Thinking of Starting a Business? Wait! Understand These 7 Financial Metrics First:

Steve Jobs once said, “You’ve got to have a problem you want to solve, a wrong that you want to right.” But without financial wisdom, passion alone won’t cut it. Master these before you dive in:

1. Return on Investment (ROI)
ROI = (Net Profit / Cost of Investment) x 100
OR
ROI = (Present Value - Cost of Investment) / Cost of Investment x 100
Know if your efforts are truly worth it.


2. Return on Advertising Spend (ROAS)
ROAS = Revenue from Ads / Cost of Ads
Are your ads paying off or burning your budget?


3. Working Capital

Net Working Capital = Current Assets - Current Liabilities

Working Capital Ratio = Current Assets / Current Liabilities
Stay liquid. Stay prepared.



4. Profit Margin

Net Profit Margin = (Net Profit / Net Revenue) x 100

Gross Profit Margin = (Revenue - COGS) / Revenue x 100
Profit is not just what you make—it’s what you keep.



5. EBITDA
EBITDA = Operating Income + Depreciation + Amortization
Understand your true operating performance.


6. Break-Even Point (BEP)
BEP (Units) = Fixed Costs / (Selling Price per Unit - Variable Cost per Unit)
When do you stop losing money and start profiting?


7. Revenue Run Rate (RRR)
RRR = Revenue for Period x Number of Periods in Year
Forecast your annual potential with confidence.



Before you start your business, start with the numbers.