Yesterday evening, I received an email from my wife (I know, modern times, eh ?) saying that she was miserable because despite working so hard , when she opened her account she was minus 500 euros. I replied (face-to-face, the loving husband that I am J ) that the problem was not her bank account, but her limited vision of financial success. If this intrigues you in the slightest, read on. If you’ve ever had the same feeling, read on. If you know nothing about financial measures, read on…
Cash is King?
That’s what they say right? But if you don’t need cash, then who cares? If cash in your pocket (cash situation) is all that counts, then yes, my wife has a bad financial situation because she doesn’t have any. But I proposed instead 8 other measures she could use to give another vision of things…
1 Total revenue earned in period
That’s a nice measure. Think about what you earned. And depending on the length of the period in question, you might see a really big number. Nice and inspiring if, like my wife, you are easily turned-on or put-off by superficial numbers. In my wife’s case, this would mean looking at her salary. But as a family, we can also include all other cash that comes into the household (family allowance, tax-return etc…)
2 Growth in revenue over time
For my wife, this was a really nice one, because 3 months ago she didn’t have a job and now she does. Depending on how you do business, you will need to choose the period well to give a good indication of real growth. In my business, there are seasonal peaks and dips, so I just look over a year. In the last 4 years, my revenue has grown by 46% (yr 2), 37% (yr3) and 24% (yr4). Like!
3 Money owed
If there is no prospect of money arriving in the future, then that is bad. But if people owe you money and you are confident it will come, this measure is interesting. I am currently owed 19600 euros and although there is a risk of non-payment, this has not caused any concern over the last 4 years.
Everyone has bills. But not all the time. If cash is low, but you are owed loads and don’t owe anything yourself, things are pretty good. Just collect what you are owed and smile again…
4 Profit (% vs. revenue won or net $)
Profit is what is left over when everything is paid (OK, it can be a bit more complicated than that, but let’s keep it simple). There are 2 ways to measure profit:
- As a money figure, eg: 2000 euros
- As a %
Personally, I prefer to measure the second one. Take your revenue, deduct all costs and then divide the final figure by the revenue won. The higher the %, the more profit you are making.
5 “Financial productivity”
I don’t know if it’s the right term, but I like this one: How time did you spend winning revenue vs. how much time was available for winning revenue. In my wife’s case, this is really motivating because she doesn’t work full-time. She can remind herself that she does other things with her life, rather than just work. As a “side-motivator”, she could take her revenue and max-it-up to 100% productivity to see what she would earn if working full-time.
6 “Financial efficiency” or “bill-rate”
Again, may not be the right term, but this is: Revenue per worked hour. If you believe Tim Ferriss, this is what really matters. If 2 people earn 100,000 euros, but one works 200 days and the other only works 50 days, it’s clear who is “richest”. This tends to depress my wife, as I am “richer”, but watch out for a future blog on “How to put a money-value the work of a house-wife”….
7 Assets, consumables and experiences acquired for money spent
This is simple/ I said to my wife: “So what, you are minus 500. Look at what you got for your money. A water-fountain, a nice holiday, kids going to scouts at the weekend, shoes, food…..” Money’s not worth anything is you’re not spending it, right?
OK, maybe this is not so financial. But who cares about all the money right? We’re not dying, we live well. We both love our jobs. Our kids our healty. Enjoy!!
Hope this was interesting.
If you are a business owner interested in other ways to measure success, read the book “Business Acumen” by Kevin Cope or get an overview here: “If you want to show value, you’ve gotta have Business Acumen”.
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