Keeping up with all of the day-to-day demands of operating a small business can cause owners to lose sight of the company’s overall fiscal situation. Owners should be proactive with company finances; here are a few tips that may be useful:
• Benchmark
Know where you are and what your targets should be. A plan is useful and need not be too formal. As milestones are reached know how you are going to get to the next level and what financing may be needed.
• Liquidity
How liquid is the business? Having immediate access to cash can reduce borrowing costs. With funds available you are able to make the most of capital-intensive business opportunities.
• Profitability
If sales are growing but there seems too often to be a cash shortage after bills are paid, the business may have profitability issues. Monitoring profit margins instead of gross sales will help determine what the business is actually earning.
Business liquidity, profitability and other key ratios are important to evaluating the business – but only if owners spend time reviewing the information. It is necessary to schedule time every month to actually review the data.
While it is not necessary to review financial data daily, consistent reviews are the only way to know if the business is improving or regressing. Owners owe it to themselves and to shareholders to stay aware of the financial health of the business.
I hope the tips are useful, let me have your thoughts.
gerry@polarisgroupmc.com
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