Small business owners know how important it is to generate profit. However, that is far from the only metric you should track. The following are some of the most important financial metrics to consider on your journey as a business owner.
Even the smallest business benefits from its employees. Even so, some businesses face financial issues because their employee’s salaries are more than they should be.
Carefully tracking how much you’re paying your employees is an important part of a healthy financial standing. Research and compare your costs to other startups to see if you’re on the right track or going overboard.
Poor cash flow will be the death of any business. It’s not enough to have money in your business account. In fact, the best way to determine your cash flow is to divide your assets by your liabilities. The best ratio is 2:1 or having twice as many assets as you do liabilities for your business. Track this metric if you want to keep your business on track.
If you’re losing customers to your competitors your churn rate might be high. Keep in mind that maintaining your customers is far more affordable than trying to secure new ones through marketing. While some amount of churn is normal, you don’t want your rate to go too high. Follow this metric if you can, and ensure that you’re retaining as many clients as possible.
Your debt ratio is another important metric. You can figure out what your debt ratio is by taking your total debt and dividing it by your total assets.
Debt is tricky because in some cases it can be used to grow your business. Many lenders look at it as equity. However, keep track of both and compare it to benchmarks in your industry to better understand your financial risk.
Need help with small business financing? Then give Legend Advance Funding a call.