With the new year just around the corner, it’s an excellent time to get geared up for an annual small business checkup. Many financial advisors and small business experts recommend that you do an annual review either at the end of each year, or during the first quarter of the new year.
What’s the purpose of a small business checkup? It’s an opportunity to review your financial state, by looking at your profitability and cash flow, but can also include an informal analysis of many aspects of your business that range from how well you’ve met your business goals to whether or not you need to upgrade your machinery in the upcoming year.
When reviewing the financial health of your business, begin by asking questions like: How strong are my profit margins? For example, look at how much profit you earn for every dollar of revenue you make. Business experts will tell you that this is a key indicator of how much cushion your business has if sales drop. Also, look at your operating margins by asking questions like: How many resources, including time, are spent for each dollar of revenue that comes in?
Consider cash flow from an operations perspective as well. Most businesses owners struggle to maintain a strong cash flow during slower weeks or months of the year, but it is very important to have a stable cash flow at all times. After all, you don’t want to have to worry about whether or not you will have the money to pay your bills or meet payroll.
Here are some other tips for conducting your small business checkup:
• Have a banker, tax accountant or other financial expert review and analyze your year-end financial statement and make recommendations. Many banks have experts who can offer financial advice for free, and can even help you to establish a line of credit for stabilizing your cash flow in slow times.
• Review the list of customers you have who are well behind on their payments, and consider renegotiating the terms of their agreements or making other accommodations to get payments coming in. Be firm in your expectation of payment, but be as flexible as possible in renegotiating payment amounts and terms to encourage payment and to maintain the business relationships you’ve worked hard to develop.
• Look at your monthly expenditures to see if there is unnecessary waste, expenses that can be reduced or duplication of services.
• Take an inventory of your products, if you stock products, to check for losses due to theft, damage or poor inventory control processes, and then work on developing better processes to minimize future losses.
Remember, that an annual small business checkup can include many other aspects of your business as well. These range from taking a look at whether you need to increase your marketing and sales efforts, to reviewing the performance of your regular vendors to determine whether they’re meeting your expectations or whether you should explore other options.
