In business, bookkeeping is the process of tracking your financial records and accounts to determine how your business is performing financially and how your finances are affecting your business day-to-day. Many business owners choose to track and report these metrics over a period of time to monitor growth or manage setbacks, whether that’s monthly, quarterly, or yearly.

This will give you a great overview of the way your business is performing month-on-month (MOM) and year-on-year (YOY). By tracking the essential bookkeeping metrics below, you can determine how your business operates, forecast your financial future, and make smarter decisions.

Let’s explore the essential bookkeeping metrics to help you make data-driven moves in your business, avoid financial surprises, and plan for growth.

1. Cash Flow

Cash flow is arguably the most important business bookkeeping KPI because a positive cash flow keeps your business running. This is calculated by subtracting the outflow of cash (expenses) from the inflow (income) of cash. Your cash flow should give you an understanding of how your business is performing, how much revenue you’re making, and how much you’re spending in expenses.

By regularly monitoring cash flow, you can make informed decisions, such as where to allocate resources, improve your financial forecasting, and stay prepared for future opportunities or setbacks.

1. Revenue

Tracking your revenue, also known as the top line, allows you to see how much money your business makes over time. This essential bookkeeping metric helps you understand the success of your business, products, and services. In short, it gives you a number to measure where you stand financially. It’s important to note that revenue is not the same as profits; however, it will help you calculate your net and gross profit margins.

1. Net and Gross Profit Margins

Revenue is the total income from your sales, while gross profit is revenue minus the Cost of Goods Sold (COGS). Net income, also known as the bottom line, is your revenue minus the cost of all business operations and non-operations. When revenue exceeds your expenses, that’s when you know you’re making a profit!

Your net and gross profit margins are some of the most essential business bookkeeping KPIs because they help you calculate and track your expenses. With this, you can assess how efficient your production process and pricing strategy is. Higher profit margins indicate that your business is making more money from each dollar of sales after covering production costs.

1. Return On Investment (ROI)

If your business is making any kind of financial investment, such as in shares or even in marketing and advertisements, it’s important to track your return to ensure positive ROI. Without tracking this, it’s impossible for you to see the profitability of your investments.

1. Expenses

Expenses, as the name suggests, are the payments (or outflow) being made from your business. Business expenses include rent, overhead bills, and wages. Tracking your expenses is, of course, crucial for determining your overall cash flow statement, but it’s also important for tax purposes. This is something every business owner needs to keep an eye out for as they are entitled to various deductions on their tax returns.

Need Support with Your Business Bookkeeping?

We get it—bookkeeping can be overwhelming. Almost everyone needs help with bookkeeping at some time or another. That’s why JCB Accounting offers expert bookkeeping services in Melbourne to help you stay on top of your records with cash flow forecasts, financial planning, tax preparation, and more. Keep your business running smoothly with your key metrics at hand—get these numbers down and you’re starting on the right foot.

Apart from bookkeeping, our business tax accountants offer specialised support in a range of financial and business services, including business consulting, cash flow forecasts, and more. Contact us today!