Managing a small business is tricky. Failure to properly determine your financial condition could severely hurt your business. To cope, you need to check whether your business is healthy or nor. Some people don’t understand how to determine a good and healthy business. Don’t be one of them! Below are some signs to look for when checking in on your business.
Check your financial balance. You want to see whether your expenses are staying flat for a period of time. Typically, a healthy business will have balance between its revenue and expenses, with expenses under control. If the revenue of a business increases 4% over a year, then its expenses should increase no higher than 4% during the same period.
When looking at your financial balance, make sure you review your profit and loss statements. There should be a steady increase in monthly revenue. The increase doesn’t have to be steep, just a couple of percentage points is enough. As long as there is healthy upward movement and a strong financial outlook, your business is fine.
Low Debt Ratio
Pay attention to the two debt ratios: debt-to-asset ratio and debt-to-equity ratio. Both are the main financial factors that affect the health of your business. You should also look into solvency ratios that specifically measure how much your business owes creditors versus how much your business is worth. Typically, the lower the number the more ideal. For debt-to-asset ratio, maintaining a 2:1 ratio or lower is recommended.
However, you shouldn’t let this make you fearful of applying for loans – most businesses need the extra working capital for cash flow and business operations.
Defined Business Goals
Ask yourself: what is your business goal? Can you define it? Your business is sick when it doesn’t have any clear goals. Even if your financial condition is in top shape, a lack of vision will eventually make your business meander. Define your business goals and share it with your employees. If everyone works together to achieve than common goal, then your business productivity will increase.
Job Happiness and Satisfaction
Not only do you need to be happy with your job, your employees should be happy to work at your company. Check your turnover rates and interview your staff to see whether they feel sufficiently challenged. Unhappiness at the office lowers productivity and motivation, and is a sure sign that the environment or system needs to be rehauled.
Don’t forget customer satisfaction, either. Make a survey for customers. Ask them if they are happy with your service. A happy customer will very likely repurchase your product and can also bring new customers for your business. Unhappy customers, meanwhile, can drive away prospective new clients.
Does your business show danger signs? Ensure that all the above are well-cared for to maintain a healthy (and successful) business. Notice danger signs as early as possible to avoid problems becoming out of control.