3 simple steps to check the overall health of your small business
September 03, 2014
Conduct a check up of your small business to make sure you’re on the right track.
It’s always a good idea to check in on your business to gain a better understanding of its overall health—even when you think it’s doing well. As a trusted source of information for small business owners, BizLaunch provides resources to help business owners perform these check ups. From balance sheets to break-even analysis, you can download these resources directly from the Free “Small Business Tools” section of the BizLaunch website. Continuing to work in your business rather than on it could be putting your company at risk. But the question is, how can entrepreneurs get a handle on what’s really going on in their venture? The answer is simple: by conducting regular health ‘check-ups’ Here are three simple steps you can follow to determine just how healthy your business is.
1. Check your Income Statement First things first: find out what your gross profit margin was for the last financial year, then figure out how it compares to previous years and industry averages. If it’s below industry average—or even your own average—consider raising prices or negotiating with suppliers to reduce your variable costs. The next step is to work out your expense ratios. Calculating your expense ratios is easier than you might think—simply divide your sales by the total expenses for the year (e.g. total salaries and wages divided by your sales, or 60,000 / 200,000 = 30%). You should be monitoring all your important ratios annually, that way you can identify any major changes and take immediate action. Lastly, you’ll need to calculate your year-over-year sales growth percentage, which should at least keep pace with the rate of inflation. Of course you’re looking to increase this percentage, but keep in mind that external factors—like the economy—will play into this.
2. Look at your Balance Sheet What is your average accounts receivable collection days? If this figure is too high, you might need to focus more of your attention on collecting money faster. If you’re not monitoring your receivables, you could soon run into cash flow problems because your customers aren’t paying you on time. If your terms are 30 days, your receivables should also be 30 days. You can incentivize customers to pay earlier, but be sure to take this into consideration when pricing your products or services. Next, determine how much your net worth has grown over the past year. Often during the growth phase of a business, you might feel like you’re not making much progress because you don’t have much cash in the business—but that doesn’t mean you’re not profitable. Most business owners reinvest a lot of their profits back into their business, and you should too. It can be comforting to look at your balance sheet and see that your net worth has in fact increased—even though you may not have cash.
3. Evaluate your service One of the best ways of evaluating your business’s customer service levels is to conduct an annual small business SWOT analysis. Take a look at your internal strengths and weaknesses, and external opportunities and threats, then determine which areas you need to improve upon. Where possible, try to look for opportunities that your competitors might have left on the table and build them into your business strategy. Another way to keep tabs on your company’s standards of customer service is to monitor what customers are saying about your business. Conduct a survey to see how you measure up in their minds—you might be surprised to find that you’re under (or over) delivering on their expectations. Gaining a better understanding of your customers’ needs will help streamline your business, increase satisfaction, and in turn, boost sales.
Bonus: Update your Business Plan Ensure that you regularly update your business plan, set goals and share your long-term objectives and business aspirations with your team and mentors. Remember: your responsibility as a leader is to focus on innovation and the future vision of your company.
Andrew Patricio is the Founder and CEO of BizLaunch.com, one of the largest small business training companies in North America. The company provides high-quality webinars, seminars, marketing content and training. Check out the “Free Small Business Tools” (http://www.bizlaunch.com/free-small-business-tools) section of the BizLaunch website to download a free Income Statement, Balance Sheet, SWOT Analysis or Business Plan template.