As a small business owner, any time of the year is a good time for a financial health check-up. This is analyzing your current financial situation, deciding where you want to be, and finding ways to get there. Managing your cash and finances is a foundation for a successful business. Almost half of small businesses report cash flow problems that result in financial hardships. This makes a cash strategy important for your financial goals.
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Keep track of KPIs (Key Performance Indicators).
- These indicators show the health and performance of your business. Your accountant or accounting software can produce a report like this including relevant KPIs. This report should be analyzed thoroughly and checked throughout the year. Some KPIs to keep an eye on are:
- Operating cash flow – this measures the amount of cash generated by a company’s normal business operations. It includes inventory changes, accounts receivable, and accounts payable to show adjusted net income. Operating cash flow indicates whether a company can generate sufficient positive cash flow to maintain and grow.
- Gross profit margin – this financial metric indicates how efficient a business is at managing its operations. This can be used to assess the efficiency of the production process for a product (one or more) sold by a company.
- Budget variance – calculates your company’s financial performance in comparison to the forecasted results. These are instances where actual costs are either higher or lower than the standard or projected costs. This sometimes occurs with changing business or economic decisions.
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Develop your cash flow forecast
A cash flow forecast is a summary of how your company’s money comes in and out in a specified amount of time. It’s simple to create your small business forecast and will become an important piece of insight into your business needs. This information is valuable and allows your company to survive in times when cash is tight.
Don’t know where to start? Begin with a week-by-week forecast. At first, a smaller time frame will give you a better idea of your businesses’ cash needs.
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Be accountable
This includes honesty. Cultivate professionalism and a healthy team who are open and honest with you, the business owner. It’s important to maintain an engaged team that will contribute and provide insight on productivity, this all affects cash flow.
This process of a cash health checkup may seem overwhelming at first, but it’s a necessary part of growth and success. If your business is suffering from debt American Finasco can help. With our help, your debt can be managed, reduced, or consolidated while you stay focused on your business. Visit Contact Us and complete our Online Form for a free consultation or call (800) 299-2909. We look forward to speaking with you.