It’s All in the Numbers
Blood pressure, weight, good cholesterol counts, bad cholesterol counts-today more than ever many of us are keenly aware of our “numbers.” We know the key indicators of health and watch them closely to try to stave off serious medical ailments such as heart attacks and strokes.
The health of your business can also be monitored with key financial information, enabling you to act and react-a powerful weapon in keeping your business fit and strong. Business failure is a gradual process; it rarely occurs overnight or without warning.
What to Look For
Use available monitoring tools such as financial statements, balance sheets, income statements, and customer databases to be on the lookout for the following telltale signs.
- Sustained Cash Flow Problems: Managing your cash flow is your most important strategy. Poor cash flow is the number one reason that small businesses fail. An occasional crunch may not be cause for worry, but left unchecked, it can mean serious trouble.
- Too Much Business Tied Up In One Customer: Diversify your customer base so that no more than a third of your business comes from one customer.
- Unwarranted Increases In Expenses: Increased expenses sometimes indicate a lack of spending controls. Compare expenses against prior months and against the same period last year. Create an approval process for expenses over a certain amount.
Steps to Fiscal Health
Here are some ways to keep your company in good health:
- Monitor your finances and adjust your strategy based on your financial analysis. Stay on top of the facts to catch problems while they are still small.
- Control spending to conserve cash. Review expenses and see what fat you can trim without the business suffering. Add employees slowly and don’t overstock inventory.
- Accelerate receivables. Don’t be passive about bill collecting. Speed things up by asking for advance payments and rewarding early payers with a discount.
- Slow down payments. Don’t fall into arrears with your vendors, but stretch out payments. If your payment is due in 30 days, avoid the temptation to cut a check the day the bill comes.
The old adage remains true-an ounce of prevention is worth a pound of cure.