It is not enough that you run a profitable business as you have to make sure that you keep an eye on your business’s financial health. There are some key questions that you need to answer for you to verify if it is time to make some changes to your current business strategies. Your business may be doing well, but without a financial statement to give you an idea of your financial standing will still result in business losses.
One indicator that you are on the right track is when you hit your monthly targets. You can determine if you are ahead or behind your monthly goals by comparing your month-to-date sales. Your expenses with your end-of-month goals are also worth checking because they also play an important role in your business. This technique can be used for you to find out if it wise to grow your business.
Your accounts payable and cash balance must also be taken into consideration and a profitable business does not give you an assurance that you have nothing to worry about. Keep in mind that a profitable company also runs out of cash, but you can still prevent problems with payment schedule by ensuring that you keep your monthly burn rate and major payables in check. With this technique, you will be able to pay your bills on a regular basis.
If your business always faces problems with cash flow, this is a cause for alarm because a negative cash flow can greatly affect your business. Problems with cash flow indicate that you are not regularly monitoring your expenses. You can prevent issues with cash flow by tracking monthly ongoing expenses and making a comparison of last month’s actuals to your projections. Make sure you involve your bookkeeper in your discussion so you will have an idea if there are still some parts of your business that needs improvement.
Having enough to get to break-even is also essential because this is deemed as a major milestone where adjustment and regular monitor are required. Your net profit and business plan projections must be checked regular as these can give you a better picture of your financial health. A bookkeeper should prepare a financial statement for you to review. If you do not have enough cash, cutting your expenses is one way to raise additional cash.
Peter Broberg is a bookkeeping professional with over 20 years experience in the finance sector. With more than 2 decades of experience, Peter provides payroll and bookkeeping services on a professional level. His services cater to small and medium enterprises in Cannington, Kalamunda.