The 5 Numbers Every Owner Should Know Before Making Big Decisions
By Phil Badura - ActionCOACH Business Steps
Big business decisions often arrive disguised as simple questions.
Can we afford to hire another person? Should we buy the equipment? Can we take on that large contract? Is it time to open another location? Can I take more money out of the business? Should we accept the customer's longer payment terms?
Owners are often tempted to answer from the bank balance, last month's sales or instinct. Those inputs matter, but none of them gives you the full commercial picture.
Before a big decision, you need five numbers. They will not remove every uncertainty, but they will help you apply your Attention to the facts, your Focus to the constraint and your Energy to the Right Action.
1. Cash available after commitments
The first number is not simply cash at bank. It is the cash that remains after you recognise what is already committed.
Start with the bank balance, then account for wages, tax, superannuation, supplier payments, loan repayments, customer deposits attached to undelivered work and other near-term obligations.
That gives you a more honest operating position.
A business may have $180,000 in the bank and still have very little genuinely available if a large BAS, payroll, supplier run and customer-funded project are sitting behind it. Conversely, a lower bank balance may be manageable when debtor collections are reliable and commitments are controlled.
Use this number before increasing owner drawings, approving discretionary spending, paying a deposit on equipment or assuming that today's cash can fund tomorrow's growth.
The leadership question is: How much of the cash in the bank is truly free to deploy?
2. The lowest cash point in the next 13 weeks
A bank balance is one photograph. A rolling 13-week cash-flow forecast is the short film.
It shows the timing of expected receipts and payments, week by week. The most important number in that forecast is the low point: the smallest projected closing balance during the period.
Why does this matter?
You may be comfortable this week and exposed in week seven when wages, tax, insurance and a supplier payment coincide. You may be considering a hire that looks affordable monthly but creates a shortfall before the new employee becomes productive. A new contract may be profitable overall but require the business to fund labour and materials for eight weeks before the first progress claim is paid.
Run at least three views for a major decision:
- Expected case: receipts and costs occur on realistic dates.
- Downside case: a key debtor pays late, sales soften or the project costs more.
- Action case: deposits, staged invoicing, negotiated terms or delayed expenditure improve the low point.
The forecast will never be perfect. Its value is not perfect prediction; it is earlier choice.
The leadership question is: At our lowest point, how much headroom remains - and what assumptions create it?
3. Gross margin percentage and gross-margin dollars
Revenue tells you how much work you sold. Gross margin tells you what the work contributes after its direct cost.
Both the percentage and the dollars matter.
If a service sells for $100,000 and costs $70,000 in direct labour, materials and subcontractors, it produces $30,000 gross margin, or 30 per cent. If overtime, freight, rework and discounts reduce that to $20,000, the true margin is 20 per cent.
That difference changes whether growth funds the business or consumes it.
Do not rely only on a whole-of-business average. Review margin by product, service, project, customer type or channel. A strong line can hide a weak one. A prestigious client can absorb management time, demand extended terms and still produce poor cash.
Before accepting a large contract, lowering a price, adding capacity or launching a new offer, understand what margin remains after the direct work is delivered.
The leadership question is: Will this decision create enough gross margin to cover overhead, risk and the cash it absorbs?
4. Overdue debtors and debtor days
Sales are not cash until the customer pays.
You need to know two related numbers: the value of overdue debtors and your average debtor days - how long customers take to pay.
Suppose monthly credit sales are $300,000 and accounts receivable are $450,000. A simple debtor-days estimate is:
`Accounts receivable / annual credit sales x 365`
That would be about 46 days. If your stated terms are 30 days, the business is funding an extra 16 days of customer credit.
The total matters, but ageing matters more. Separate current, 30-day, 60-day and 90-day balances. Identify disputes, missing purchase orders, unraised variations and invoices nobody actively owns.
Before borrowing, chasing more sales or accepting longer terms, ask whether existing cash is trapped in the collection process.
Small improvements can release meaningful cash. Faster invoicing, deposits, milestone claims, accurate paperwork and a consistent collection rhythm can often improve cash without one extra sale.
The leadership question is: How much of our money is sitting with customers, why is it there, and who owns the next action?
5. Monthly break-even, including a proper owner wage
Your break-even number is the gross margin the business must generate to cover its fixed costs for the month.
If monthly fixed costs are $120,000 and the average gross-margin percentage is 40 per cent, the required monthly revenue is approximately:
`$120,000 / 0.40 = $300,000`
But the calculation must be honest.
Include a proper commercial wage for the owner's operating role. Include the normal costs required to run the business. Understand the difference between accounting expenses and cash items such as loan principal or capital expenditure. Your accountant can help ensure the measure is structured correctly.
Then convert the monthly target into a weekly target and a sales-pipeline requirement. If the business needs $300,000 per month and the average sale is $15,000, that is 20 completed sales - before allowing for timing, capacity and conversion rate.
Use break-even before hiring, leasing more space, adding software, changing pricing or committing to a permanent increase in overhead.
The leadership question is: What must the business reliably produce every month before this decision improves the owner's return?
Put the five numbers into one decision page
The numbers become useful when they sit together.
Before making a big decision, write down:
1. Cash available after commitments.
2. The 13-week forecast low point under expected and downside cases.
3. Gross margin percentage and dollars created by the decision.
4. Overdue debtors and current debtor days.
5. Monthly break-even before and after the decision.
Then add four practical questions:
- What must be true for this decision to work?
- What is the largest cash risk?
- What early warning measure will we review?
- Who owns the next action and by when?
This is how a business owner moves from hope to commercial leadership.
The traits behind the numbers
Knowing the five numbers is not enough. Successful owners build the traits required to use them.
They face facts without turning every weak result into shame or blame. They remain curious about causes. They review the numbers consistently, not only when the bank account hurts. They have the courage to delay, restructure or reject an exciting decision when the assumptions do not hold. And they understand that finance can be delegated, but financial leadership cannot be abdicated.
Your Attention belongs on the truth.
Your Focus belongs on the one number that most constrains the decision.
Your Energy belongs on the action that improves the position.
That is working on the Right Things.
If you are considering a major hire, purchase, contract or growth move and want a clearer commercial view, schedule a Business Clarity Meeting with me. We will examine your Time, Team, Money and Systems, identify the real constraint and turn the decision into measurable next actions.
Book a meeting with Phil Badura: https://www.actioncoach.au/coaches/phil-badura