Welcome back to our blog series where we’re sharing simple, practical tips to help you build a stronger business.

In our first post, we focused on the importance of Review — checking that you have the right information and regular reports to see how your business is performing.

Now, we move to step two: Understand.
This is where we go beyond simply having reports and start learning what they actually mean.

Finance 101: Getting the Basics Right

Every number in your financial reports tells you something — about your pricing, your customers, your operations, and ultimately, your profitability. Here are a few fundamentals worth understanding well:

Gross Margin  (Selling Price – Cost of Goods Sold)

This is a core measure of your business’s financial health. A few key questions to ask yourself:

• Have you worked out your true cost per item and added a margin?

• Are you:

  • Reviewing your prices regularly?

  • Charging enough — and charging all the customers you should be?

  • Factoring in freight or delivery costs as part of your gross margin?

  • Updating your selling prices when your costs increase?

A good gross margin means you’re building a business that can cover overheads and deliver profit — not just sales.

  Debtors & Creditors Management

• Review your aged debtors report monthly. Are you following up on overdue accounts?

• Keep an eye on your creditor terms — paying suppliers too fast while waiting on slow customers can choke your cash flow.

Good management here helps protect your working capital and avoid unnecessary stress.

  Inventory Management

• How much stock are you holding — and is it the right stock?

• Consider whether your suppliers can provide Just-in-Time (JIT) delivery to reduce holding costs.

• Regularly review slow-moving or obsolete stock.

Well-managed inventory reduces waste and frees up cash.

  Sales Analysis & Cost Control

Understanding your sales patterns and cost behaviour gives you insights that drive better decisions:

• Sales by category – Which products or services are most profitable?

• Gross Profit Margins – Are they consistent across customers and inputs?

• Selling price trends – Are you competing on price, value, or both?

• Expense Variances – Review budget vs actuals. What’s fixed, what’s variable, and where are the surprises?

  Balance Sheet Insights

Your balance sheet can tell you a lot if you know where to look:

• Aged debtors – How much are you owed?

• Cash balance – Do you have a healthy buffer?

• Inventory holdings – Too much, too little, or just right?

• Owner’s equity – Are you building long-term value?

What’s Next?

In our next blog, we’ll look at how to Use these insights — translating your numbers into actions that improve performance, reduce risk, and support smart growth.

About the People Behind OptiFi

We’re a team of senior finance professionals, CFOs, and business owners with extensive experience across commercial finance, governance, and small business.
Our passion is helping Kiwi businesses thrive — with clear reporting, practical insights, and tailored support.