Keeping an eye on the financial health of your business is good preventive medicine. Here are some quick and easy diagnostics to gauge the well-being of your business.
Your income statement
Compare revenue growth with profit growth. Is the profit growth of your business in line with, or greater than, your revenue growth? If not, look for ways to reduce costs or increase your market share to improve net profits.
Is your revenue growth greater than the growth of the cost of goods sold? If not, consider trying to gain some cost savings from some of your suppliers.
Your balance sheet
Compare your revenue growth with your accounts receivable (AR) growth. If AR growth is greater than growth in revenues, revisit the terms of payment with your customers to encourage them to pay more quickly.
Compare the growth in cost of goods sold with inventory growth. This will help you determine if you are holding the right levels of inventory for your business.
Take a holistic approach
Managing your business effectively involves keeping a close watch on all its areas, not just sales and revenues. For more information on how to monitor the health of your business, visit www.cibc.com/ca/smallbusiness/pulse.