As a business owner, you want to be sure that your company is heading in the right direction. Part of assessing your company’s success is determining its financial health. Just as you evaluate your personal financial health, making it a practice to assess your business’s financial health and tweak your financial plans accordingly can lead your business to success. There are a few key financial metrics to look at when considering your business’s financial health.
Check Your Liquidity
One of the most critical factors in assessing your business’s financial health is liquidity, the amount of cash and easily-convertible assets your company owns that can help you manage your short-term debt obligations. Investors look at your business’s liquidity to know whether or not you can handle your financial responsibilities for the next year; if you can, you’ll generally be considered a “safe” investment.
There are two main ratios used to assess your company’s liquidity: the current ratio and quick ratio. A third ratio, the operating cash flow ratio, is used less often. The quick ratio is considered more accurate, as it ignores illiquid assets to assess your business’s overall liquidity.
Examine Your Solvency Ratios
Solvency ratios help you assess the financial risk your company may be facing, and include your debt-to-equity ratio, your debt-to-assets ratio, your interest coverage, and more. Looking at these ratios can help you get a solid overview of your company’s ability to handle your short- and long-term debts and financial obligations. The better your ratios are, the stronger your company’s financial health is, and the more likely your business is to continue growing.
Marketing Effectiveness and Your Operating Margin
When considering your business’s financial health, it’s also important to assess the success of your marketing and business plans. If you’re effectively marketing your product, you should have a strong return on your marketing investment. Your operating margin is one of the tools you can use to assess your management and marketing team’s success, as it looks at how much profit your business makes for every dollar in sales. Having a robust operating margin that isn’t highly variable is a good sign that your business is being managed effectively and is primed for success.
Improve Your Finances With Debt Relief
Even if your company’s financial health is stable, it may benefit you to look into potential debt relief options. For example, if you still owe back taxes from when your company was getting established, you may be able to work with the IRS to settle that debt before it becomes a significant issue for you or your business. Assessing your tax health is an excellent way to strengthen your company’s financial foundation.
If you’re uncertain about your tax situation or unsure how tax debt relief can work for you, it’s in your best interest to speak to a professional. Someone who understands tax law and potential debt consolidation and relief programs can help you work out the best plan for your company’s future financial success.