is for general information only. It does not take into account any individual’s personal objectives, situation or needs, and is not intended as professional advice. Any similarity to an individual’s personal circumstances and the examples provided in this article is purely coincidental. Any person acting upon such information without receiving specific advice, does so entirely at their own risk.
Authorisation under an Australian Financial Services Licence (AFSL) is not required in the provision of this article and the author plus Future Accounting Group Pty Ltd is not acting in its capacity as an Australian Financial Services Licence holder
Liability limited by a scheme approved under professional standards legislation.
