Knowing how the business performs, the current status of the business, measuring business health are some of the synonyms which are one of the top priorities of the businessman to get answers.
Measuring business health also helps you to make strategies and plans in order to increase or maintain your clientele, develop networks and make a profit.
In this article, we will provide you some of the proven methods on how you can find your business performs or to measure its health or status. You are also suggested to hire an accountant who can take care of your business.
Methods to indicate your business health status correctly
Review financial statements
One of the foremost things to check the health of your business is to review your company’s financial statement within a certain period of time such as monthly, weekly, daily, etc. Because these statements will clearly indicate how much money flows in your business.
The income statement, balance sheet, cash flow are the statements, you need to analyze for this purpose. An income statement shows how much profit your company gains.
A balance sheet actually shows the health of your business by indicating how much balance is there in your company.
A cash flow statement indicates how much cash is present in liquid format.
Track your income and expenses automatically
If you are putting the information in your business records manually, it may not clearly indicate the health of your business. In fact, it might be a chance of getting an error. This can result in a delay in the monthly check-up of your company’s health.
On the other hand, if you use advanced techniques like Intuit’s QuickBooks, you can track your income and expenses very accurately and up-to-date.
Use Accrual accounting
Accrual accounting is a method by which you can record the revenue and expenses as they are incurred regardless of the cash transaction.
This method is quite useful in terms of getting the true health of your company. There is the possibility of occurring an error when you keep records of cash transactions. These errors can come as a result of dishonesty, improper handling of cash, mismatch of cash or any other damage.
Accrual, as the name suggests, is the accurate method of indicating your business health.
Use Variance analysis
Variance analysis or simply you can say that comparing analysis is the method to plan. Your business based on the actual and planned financial records of your company in a certain period of time, notably in a month.
The sole objective of variance analysis is to make adjustments in your business plans. So that you can control the health status of your company.
Use variable pricing and estimates
You should rectify your business product’s pricing on a regular basis and hence estimate your company’s scorecard. Variable pricing is a pricing strategy in which the price of the goods and services. It can be vary based on factors such as region, location of sales, date, etc.
This strategy is used to achieve the business health based on the different categories of point-of-sale affected by the adjusted prices.
It is a useful strategy to measure business performance based on variable factors that can affect your business productivity.
Analyze the profit margin ratio
The profit margin ratio is commonly used to identify the profitability of a business. It is calculated on the basis of Net income and sales. It is usually used to find out how a fraction of sales is turned out as profitable.
Profit margin ratio is calculated by dividing the net profit by net sales. It is a very popular method to identify the current health status of your business.
Automate financial tasks
Handling day to day transactions in the business is a complicated task. This task can be made easier by using automation of your financial tasks such as generating reports, entry into the accounts, preparing balance sheets, profit and loss accounts, etc.
One example of such a tool that can help you with the above purpose is Intuit's QuickBooks. QuickBooks can save your time and cash in performing your financial tasks.
Automating business activities also helps in tracking the current financial position of your company. The Margin of error can be made minimal if using automation in accounting and hence give the right health of your business.
I hope this article will help you to measure your business health. You might get all the answers to your business health-related queries.