Most businesses are functional yet not completely healthy or hyper-efficient. If you own or manage a business of any type, you should be aware that it is a mistake to assume your company is as healthy as possible. Zero in on the key performance indicators (KPI’s) detailed below and you will have a better sense as to whether your business is functioning like a well-oiled machine or if important work still needs to be done to maximize efficiency and profitability. Make an effort to understand these small business financial tools as well as the impact they will have on your business and you will be empowered to recognize patterns then proactively make changes before your company’s weaknesses take an even larger chunk out of your bottom line.
Mind the Debt-to-Equity Ratio
The debt-to-equity ratio details the amount of debt your business has compared to the aggregate equity. The measurement of equity includes assets. This important ratio provides a look at how well your company’s investments are used and whether your business is actually funding continued expansion and the capture of additional market share. The debt-to-equity ratio also identifies your company’s profitability. If the ratio is high, it indicates your business is racking up the debt and paying expenses with that debt. An egregious high debt-to-equity ratio is a sign your business is veering toward trouble such as cash flow issues as more funds are necessary to service the debt.
Operating Cash Flow
Your business needs adequate cash to pay expenses without accumulating debt. Though it might be possible to continue operations while in the red, your business will eventually have to make it into the black. This means adequate operating cash flow is necessary to propel your company to new heights while covering expenses with cash-on-hand as opposed to debt. Lean on our Hammond LA accounting professionals to help you determine if you have adequate cash flow to cover expenses and capital investments and you will have your finger on the metaphorical pulse of your business. Sensible Services ABC invests the time and effort to understand your unique business and tailor service directly to your specific needs.
Profit Measurements
Often overlooked by business professionals, this KPI is particularly important. If you own a small business and do not keep close track of your expenses and sales, you can greatly benefit from calculating profit measurements. Revenue is the best indication of whether your business will prove viable across posterity. The goal is to maximize revenue while reducing expenses. Net profit margin and gross profit margin are particularly important as they detail how much money your company is making beyond the cost of providing a specific service or product. Gross profit margin is determined by subtracting the cost of goods sold from revenue. Net profit margin highlights aggregate revenue in juxtaposition with aggregate expenses. Net profit is calculated by subtracting total expenses from total revenue, making it clear as to how much income is being chewed up.
Schedule an Appointment With Sensible Services Today
Is your business truly healthy? Even if you think your business is in tip-top shape, assistance from unbiased business consultants has the potential to prove worthwhile. Our Hammond LA accounting, bookkeeping and consulting specialists are here to improve your business’s health. We take pride in being a one-stop solution for your business needs. Sensible Services will solve your problems and catalyze your company’s growth. Reach out to us today at (985) 222-2088 to learn more about our services and schedule an initial consultation.
