One number is not a diagnosis
Many business owners work incredibly hard but only check one number — their bank balance. It is the easiest number to see and the least useful one on its own. The five numbers below work together, the way vital signs do, to show you what is actually happening inside your business.
What to look at, and what to ask
Revenue
How much money did your business earn from sales?
Revenue is your total sales before expenses are deducted.
- Is revenue increasing or decreasing?
- Are seasonal trends affecting sales?
- Are my marketing efforts producing results?
- Are certain services or products generating more revenue than others?
Review revenue every month and compare it with prior months and the same period from the previous year.
Gross Profit
How much money remains after delivering your product or service?
Gross Profit = Revenue – Direct Costs
Direct costs are the expenses directly connected to producing your product or delivering your service.
A business can have strong sales but weak gross profit when jobs are underpriced or direct costs are not properly controlled.
- Materials
- Subcontractors
- Direct labor
- Equipment rental
- Job-specific permits
- Payroll for employees performing client work
- Contractor costs
- Software used specifically to provide the service
- Supplies used for client work
Monitor gross profit regularly and, when possible, review it by job, project, service, or product.
Net Profit
What did your business actually earn after paying its expenses?
Net profit is the amount remaining after operating expenses are deducted.
A growing bank balance does not always mean the business is profitable. Loan proceeds, owner contributions, unpaid bills, and outstanding tax obligations can all affect the amount of cash in the bank.
- Rent
- Administrative payroll
- Insurance
- Software
- Marketing
- Professional services
- Office expenses
Review your Profit and Loss Statement every month — not only at tax time.
Cash Flow
Can your business comfortably pay its bills?
Cash flow measures how money moves into and out of your business.
- Customers pay late
- Large expenses come due at the same time
- Debt payments are high
- Inventory or materials are purchased before customer payments arrive
- Growth happens faster than available cash can support
- Owners withdraw too much money from the business
- Current bank balances
- Expected customer payments
- Upcoming payroll
- Bills due
- Tax obligations
- Planned owner withdrawals
- Large upcoming purchases
Review cash flow every week rather than waiting until the bank account feels tight.
Accounts Receivable
Who owes your business money?
Accounts receivable represents money customers owe for work already completed or products already delivered.
The longer an invoice remains unpaid, the more difficult it may become to collect.
- Current
- 1–30 days overdue
- 31–60 days overdue
- 61–90 days overdue
- More than 90 days overdue
- Send invoices immediately
- Include clear payment terms
- Offer convenient payment methods
- Send reminders before and after the due date
- Document collection conversations
- Address disputed invoices quickly
Review your Accounts Receivable Aging Report every month and follow up promptly on overdue invoices.
Your financial vital signs
Just as a nurse does not rely on a single vital sign to assess a patient's health, a business owner should not rely on the bank balance alone.
A strong bank balance can temporarily hide unpaid bills, tax obligations, debt, or declining profitability. A low bank balance can also occur during a healthy period of investment or growth. Looking at these five vital signs together gives you a clearer, more complete picture.
- Identify problems earlier
- Make informed decisions
- Improve pricing
- Protect cash flow
- Plan for taxes
- Manage growth
- Reduce financial surprises
- Build a healthier, more sustainable business
Use this checklist during your monthly review
Move beyond guessing
When you understand these five numbers, you can begin making decisions based on clear financial information. A Financial Diagnostic Review can help you:
- Understand where your business stands today
- Identify areas that need attention
- Determine whether accounts are properly reconciled
- Evaluate whether financial reports are accurate
- Improve financial visibility
- Create a practical plan for your next steps