Did you know that there are over 30 million small businesses in America?
Although small businesses are the backbone of our economy, many don’t survive their first few years of business. One of the best ways you can predict the odds of your long-term security is to analyze the financial health of your business.
Do you want to learn how you can effectively track the financial health of a company? Keep reading for seven important factors that make a big impact on the results.
1. The Profits Are Growing
The most obvious way to determine the financial stability of a company is to examine its profits. The older a company gets, the longer the owner has to finesse their business strategies. Even small but steady growth shows that the business has plenty of potential to succeed.
2. The Expenses Are Stable or Decreasing
The important counterpart to profit is expenses. Profits aren’t as meaningful if a company’s expenses are growing with it. Stabilizing your business expenses is the first step, but the ultimate goal should be finding new ways to decrease your spending.
3. The Inventory Is Balanced
Having too much or too little inventory can have a big influence on the financial health of a business. If your inventory is insufficient, you either don’t have adequate funding or you underestimated during planning. Having too much inventory is also risky because your products could lose value over time if better alternatives for your business become available.
4. The Operating Expense Ratio Is Strong
One of the most helpfulis the operating expense ratio. To find your ratio, you need to divide your revenue by the amount of money you need to keep your business operating. The lower your ratio is, the more efficient your business is at utilizing its resources.
5. The Company Manages Debt Wisely
Although debt can be intimidating, every business has it. The key to success is to manage your debt so it doesn’t get out of control. A healthy company will have a long track record of making debt payments on time and maintaining a strong credit score.
6. The Company Has Loyal Customers and a Steady Stream of New Ones
Securing repeat customers is essential for long-term sales. However, businesses can’t grow unless they find new ways to market to a larger audience. If you’re trying to evaluate the health of a business, you need to take a close look at its branding strategies.
7. Their Numbers Are More Favorable Compared to Competitors
If you can compare your numbers to a similar business that’s the same size as yours, you can gain a better understanding of your own success. If someone else is generating more revenue than you, you can study their business strategies and see if you can revise your own.
Tracking the Financial Health of a Company Is Crucial for Long-Term Success
If you’re a small business owner, you need to know these seven factors that contribute to the financial health of a company. Reviewing your business strategies with these factors in mind can help you identify new ways to improve.
Having a solid financing plan and a steady cash flow allow businesses to thrive for many years. If you need more financial support, Dealstruck would love to help you find the perfect business loan or line of credit for your unique needs.
Contact us to learn more about our services that will revolutionize the way you run your business.