The ABC of Your Business Numbers
If you wanted to know the place to start learning your numbers, this is it. Master six core financial concepts that every business owner needs to understand deeply.
"Understand your numbers so deeply that you can explain them to anyone, in any room, at any time."
This is the foundation of financial clarity and confident decision-making.
1. Read the concept
Understand the idea first without worrying about the numbers.
2. Work through examples
Use a pen and paper. Follow the step-by-step calculations.
3. Answer practice questions
Say your answers out loud. Do not just think them.
4. Teach it back
Explain it to someone else. That is when it truly sticks.
What I kept, divided by what I earned, times 100.
Fixed costs divided by gross margin percentage.
How far above break-even am I, as a percentage of revenue.
What I actually kept after everything, divided by revenue, times 100.
DIO plus DSO minus DPO. How long your money is tied up.
Most businesses have all three problems to some degree. The numbers will tell you which one is primary and where to start.
A business model problem exists when the fundamental structure of how the business makes money is broken or unsustainable. The signal: Gross margin is low or declining regardless of how much revenue grows.
Key Metrics
Gross Profit Margin & Net Profit Margin
A pricing problem exists when a business is not charging enough relative to its costs, its value, or its market. The signal: Revenue is growing but profit is flat or declining.
Key Metrics
Gross Margin Trend & Break-Even Analysis
A cashflow problem exists when a business cannot meet its obligations as they fall due, regardless of whether it is profitable. The signal: Bank account is regularly empty despite appearing profitable on paper.
Key Metrics
Cash Conversion Cycle & Margin of Safety