Financial health and physical health share a lot in common. Both can seem fine one day only to decline rapidly the next. And in both measurements of health, we may only be one emergency away from desperation without even knowing it.
In both health and finances, we do all we can to keep up to date and in the know. But every now and then, an expert opinion is required. For our physical health, we seek experts in trusted doctors and physicians. But who do we call when we need an enhanced understanding of our business’ financial situation?
CPAs are to your finances what doctors are to your health. Using surgical precision, cutting-edge technology, and decades of expertise, their CPAs can efficiently provide a diagnostic report of your business’ financial fitness.
In the meantime, here are the Top 5 signs that your business is in good financial health.
1 – STEADY REVENUE GROWTH
Though it sounds obvious, the operative word here is “steady.” And depending on your business, you may enjoy regular seasonal spikes in revenue which don’t necessarily represent dependable year-after-year growth.
While reviewing your profit-and-loss statement, you should see a steady, almost predictable rise in monthly and yearly revenue. The more data you have on the matter, the more firmly you can declare your business to be in good financial health.
2 – LOW DEBT RATIO
When examining your financial health, it’s always easy to focus on profits. Debt, however, plays a major factor in determining the overall viability of your business. To put it in physical health terms, if profit is the way we feel after taking a light jog, debt is akin to the several years we spent misbehaving in college.
By comparing your debt-to-asset and debt-to-equity ratios, you’ll start to see a clearer picture of your business’ financial fitness. While debt-to-equity ratios vary significantly from industry to industry, a good starting point for a debt-to-asset ratio is typically 2:1.
3 – STEADY EXPENSES
Like revenue growth before it, this metric may seem evident at face value. There are, however, several nuances to consider when examining your expenses over time.
As revenues increase, keeping your expenses flat or near their previous averages only increases profitability. Beyond a restructuring of goods and services, and outside periods of drastic growth, if your increasing expenses outpace your increasing revenue, there may be trouble on the horizon.
Conversely, keeping your expenses steady as revenues rise are a sign of good financial health.
4 – NEW CUSTOMER ACQUISITION
In business, repeat customers make the world go round. Your trusted customers know you’re the person to come to and swear they’ll never go anywhere else. While loyal customers continue to make us proud, it’s actually new customers that should make us jump for joy.
New customers today become repeat customers tomorrow. As a practical measure of expected revenue growth, your increase in new customers should signify healthy gains on the horizon.
5 – MONEY IN THE BANK
Reinvesting revenue into the business is wise for startups and young entrepreneurs. But in the long term, depleting your cash balance in favor of improving operations or expanding business may actually harm your business’ health.
Overinvesting in assets at the expense of your bank account can leave you ill-equipped to deal with emergencies or unpredictable changes in your industry. Having a bigger, better company is all laughs and smiles until a sudden financial burden existentially threatens your operation.
THE DOCTOR WILL SEE YOU NOW
As in personal health, the financial health of our businesses should rely on expert guidance driven by experience and knowledge. If you wouldn’t trust an amateur to operate on a broken leg, why trust one when determining the health of your business finances?
Aldridge Borden’s CPAs will x-ray your business’ finances and probe for issues you may not always see. With trusted experts and trusted results, you can get back to business with a clearer picture of the future. For small businesses, family businesses, and big businesses, consulting and accounting services from Adridge Borden can cure what ails you.