Evaluating Your Business Health

Posted by Carl Gould on August 30, 2010
7 Stage Success with Carl L Gould, News Articles

Entrepreneurs and leaders of small businesses usually are really good at what they do – which is related to the products and services sold by their company. The problem is, they don’t always
know all the details ABOUT their business – especially how to evaluate its financial health. Sure, you could always look in the bank to see how much cash you have, but that would paint a
poor picture of the firm’s actual financial health and whether there will be any cash in the bank tomorrow. But having audited financial statements isn’t always the answer either – unless you
know where to look on them. I’m looking for specific tips that entrepreneurs and business owners can use to evaluate how healthy the numbers within their business are.

A: What key ratios they should be focused on and why?

CLG: Your quick ratio is a good way to show if you could pay your bills. The quick ration is simply how much liquid cash you have as compared to your expenses. We advise our clients to seek a quick ration of 1.5:1 another excellent ration is your current ration. This ration looks a bit closer to the horizon and determines your 90 day health and takes into account longer term receivable and payables.

A: If they were going to make a daily “dashboard,” what numbers should they pay attention to and why?

CLG: you can change the work ‘dashboard’ and change it to ‘cashboard’. In other words, daily monitoring is all about cash. What’s coming in what’s going out and tracking your numbers through each pay period. Cash is like oil in a car’s engine. It lubricates the entire machine and helps keep it running. Without it the entire machine can seize up and cease to function. These numbers are not necessarily line items on your financial or tax statements; however they make up sound financial management.

Carl L Gould is the president and Chief DISCoverY Officer CMT International, LLC (www.CarlGould.com), the farthest-reaching business mentoring organization in the world. Carl’s unique approach to executive coaching, business mentoring and performance training helps his clients achieve results worldwide.  His upcoming book, The 7 Stages of Small Business Success – From Startup to 7 Figures in Three Years or Less, will provide entrepreneurs and business owners a step-by-step formula to taking their businesses to the next level.

Share

Tags: , , , , ,

No comments yet.

Leave a comment

WP_Big_City

You must be logged in to post a comment.