Nothing can happen in business without revenue or income. Without income, staff cannot get paid, suppliers are not paid, products can’t be delivered, and operations cannot be sustained. Hence, this is the most significant financial metric in business. You need to keep up with periodical figures and compare them with historical data. Funders will always look at the income of your business before approving a merchant cash advance. If you lack income, you can’t service the funding amount, and hence approval will be denied.
There are many ways of grouping expenses, and an accountant can help with this. You need to determine all the costs of your business and whether your income is covering all these costs. The difference between income and expenses will indicate whether your business will be profitable. However, some companies skip profits at the start and concentrate on growing the business. They depend on investor income as opposed to profits to fuel growth prior to profitability. This is how firms such as Uber, Twitter, and Facebook became big. However, small businesses have to concentrate on retailing their services or goods for a price that is higher than the cost to be profitable.
3. Cash Flow
Insufficient cash flow has led to the downfall of numerous businesses over time. Possessing money in your company’s checking account at the month’s end is not enough, and you need to comprehend your cash flow metric. This metric is calculated by dividing assets by liabilities. The ideal objective of this metric is to have twice as many assets as liabilities. When the ration goes below 1:1, it means your company is lacking sufficient cash flow to maintain operations.
4. Accounts Receivable Aging
This is a critical metric that cannot be ignored. It refers to the period taken to pay by customers who buy on credit. When an invoice is late after 40 days, the likelihood of bad debt increases. You need to ensure you implore your clients to pay early through incentives like discounts for invoices paid within a particular period.
5. Accounts Payable Aging
You also need to know this metric, which is the average period you take to meet the financial obligations of your business. If you can effectively manage your income, cash flow, and accounts receivables, you can keep the accounts payables current and even leverage the quick payment discounts offered by vendors.
Being on track with these financial metrics will not only ensure you remain solvent. If your conclusion from these business metrics leads you to seek help, try a business loan alternative from Everest Business Funding.