"If you can't measure it, you can't manage it."
- Peter Drucker

Running a Business takes lots of work, attention to detail, and skilled management. Many business owners excel in human interaction and intuition, and with good reason: creativity, empathy, and quick thinking are core to expanding and adapting a business to change.

But at the end of the day, numbers are what keep the lights on and give you the clearest picture for the future. Neglecting to follow them could allow you to drift into disaster (like running out of cash while remaining profitable), so it's vital to understand them.

When looking over your business's regular operations, keep an eye out for these seven financial metrics. Keep these numbers healthy, and you can be confident in the health of your business.

1. Adjusted Gross Income

Adjusted Gross income is, simply put, a business's gross income after certain deductions are taken out. It's calculated by taking the total of gross billings and subtracting the cost of goods delivered.

Business owners focus on gross billings too frequently, but gross billings don't offer a useful view of your financial situation. These can look impressive on paper, but can also lead you to assume you have a lot more cash than is actually the case -- we all tend to underestimate our costs. By keeping a thorough record of goods to be subtracted from your gross billings, you're facilitating a more accurate picture of your business.

There is an enormous difference between a business with $100,000 in gross billings and $90,000 in the cost of goods sold vs. a business with the same gross billings but only $50,000 in COGS. If the first business sees that big number and decides to purchase $20,000 in new equipment, they've just accidentally gone into debt.

Keep track of adjusted gross income monthly in order to keep an accurate rolling picture of your business health.

2. Gross Profit Margin or Operating Profit Margin

These two measures are common, handy metrics to inform you about the profitability of your business. These metrics can help you understand if it's the right time to expand, or if you need to take a hard look at your costs and perhaps raise prices.

Gross Profit Margin is used more commonly than operating profit margin, but it's typically less accurate. Gross Profit Margin tells you how profitable your product or service is in isolation -- without overhead or indirect costs.

This metric is typically represented as a percentage. To calculate Gross Profit margin, you divide the money you keep from the money you lose immediately upon completing your product or service. For example, if you produce a new product for $20,000 and it costs you $10,000 to produce the product, your gross profit margin is 50%.

Operating profit margin is more accurate than gross profit margin because it includes the indirect costs to creating your products. Those may include your overhead, promotion and sales costs, and administrative expenses. This metric is also commonly known as EBIT, or "earnings before interest and tax." If you had additional operating costs of $5,000 to create your new product, then your operating margin is 25% -- a number that will help you make better financial decisions than the 50% gross profit margin.

Improving these metrics boils down to finding their primary costs. Where are you spending the most money? Can it be reduced? Are there ways to streamline your business processes?

Curious about the median profit margin in your industry? You can use free data sources like Statista to find benchmarks that can indicate how well your company is doing vs. the rest of your industry.

3. Return on Assets or Utilization

Both of these metrics deal with efficiency of resources; with Return on Assets (ROA), it's capital efficiency, and with utilization, it's employee efficiency.

ROA tells you what percentage of every dollar invested into your company actually turns a profit. This metric is ideal for comparison purposes when you look at other companies in your industry. Having this number on-hand is vital for making future purchasing and investment decisions.

Net Profit / Total Assets = ROA

Utilization deals more with employees and employee-hours. The basic concept of your employee utilization rate is measuring how many of your employee's hours are spent on billable work that brings profit to the business, and how many hours are spent on non-billable tasks. The higher your utilization rate, the more efficient your business.

(Total Hours Billed/2000) X 100 = The Per-Employee Utilization Rate

Curious about benchmarks in your industry? Gould & Partners provides in-depth benchmarking across a number of industries in this data set.

4. Debt-to-Asset Ratio

Negotiation is key to running a business; you need to be able to count on your company's proven record when discussing partnerships, navigating loans, and planning your future. That's where your debt-to-asset ratio comes in.

Take the total of your liabilities (debt) and divide it by the total of your total assets. If the ratio totals below 0.5, your company is in good shape. If it's above 0.5, it sends the message that your assets come primarily through debt.

The most basic way to improve your debt-to-asset ratio is to make more, either by raising prices, generating more sales, or lowering costs. Other means to better your ratio is to reduce inventory (which can clog up cash flow) or restructuring debt.

5. Months of Cash

Accidents happen, tragedies happen, and bad luck regularly happens. Always have a safety net by having several "months" of business cash-on-hand. These are units of how much it takes to run your business every month.

To tabulate one month of cash, take your current amount of cash available (not tied up in other assets) and divide it by your monthly overhead expenses. It's an industry-accepted standard that you should always have at least two months' worth of cash in a business account at all times. For healthier numbers, try to lower your overhead costs and make sure to have free cash available.

6. Current Ratio or Quick Ratio

Your company's current ratio and quick ratio are referred to as liquidity ratios, and they measure your current ability to meet your upcoming financial needs and obligations. They're what determine how healthy your future is set to be.

Specifically, a current ratio compares current assets to current liabilities. If your current ratio (calculated by dividing your current assets by your current liabilities) is near or below one, you're currently on-track to run out of free cash. Keep this number high by raising more cash and lowering your liabilities.

The quick ratio, also known as the "acid test," excludes inventory—which is not freely available cash—from the equation. To get this ratio, just take the current ratio equation and subtract your inventory from your current assets number.

7. Days Sales Outstanding

DSO (also known as "average collection period" or "receivable days") measures how long it takes to collect the cash from sales. Most businesses can see immediate and meaningful improvements in their cash position by improving this single number.

Days sales outstanding is also an important measure of your relationships with your customers and their financial health. A jump in DSO can indicate loss of customer confidence, or that your customers might be struggling to make payments in general and you need to be careful about making large investments.

Overdue invoices can drastically push up your DSO number. If you're struggling to collect on invoices, or could use a hands-on approach from trained staff, consider YayPay as an effective way to improve your cash position. Learn about our features and integrations here.

Interested in how YayPay can help you solve these problems?  Sign up for a demo today!