On the surface, analyzing the financial health of your business seems fairly straightforward. If every month you are able to pay your bills, cover your expenses, pay yourself and your employees, and remain in the black, then you’re running a successful small business, right? Well, not quite. While these positive benchmarks will give you a solid foundation, we’ve curated a list of the habits business owners should be practicing daily, monthly, and annually for complete financial health.
1. Maintain Your Existing Client Base
It’s significantly more expensive to attract a new client than it is to KEEP a customer you already have. A healthy mix of new and repeat clients is a good indicator that you are in touch with what serves your target market and are meeting or surpassing the expectations of your customers.
2. Actively Engage with Your Budget
Your business’s budget is essential to setting your trajectory and maintaining it over time. However, your budgetary needs will (and should) change over time. By comparing your budget to your monthly financial activity, you’ll be able to decide how well the goals you’ve set are serving your company.
3. Keep Your Books Current
If a business forges ahead month after month without updating their accounts and checking them against projections, the business simply will not succeed for long. Avoid this common pitfall by setting hard deadlines by which your books must be current, and prioritizing accounting even when you are desperate to avoid the task.
Procrastinating will only increase your workload, making it that much more difficult to find the motivation to get started. Instead, set aside time in your schedule to balance your accounts. Make sure you’re able to meet your quarterly goals; if you aren’t on trajectory to meet them, you’ll have plenty of time to make the appropriate changes.
4. Keep Tabs on Your Revenue Over Time
Over time, your revenue should be increasing, while your expenditures should remain flat (with the exception of keeping pace with inflation.) While the monthly change in your profit and loss reports may be small at first, a healthy increase year over year is exactly what you must aim to achieve. A higher profitability ratio means your successful small business is more likely to experience robust financial health.
5. Increase Your Cash Reserves
In the early days of your business, you likely had very little cash on hand. Over time, though, you’ll want to make sure you are retaining some of your increasing revenue to build up your cash reserves.
While it’s important to invest profits back into your business as you grow, it’s equally vital that you are preparing for unexpected events and opportunities by increasing your cash reserves.
If you would like assistance bringing your business’s accounts up-to-date, or setting proper financial targets for next tax season, please contact us directly to set up an appointment. We’re here to help you meet (and possibly surpass) your goals and improve your bottom line.