Whether you operate a small business, a big corporation or an industry, looking at the cash flow behavior is the best way to understand whether you are making miracles, stagnating or ‘just pushing on’.
So to better understand your financials, here are the key tools you can use.
In the first place, cash generation is essential in keeping you in business. You must always think of innovative ways of generating cash. The more creative you are the more likely you are to stay in business.
Keep a keen eye on your Return on Assets (ROA). This tool helps you get a positive outlook of how your business is performing in terms of profitability.
The Return on Assets or what you may call return on investment arrived at by dividing a company’s annual earnings by its total assets for a period of time.
The ROA is important for the company because it comprises of both debt and equity and comparing your current ROA with the previous one gives you a positive picture your ability to convert money invested money into net income.
For small businesses, you don’t need to do big mathematics, just check how you have been able to turn each coin invested into a net profit which maybe a bit simpler and suitable for you.
Another important tool to diagnose your money is calculating growth which has a big impact on your business.
Growth can be measured through your market share, profits, sales and your employees, so how best you balance these will help determine your growth. But most important is to look at sales and profits. Do not be taken up by what you are making now since it may give your competitors a chance to penetrate.
Always be on a look out for more markets and potential investment areas.
Remember that you still have your business plan that has strategies, but this will be good when you can be more flexible to adjust as your business grows since it will be better to change your strategy to boost growth each growth step of your business.