Have you ever questioned if your business is doing as well as you think it is? The answer is never as cut-and-dry as you would hope.
Do you know that in the United States alone, 45 percent of businesses don’t make it past five years of business operations? 65 percent of them don’t make it past 10 years. That’s millions of small businesses that will fail within 10 years of opening for business.
All new businesses aim for success in their industry, but there’s more to a successful business than just profit and longevity. There are a few other signs that your small business is doing well that you may not even expect. However, it’s important that every small business owner knows these signs so that they know that their business is succeeding.
While tangible signs like healthy cash flow are important markers of success, there’s more needed to ensure your company’s success.
Curious? Here are six ways to know if your business is doing well.
6 Signs That Your Small Business Is Doing Well
Remember, a healthy profit margin isn’t the only metric to gauge your business’s success. Here are six additional ways to tell that your small business is doing well and setting a foundation for success 10 years and beyond.
1. You Achieve Healthy Cash Flow
Cash flow is the total amount of money being transferred in and out of a business. This includes revenue, money spent on bills, inventory, and any expense required to run your business, like rent or internet.
Having a healthy cash flow is a major sign of small business success.
As the adage goes— “you have to spend money to make money.” When your finances continue to thrive, even after your business takes some financial losses or after you make a major purchase, then that’s a sign that your business is doing well.
A major benefit of healthy cash flow is that your business can bounce back and recover from a financial hit. It provides your business with the wiggle room needed to grow by allowing you to purchase additional inventory or equipment, or hire staff.
Whether it is a major purchase, a drop in business, or the arrival of a new competitor, a healthy cash flow can help your business withstand set-backs or market changes, and roll with the punches.
2. Your Revenue Is Growing
Your revenue is the total amount of income generated by the sale of goods and services your business provides.
If your business has consistently received an increase in customers or an increase in the frequency of transactions, then your revenue should reflect the positive changes month over month and year over year.
You can make profitable transactions, but if you have too few of them or they aren’t increasing year over year, your revenue likely isn’t growing and that’s a sign that your business isn’t as financially stable as it could be.
3. Your Expenses Remain In Control
Without careful maintenance of your business expenses, and an understanding of your outgoing expenses, an increase in revenue may have little effect on the health of your business.
In order for most businesses to grow and thrive, expenses increase. You’ll need to hire more personnel, order more inventory, and invest in more robust services.
It’s important to make sure your increases in expenses don’t outpace your revenue to avoid facing unexpected financial hardship. This is most easily tracked in accounting software that also provides helpful reporting and detailed tracking of outgoing expenses.
4. Happy Customers
Customer satisfaction is the key to new customer acquisition and customer loyalty. If your customers aren’t happy with your products or services, they’ll likely take their business elsewhere.
Excellent and prompt customer service is key to retaining customers and ensuring their continued business, especially if they’re dissatisfied in any way.
If you are a customer-facing business, one good metric of customer satisfaction is your business’s Google reviews.
Positive Google reviews can boost your company’s credibility and are often the first step a new customer might take when considering purchasing your product or utilizing your services.
In fact, 97 percent of consumers factor customer reviews into their buying decisions. A curated, highly-rated Google Business rating can build your business’s reputation among consumers and increase your likelihood of finding new customers.
Accounting software can help provide helpful insights as well depending on your type of business and if you know where to look.
For example, if you’re a brick and mortar or ecommerce store, tracking customer returns and trends can provide you with vital information about whether your customers are happy with the product or service they’re purchasing.
Even restaurants can gauge customer satisfaction by tracking food costs and comped meals. Are fewer customers visiting your restaurant and ordering fewer items on your menu? Are more meals getting comped because of dissatisfaction with the food or even the service?
Accounting systems are often windows into certain aspects of your business that you might never think to consult when analyzing the “softer” side of your business, like customer satisfaction.
5. Your Debt-to-Asset Ratios Are Low
Your debt ratio balance is essential if your business has any outstanding loans. Careful maintenance of your debt-to-asset ratio is vital to keeping your business solvent.
To calculate your debt-to-asset ratio, use the following formula:
Total Debt ÷ Total Assets = Debt-to-Asset Ratio
Simply put, your business should have more assets than liabilities, and the ratio between the two should be kept as low as possible.
Most experts suggest a ratio of 2:1 is ideal for a healthy business. A balance sheet or a cash flow statement is an easy way to check to make sure your business is able to pay off its debts and remain solvent.
Let’s briefly go through an example of a debt-to-asset ratio.
Let’s say you’re a small upstart with only a handful of employees. Your debt includes short-term debt like monthly rent for your office space ($1500 monthly, for the example’s sake), as well as long-term debt.
For the sake of the example, we’ll use $1500 in monthly rent, as well as a $100,000 business loan that you’ll be paying off over several years. That would total $101,500 for total debt.
Now calculate your assets. This can include tangible assets like computers and inventory, as well as intangible benefits like a healthy client base. We’ll place this at $500,000 for this example.
Now to crunch the numbers. $101,500 divided by $500,000 equals a debt-to-asset ratio of about .2, or 20 percent. A low number like this is a general indicator that your business is able to pay off its debts and is in a state of financial stability.
6. Your Business Is Meeting Its Goals
Businesses that succeed will continue to grow and innovate, and learn from any mistakes they make.
The operating profit margin of your company is an excellent metric to set goals for future growth.
Your profit margin measures your income-to-revenue ratio and can be calculated by simply taking your annual net profits and dividing them by your annual sales.
Your profit margin paints a picture of your overall business health and can provide you with a guideline to gauge your success and set goals moving forward.
By setting goals based on your current profit margin, you can make adjustments to your pricing structure, business costs, and sales to continue moving your business forward.
Want to Help Your Small Business Grow? Trust MISSION Accounting
No matter what your financial aspirations are for your business goals, a specialized financial team can help you achieve them.
From data integration to financial modeling to business consulting, MISSION Accounting’s extended network of specialists can address your small business’ specific needs or help you solve any issues your business may have encountered.
MISSION can also help you get your business set up with QuickBooks software to make keeping track of your finances infinitely easier.
When you purchase your preferred QuickBooks software from MISSION, our team of experts can help you install it and help you get the most out of your software. We can also train your company in how to use it, and provide valuable insights when working with a skilled accountant.
Bernard Roesch, MISSION Accounting’s founder, is a Harvard MBA and a QuickBooks ProAdvisor. He has over 25 years of experience in advising his clients and helping them make smart and profitable business decisions. He and his team of QuickBooks experts can also help you choose the right QuickBooks version and help your business unleash the full power of QuickBooks to help your business and its finances thrive.
Contact us at MISSION Accounting today to schedule a complimentary consultation for your QuickBooks software needs. We’re here to help you find solutions to all your business’s financial needs and make keeping track of your finances infinitely easier.