I recently read an article from entrepreneur.com that described the lack of business cash flow as a “symptom and not a cause of business failure.” I couldn't agree more, and that is why it is absolutely crucial to ensure that you have a clear understanding of your company finances.
Financial Warning Signs
- Little or No Profit – This can be a difficult symptom to diagnose. Even great businesses have struggled with profitability at some point along the way. If your business consistently relies on outside money and not profit in order to sustain itself, that is a sign of a much larger problem.
- Slipping Margins – Gross margins (gross profit divided by sales) are an indicator of your business’s ability to manage important expenses. Net margins (net profit divided by sales), is an indicator of profit (a much better indicator than outright profit alone).
- Profit but No Positive Cash Flow – Your business can be profitable without generating positive cash flow. That seems like an oxymoron, but it’s an issue of liquidity (can your assets be easily/quickly converted into cash).
Financial Stability: How’s your business doing?
It can be difficult to tell if your small business is financially stable… especially if you are unable to calculate or determine the items listed above. If you are struggling to make sense of your books, it may be time to consult with a professional. Your friendly, James Island bookkeeper can help you to better manage company money. DEKE Business Bookkeeping caters to the unique needs of small businesses in the Charleston area. Schedule a complimentary call to learn more.