Business health is measured by more than just your profit?

There are 5 main indicators of a Businesses financial health:

1. Ability to Pay

   1. The ability to pay can be calculated through looking at a few different ratios. Capital ratio, cash flow to debt, debt to asset ratio and liquidity of the business are the most common ones financial institutions use

2. Ability to Collect

   1. The ability to collect deals with the state of your receivables, and your collection efficiency. The faster you can turn your receivables the better your financial health is.

3. Efficiency

   1. Efficiency of your business looks at business age, return on the equity, inventory turnover, and your profit margin. **add**

4. Ability to grow, find capital, and innovate.

   1. Ability to grow, find capital, and innovate comes from your customer base, your previous growth history, the diversity of your suppliers and customers, and your credit rating. Most of us have been in the boat that when you need money you can’t get it and when you don’t need money that’s when the banks are knocking on your door to give it to you.

5. Risks and Ability to mitigate them.

   1. The risks & your ability to mitigate those risks looks at the vulnerabilities within your business, looks at your contingency plans, & insurance coverage.

Top 5 Signs Your Business is Financially Healthy

1. Steady Revenue Growth

2. Low Debt Ratio

3. Steady Expenses

4. New Customer Acquisition

5. Money in the Bank

The state and stability of a business's finances and financial affairs are referred to as their overall business financial health. Typical signs of strong financial health include a steady flow of income, rare changes in expenses, strong returns on investments, and a cash balance that is growing.

To improve your business financial health, you need to understand your current net worth, create a budget you can stick to, build an emergency fund, and pay down your debts.

Until next time,

Christine Walters