Markers to Watch for With Your Small Business Finances

Posted on June 7, 2016

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Your Small Business Finances Should be Monitored With These Five Measures

small business financesSmall business finances often get pushed aside because you, the owner, are so busy handling other important areas of the business. After all, sales growth and training employees are critical to the health and success of your business. It’s critical, though, that you keep an eye on certain aspects of your finances so that you have a warning before you get into significant problems.

Your small business finances will be healthier if you are regularly monitoring these six key measures:

Trends in growth: How is your sales growth trending? You need to be able to tell if your sales are in steady growth or if there’s a cyclical pattern in your sales. This is helpful because if you spot a downward trend you need to know if it’s an indicator of a problem or simply a time of year when your sales are always down a bit.

Profitability: You need to know not only where you stand on your profitability, but how you compare to other companies of similar size in your industry. This will help you determine whether your business practices are sustainable, or if you need to make changes to remain profitable over time.

Liquidity: It’s important to determine whether you can pay your short-term obligations.

Leverage: You need to ensure that you are taking advantage of available financing to grow and invest in your business. There’s a perfect balance for every company, so this is a great area to get the advice of your accountant on a healthy level of financed spending for your company.

Activity: This is where you determine whether you are effectively managing the assets of your company. This is another area where an accountant can give you insight on a balanced approach to handling your assets.

Cash flow: Probably more than any other area listed here, cash flow should be monitored closely and often. If you don’t expect to have enough incoming cash to pay your employees and your bills and still purchase the supplies and services you need to keep your company running, you’ll quickly be out of business. Cash flow problems are a common poison for small business finances, so be sure that your cash flow is healthy with regular monitoring.

For each of these areas of small business finances, it’s critical that you take time to benchmark against similar companies in your industry. This practice gives you some advanced warning if your finances are getting off track and allows you to make some changes before you get too deeply into trouble.

Many company owners find it helpful to seek out the services of an accountant, whether it’s to outsource an area like payroll or accounts payable, or simply to get the advice of someone with insight in small business finances. If you’d like more information about how to monitor your finances, make an appointment with Bert Doerhoff, CPA, at AccuBiz. The team at AccuBiz regularly works with companies like yours to help ensure that financial measures are on track and creating a profitable environment for growth.

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Posted in: Small Business