Managing a small business is tricky. Failure to properly determine your financial condition could severely hurt your business. As a business owner, you therefore need to proactively check whether your business is healthy or not. Here are some signs to look out for when you are evaluating the health of your business.
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1. Flat expenses
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.
2. Revenue growth
When you are checking 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.
3. 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, this should not deter you from applying for business loans – most businesses need the extra working capital for cash flow and business operations.
4. Defined business goals
Ask yourself: what is your business goal? Can you define it? Even if your financial condition is in top shape, a lack of vision will eventually cause your business to suffer in the long run. Define your business goals and share it with your employees. Your business productivity will increase if everyone works together to achieve a common goal.
5. Job happiness and satisfaction
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 red flag that the environment or system needs to be rehauled.
Don’t forget customer satisfaction either. Create a survey for customers and constantly check in with them if they are happy with your service or if there are areas for improvement. A happy customer will very likely repurchase your product and may also refer new customers for your business.
Does your business show danger signs? Keep a lookout for these danger signs as early as possible to avoid problems from getting out of control. Ensure that all the above are well taken care of to maintain a healthy (and successful) business.
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