Bookkeeping, forecasting, and planning are not just for start-ups. If you do this in an ongoing business, you’re going to grow 30% faster, you’re going to be more prosperous, and your statistics will mean more. Being an entrepreneur requires a sense of self-confidence and firm faith in your idea so that you can have the nerve to capitalize on a dream of your own, as opposed to living someone else’s vision in a regular job.
The financial aspect of starting your own company, though, tops the list of elements that need to be considered very cautiously and require proper planning, bookkeeping, and monitoring. There are steps to guide you in better organization of your finances so that you can see your dream to its end without surrendering due to financial issues. Financial ratios are a useful and convenient tool for measuring a company’s performance and its financial position. There are many benefits to entrepreneurship. You get to be your boss, work in an industry you’re passionate about and acquire significant rewards if that business turns into a victory. Unfortunately, entrepreneurship often involves substantial financial risk, and without accurate planning, a failed business can also tank your finances.
Here are seven signs that your company is in good financial health and a few guidelines on how to set yourself up to survive the worst-case scenario of your business failing.
Your Income Is Growing
When viewing your profit-and-loss statement, you must be able to see a reasonably stable increase in your profits month after month, year after year. It doesn’t have to be an enormous spike in profitability, but even just an increase of a couple of percent shows an upward movement and a strong financial viewpoint.
Your Expenditures Are Remaining Flat
In concurrence with your income growing, you want your costs to stay uniform. If your business experiences a substantial growth spurt, then your costs may rise, but, in general, this upsurge should be in-line with your increase in revenue.
Your Cash Balance Exhibits Progressive Long-Term Growth
While you may be growing your revenue, if you’re taking that cash and simply financing it back into the business, you might find yourself asset rich and cash poor. A low or stagnant cash balance means your business is not maintainable. You want to keep a good quantity of money in the bank so that if anything emergent comes up, you don’t have to incur more debt to meet an unanticipated expense.
Your Debt Ratios Must Be Low
Your Profitability Ratio Is on the Healthy Side
One of the best ratios to calculate is your profit margin. This calculation includes taking your annual net profits and dividing it by your yearly sales. So, while you may be making sales, your profit margin could still be low depending on your pricing structure, start-up costs, or other elements. Your profitability ratio is measured healthy when it’s on the high side.
You’re Functioning with New Clients and Repeat Customers
The charge to acquire new clients is higher than the cost to work with the same customers repeatedly. A stable stream of new clients and repeat customers exhibits that your business has multiple options for producing revenue. By having contact with new customers, you can help isolate your business from changing attitudes and buying patterns.
Evaluating the health of your business’ finances can be as simple as reviewing a profit-and-loss statement or as complicated as analyzing all of the different elements of your business bookkeeping. There is very little doubt that fully understanding your business finances is a sure way to remain successful and profitable.About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual bookkeeping, providing service to businesses and households alike. Utilizing Complete Controller’s technology, clients gain access to a cloud-hosted desktop where their entire team and tax accountant may access the QuickBooks™️ file, critical financial documents, and back-office tools in an efficient and secure environment. Complete Controller’s team of certified US-based accounting professionals provide bookkeeping, record storage, performance reporting, and controller services including training, cash-flow management, budgeting and forecasting, process and controls advisement, and bill-pay. With flat-rate service plans, Complete Controller is the most cost-effective expert accounting solution for business, family-office, trusts, and households of any size or complexity.