The financial indicators that every business owner should measure

Why measure less, but better

There is a temptation to fill a dashboard with twenty metrics and feel like you have control. In practice, most of those numbers never change a decision. A good system of indicators is not the most complete: it is the one that answers the questions that really drive your business.

Key financial indicators answer specific things: am I really making money? How much do I have to sell to avoid losing? Are they paying me on time? Do I have something to operate with? If you know how to answer those four, you are already ahead of most SMEs. The rest is refinement.

Profit Margin: Are You Really Winning?

The margin is the percentage of each sales peso that remains as profit. It's different from selling a lot: you can make millions and have margins so thin that you barely survive. There are two margins that should be distinguished:

• Gross margin: (sales − cost of goods sold) ÷ sales. It tells you how much you earn before operating expenses. If you sell something that cost you $60 for $100, your gross margin is 40%.
• Net margin: final profit ÷ sales, after ALL expenses (rent, salaries, taxes). It is the final truth: how much you have left of each peso.
• Watch the trend: A margin that drops month after month is an early warning that your costs are going up or your prices have fallen short.

Balance point: the waterline

The break-even point is how much you need to sell to neither make nor lose: the moment when your sales exactly cover all your costs. Below that line, you lose; On top of that, you win. It is one of the most useful numbers and least known by owners.

Knowing it changes how you decide. If you know that your break-even point is $200,000 a month, then you know that on the 20th day that you are at $150,000 you are still in the red, and you act accordingly. It also allows you to evaluate decisions: "if I hire someone else, by how much does my break-even point go up and will I be able to cover it?"

Portfolio and liquidity: are you paid and can you pay?

Two families of indicators close the panorama. The first is about your collection; the second, about your ability to pay:

• Portfolio days (accounts receivable turnover): On average, how many days it takes to collect a credit sale. If your clients take 60 days and you pay suppliers in 30, you have a structural flow problem.
• Age of balances: how much of your portfolio is about to expire, overdue in 30, 60, 90 days. The older you are, the more difficult it is to collect.
• Liquidity ratio (current): assets that you can return to money soon ÷ short-term debts. Above 1 means that, in theory, you can cover what you owe in the short term.
• Debt Ratio: How much of your business is financed with debt. Neither very high (risk) nor always zero (sometimes healthy debt drives).

From measuring to having it on a board with Aura

The real obstacle is not understanding the indicators, it is calculating them. To get your margin you need sales and costs; for your break-even point, your fixed costs; for your portfolio days, your accounts receivable. If that information is scattered between Excel, the bank and individual invoices, no one is going to calculate anything constantly, and an indicator that you only see once a year is of no use.

As in Aura, your sales, your costs, your CFDI billing, your accounts receivable and your bank live on the same platform, these indicators are calculated on their own and displayed on dashboards that you consult whenever you want. You see your margin for the month, your progress towards the break-even point, your past due portfolio and your liquidity without putting together a single spreadsheet.

This transforms the owner's relationship with his numbers: instead of waiting three months for the accountant to "close" to find out how things went, you make decisions with fresh data. And deciding with fresh data, month after month, is what separates businesses that grow from those that only survive.