Three KPI’s for Small Business Success

Here are three KPI’s that are important to understand when running a small business and managing its finances along with a brief description of each:

Current Ratio

This KPI is a measure of the liquidity of your business. It will show you if your business can cover its immediate obligations. The current ratio is defined as the current assets of your business (most usually cash and accounts receivable) divided by the current liabilities of your business (vendor accounts payable, credit cards payable, short term balance on any loans, payroll liabilities).

What does this mean?

At a minimum you want this ratio to be 1:1 which indicates you have adequate current assets to meet your short-term liabilities. In an ideal world, your current ratio would be 2:1 or better. This would indicate that you have double the current assets (cash and accounts receivable) to cover your current obligations.

Building a cushion here shows that you can successfully build your business by turning your operations into much-needed cash. After all, Cash is King!

Gross Profit Margin

Measures the percentage of revenue that is left over after deducting all expenses associated with creating and delivering your product or service for your customers.

For example…

If your revenue is $5,000 and the cost to create, and deliver your product is $3,000 then your Gross Profit is $2,000 and your Gross Profit Margin is 40% ($2,000/$5,000).

Your target Gross Margin will depend upon the type of business. Many software companies can have gross margins in excess of 60% while many labor-intensive service companies have Gross Margins from 35% – 55%. You want to make sure that regardless of your company that the Gross Profits you are generating will cover the remaining operating expenses of your business.

The higher the Gross Margin, generally the more profitable the organization. Many sophisticated companies understand the Gross Margins by individual product or service line. This will allow you to try and maximize the sale of the most profitable products and examine the less profitable products for potential improvements in production or delivery to enhance overall profits to the company.

Cash on Hand

This KPI measures the amount of cash at a snapshot in time. This might seem obvious; however, turning your company’s revenue and profits into cash and growing the cash balance over time isn’t always easy.

Once you have customers and a steady flow of revenue, you need to establish a targeted cash balance that you can keep on hand. I am not talking about having just enough cash to cover your current needs as we talked about in the current ratio section, rather creating a goal of having 2-3 months of operating expenses on hand at any time.

Converting your services or products into cash is the real measure of success.

Most people want to talk about the revenue of their business invoices or the profits that it generates. Converting your services or products into cash is the real measure of success. It is hard to spend revenue or profits, but it is easy to spend, or better yet, to save cash!

Let ChoiceFinance help you with understand the KPI’s and the financial strategy of your business and ultimately help you improve your profits and grow your cash!

How Small Business Owners Can Maximize Cash Flow

Cash flow

Cash.

It is a word that signifies something we all like to have in our hands. You can never have too much of it and it is responsible for helping you keep your business up and running. Without cash, you may find that you cannot afford inventory, or you cannot meet payroll, which can be scary for you as a business owner. Fortunately, there are ways for you to maximize your cash flow, even as a small business owner.

Your business is a game of expenditures, revenue, and profit. If any of those three metrics are not in line, your business will find itself in a tough spot. Maximizing your cash flow can help you balance those three metrics. Here are some tips to help you out:

Replace Your Old Inventory and Equipment

You cannot be efficient if your warehouse is stocked with old inventory and equipment that is useless to you. In addition, it takes up space, which could be used for other processes. Old equipment can lead to a slowdown in selling your product or reaching your customers, which will decrease your revenue and cause you to spend more to make it happen.

Replacing old equipment with newer equipment is a great way to minimize overhead costs and see to it that you can maximize your cash flow and process. If you are not able to purchase new equipment, consider leasing it.

Also, if you have excess inventory on hand that cannot be used, sell it off. You can sell it at a discounted price and still make money while clearing out room to be used for your business.

Create Incentives for Early Payments

You never know when a client will pay their invoice, but you can help maximize your cash flow by offering incentives for them to pay early as opposed to when it is due or late. Of course, you should have penalties in place for late payments to discourage them.

One of the many incentives you can offer for early payment is a slight discount. You want the discount to make sense for your business’s final line and your client too, so do think about how you can incorporate it to incentivize without coming too close to your bottom line.

Outsource to a Financial Management Company

Managing your finances can be tough, especially as a small business owner. It is something you NEED to do but not something you always HAVE the time to do. This is where you can turn to financial experts such as the ones at ChoiceFinance. They can assist you in managing your business’s finances and provide you with easy to read and understand charts to show you how your business is doing in a quick snapshot.

Fortunately for you, ChoiceFinance is affordable and costs much less than hiring an accountant to do it for you. This way, you can focus more on maximizing your cash flow without going broke in the process.

Start Maximizing Cash Flow Today

Maximizing your cash flow is about balancing out your budget, revenue, profit, and expenditures. Companies such as ChoiceFinance can help you do this while you focus on selling and bringing in the money. The above tips are just a start and there are more ways you can maximize your cash flow such as reevaluating the cost of your product or services, offering discounts to new or returning clients, and improving your marketing strategy and campaign.

Remember, maximize your cash flow today and enjoy every bit of tomorrow!

Weekly Hiring Forecasting for In-Home Care

In-Home Care is a notoriously tough industry from an HR and admin perspective. Turn-over in the industry is high (even for the best run outfits), recruiting is ultra-competitive, and client hours vary week by week, which creates chaos for schedulers. At ChoiceFinance, we have created a simple weekly process to help the In-Home Care Agencies that we work with forecast their needs in a tumultuous HR environment.

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