7 Signs Your Company Has Good Financial Health
Do you know how to tell if your company has good financial health? “There are more than a few ways, some of which may be more appropriate for your business than others.
It’s somewhat easy to determine if your company is doing well. You’ll be in the black every month, able to make yourpayroll and pay all of your monthly bills and expenses. But are there discernible levels or observable distinctions that reliably signify good financial health? Or are there ways to determine how well you’re doing beyond the norm?
There are more than a few ways, some of which may be more appropriate for your business than others. With that in mind, let’s review seven signs that your company is in good financial health.
1. Your Revenue Is Growing
When looking at your profit-and-loss statement, you should be able to see a pretty steady increase in your revenue month over month, year over year. It doesn’t have to be a huge spike in profitability, but even just an increase of a couple percent shows upward movement and a strong financial outlook.
2. Your Expenses Are Staying Flat
In conjunction with your revenue growing, you want your expenses to stay flat. If your business experiences a significant growth spurt, then your expenses may rise, but in general, this increase should be in-line with your increase in revenue. So if your revenue is increasing 3% year over year, you’d want your expenses to increase no more than 3% during the same timeframe.
3. Your Cash Balance Demonstrates Positive Long-Term Growth
While you may be increasing your revenue, if you’re taking that money and simply investing it back into the business, you might find yourself asset rich and cash poor.
A low or stagnant cash balance means your business is not sustainable. You want to keep a healthy amount of cash in the bank so that if anything urgent comes up, you aren’t in a position of having to incur more debt to meet an unexpected expense.
4. Your Debt Ratios Should Be Low
There are two debt ratios to pay particular attention to: a business’ debt-to-asset ratio and its debt-to-equity ratio. Also referred to as solvency ratios, these formulas specifically measure how much your business owes versus how much your business is worth. As with most ratios, a lower number is ideal, and for debt-to-asset ratios, maintaining a 2:1 ratio or lower is preferable.
Read about the rest of the ways to determine if your company is in good health here: http://ow.ly/KJsto