Measuring business health

When your company is running in the black, and you’re able to pay your bills on time consistently, you can be forgiven of making the mistake of forgetting to check the ‘temperature’ of your business to watch for signs of failing health that might be plaguing away unnoticed until it is too late. This gives you the ability to react swiftly and prevent potentially small hurdles from becoming significant issues that can cost you your reputation and profits. 

It’s OK to check your net income at the end of every month to evaluate health. Still, we here at Dillon Partners suggest you look at some other financial metrics to get a more wholesome look into your business and how it is operating. 

Here are three factors you should consider monitoring from now on.

• Gross Profit Margin

Calculated by dividing gross profit by revenue, this should be one of the critical elements that any business should focus on improving as it is the key to ensuring profitability. A healthy and robust company will continually seek to increase sales revenues and lower the costs to deliver them. 

• Cash Balance

Please don’t get too excited to see money enter your bank account without first considering the cash that has left it. Poor cash flow management is one of the leading reasons for small business failure, so make sure you don’t fall victim to this easy trap of false confidence. 

• Customer Retention

An element that is perhaps the most important, customer retention rates, does need to be consistently monitored, evaluated and acted on because if you cannot retain customers, you will not be in business for very long. 

You can calculate your own customer retention rate by subtracting the number of new customers in a given period from your total number of customers at the end of the period and divide this by the total number of customers you had at the start of this period. Then multiply this by 100. 

The higher this number is, the more capable your business is at keeping your customers satisfied and happy to return to you. 

Be sure to take advantage of all of the financial management support and software available to enable you to keep on top of your data analysis and input. If you’re struggling to comprehend the many financial concepts, including the few we have touched on today, then get in touch with Dillon Partners, who can guide you through measuring and improving your business’s health. Call our office on (03) 9696 1788 or email us at info@dillonpartners.com.au