6 ways to measure the health of your business
When you are running a business, it is easy to get caught up in the day-to-day activity and lose sight of the big picture. Taking stock of the health of your business is important. Knowing where you are allows for more effective planning, early warning about any issues, and the chance to better chart a course for success.
There are some quick ratios that will help you in order to gauge the health of your business. We can help you to assess your business health and show you how to calculate these vital checks. Click here to book your business Warrant of Finance.
Liquidity ratios are about how quickly you can turn your business assets into cash – which helps you assess whether you’ll be able to pay the bills.
High ratios are better, as this means you’ve got more assets than liabilities.
Current ratio = Total current assets / Total current liabilities
As a general guideline, 2:1 is a good current ratio, but this does depend on the kind of industry you’re in, and the nature of the assets and liabilities.
Quick ratio = (Current assets – stock on hand) / Current liabilities
This measure excludes your existing stock, which you may not be able to quickly turn into cash, and is seen as a more realistic quick snapshot of your position.
Solvency ratios look at sources other than cash flow to see whether your business will be able to settle debts.
Leverage ratio = Total liabilities / Equity
This is a measure of whether your business is reliant on debt financing or equity to fund your assets. A higher ratio can make it harder to borrow money.
Debt to assets
Debt to assets = Total liabilities / Total assets
This tells you what percentage of assets is being financed by liabilities.
Profitability ratios will let you know how efficient your business operations are. Where possible, it’s good to measure your business against others in your industry.
Gross margin ratio
Gross margin ratio = Gross profit / Total sales
This ratio tells you whether you can cover the necessary business overheads from your sales.
Net margin ratio
Net margin ratio = Net profit / Total sales
This measure tells you the percentage of sales dollars left after you’ve settled your expenses, except for your income taxes.
Checking in on your business health is a great habit to get into. Using these ratios helps you to understand your current business health and allows you to plan. Talk to us about how to calculate the factors in these ratios in order to keep your business on the right track.
Want to improve accountability and outcomes?
Most business owners understand that the only way to ensure something gets done is to document what is expected, assign it to the right person, and set a due date. But what do you do if the task isn’t done? What are the consequences of this inaction?
Think back to your school days when you had homework… maybe you were super organised and got stuck in as soon as the work was assigned, or perhaps you completed it on the school bus the morning it was due. Either way, why did you get it done? Chances are there were clear consequences set by your teacher if you didn’t complete it – a few whacks with a stick or a lunchtime detention – that’s what we call accountability and consequence.
Unfortunately, many business owners forget these lessons from school. Sure, we set the tasks and actions, assign them to people and, if we’re really good, set a due date. From there, we so often forget to hold the person to account. Very rarely is there a consequence for the person responsible for the task. The consequence for the business owner, however, is ultimately a poorer performing business.
Here’s seven rules to tighten up your accountability:
- Ensure at the outset that everyone is clear about why the task is important.
- Assign the task to the right person and be available to give support.
- Be specific and crystal clear with all communication. Remember, they don’t know what they don’t know.
- Ask them to repeat back the instructions, to ensure the message was interpreted correctly.
- Set a realistic timeframe and provide delivery instructions and expectations.
- Agree on consequences for inaction.
- Have quick catch ups to check progress is on track.
Now, ask yourself… what actions can I take to improve accountability and outcomes for my team? What changes or improvements do I need to make to my planning processes and reporting systems? And most importantly, who is the best person to hold me to account as a business owner? Accountability goes both ways, especially if you want to be an authentic and effective leader.
‘Accountability is the glue that ties commitment to the result.’ – Bob Proctor
To find out how GoFi8ure can help you become more accountable and achieve outcomes that you WANT for your business – send us a message or call us on 0800 463 488.
New Year, New Accountant: Improve your Financial Year with GoFi8ure
With the New Year coming around, people are thinking about resolutions. ‘Getting the books in order’ might not be most people’s first thought, but it’s something many business owners should seriously consider. The beginning of the year is the perfect time to hire an accountant for mapping out the company’s finances for the upcoming year.
Going into the new year, it’s best to think about creating a steady stream of finances and having someone to do proper tax return calculation for you – it can make the difference between a good year or a bad one.
Getting a new accountant has a number of benefits you may not be aware of, such as access to cutting-edge accounting apps and systems. Keeping your accounting updated is the best way to stay ahead of the curve, and an accountant well trained in handling cloud-based systems or new apps is a big asset.
The new year is also a new time to review expenses and refine cash flow. Hiring an accounting firm to do the books for the business allows for a thorough breakdown of where the company can improve—what expenses to forego, which paths to divert the cash flow to, and how to generally keep the business afloat by allocating resources to areas with the opportunity for more profit.
It’s the best time for taking your company to even greater heights. With solid bookkeeping, an updated forecast, and clear-cut goals, your company can achieve greater success than you ever thought possible.
Interested in improving your company’s financial year? Get the help of GoFi8ure’s expert accountants! Benefit from their sound advice and make the most out of your company’s profits! Visit https://gofi8ure.co.nz/ now for more information.
Regularly reviewing your company’s financial fitness will keep the business watertight, says Lisa Martin of GoFi8ure.
Funny isn’t it, that when we talk about financial fitness, many bosses start to glaze over. And yet the monetary side of things is the main reason businesses start up in the first place.
To read the GoFi8ure’s article which has been featured in the October/November 2017 NZ Plumbers magazine – click here to read it.
WOW – What an awesome business expo this year! We had so much fun meeting so many new people and getting people to try on our superhero capes. If you are in business then the Business Expo is a must attend.
On Friday 21st of September Managing Director Tania Hayes gave a free presentation covering “Business Bookkeeping 101 – The basics you need for success in your business”. Participants walked away with important, useful information and tips they can use when starting their new business.
GoFi8ure have been a sponsor since the beginning because we are passionate about helping SME businesses. Did you attend? Let us know your thoughts in the comments below!
“A Life Lesson in Leadership” Leadership is a term we all bandy about without really knowing what it means, says Lisa Martin, but fortunately every business can lead leadership skills.
A good business leader is someone who has the ability to positively influence others’ behaviour to increase productivity and efficiency. But ask anyone what makes a good leader and changes are that you will be in for a lengthy discussion. To read GoFi8ure’s featured article here.