When it comes to small businesses, there are some serious challenges that owners often face. They are usually trying to juggle several things all at once to remain successful. Things like marketing, customer service, and product production are all things that must be maintained with balance to stay relevant and successful. This is why bookkeeping and accounting is often something that many small business owners will leave up to professionals. It is vital that finances are organized when you are a small business. Propel Your Accounting is here to talk about some financial metrics that we can use to gauge the health of your small business.
What are the Financial Measures to Assess the Health of a Company?
Following are financial metrics that your accountant should be watching to ensure your success as a small business:
– Revenue: One of the most important metrics to follow is revenue. This is the total income that is generated by sales or services offered by your business. Watching this number can help you identify both growth and decline.
– Profit Margin: You can’t get all the information you need from revenue alone. You need a clear picture of the profit margin as well. This shows how well you are turning your revenue into profit. It can help you understand whether or not you are managing costs effectively.
– Cash Flow: Watching the way that money moves in and out of your business is another crucial metric to follow. It is essential that your business has enough cash flow to cover expenses. With enough cash flow, you are able to pay salaries, bills and other short term obligations.
– Accounts Receivable: The money that customers owe you is accounts receivable. Making sure that there aren’t outstanding invoices that having a negative impact on your cash flow is vital. When you watch this metric, you are able to identify problems that interrupt your cash flow.
– Accounts Payable: As a business owner, you are going to have suppliers and vendors that you pay to keep day to day operations moving. Accounts payable gives a clear picture of how efficiently you are able to pay your bills. If you have a low rate, there may be some cash flow problems.
– Debt-Equity Ratio: Most small businesses take on some debt to keep things going. However, you don’t want to have to rely on too much debt as that can be risky. A healthy debt to equity ratio is a sign of a healthy business.
– Gross & Operating Margins: Your gross margin is a percentage that shows your revenue when you take away the cost of goods sold. Operating margins covers the expenses that keep your business going like salaries, rent, utilities and those things. These numbers can show you where cost management is needed.
Bookkeeping, Accounting, Business Consulting & HR / Admin Services in the United States of America
If you own a small business, you can rely on Propel Your Accounting to track all the important financial metrics that will ensure your business is thriving. Call us today!
