You might miss the signs that your business is having financial difficulties. In such cases, it might be too late to salvage your company because of its unstoppable downward trend. However, you can still make a U-turn if you assess company financial health regularly. Assessments of your business’ finances allow you to pinpoint where you can cut costs without sacrificing profits. It also enables you to maximize your resources and allocate them effectively to aspects of your operations that provide the most value.

Assess company financial health by implementing these best practices.

 

Assess Your Balance Sheet

One of the things you should do to assess company financial health is to review your company’s balance sheet. This financial statement provides you with an overview of your equity, liabilities, and assets in the short and long-term. It enables you to assess the amount of debt you have compared to equity, the short-term liquidity of your company, the percentage of tangible assets you have, how fast you move inventory, and how soon you collect accounts receivables and pay suppliers. These pieces of information allow you to formulate actionable insights and strategies you can use to improve your company’s financial situation.

 

Review Your Income Statement

Your company’s income statement provides you with information about your profits, revenue, and expenses within a period. This financial statement is crucial when it comes to understanding the trajectory of your business, its profitability, and its future viability. It provides you with insights into revenue growth over certain periods, the gross profit margin for the goods your company sells, and the percentage of revenue after deducting all the expenses your company incurred. It also allows you to determine if your company can pay interests and debts on time.

 

Appraise Your Cash Flow Statement

Positive cash flow is vital to your business. You can assess your cash flow statement to get the insights you need. You’ll be able to pinpoint where you spent your resources, investments, and financial activities. With the cash flow statement, you can determine the liquidity of your business, your sources of cash, and if your cash flow improved or decreased over time. A thorough analysis of this financial statement provides you with a clear picture of your company’s financial health.

 

Use Financial Ratios

Financial ratios allow you to dive into the numbers on your statements. They are important tools in making a complete assessment of your company’s short and long-term financial health. You can use different types of ratios depending on what you want to find out. Some of the categories you can choose from are solvency, profitability, and liquidity.

 

Assess company financial health using the abovementioned best practices. A regular assessment provides you with insights into how you can improve your financing and boost your operations while maximizing your budget. If you need assistance with your bookkeeping, we at Robookkeeper can provide you with a helping hand.

 

Our team of expert accountants can do a variety of bookkeeping services for small business owners. We can keep your books updated and have all the financial data you need while you focus on running your company.