Talking About Financial Health

Question: Leaders of companies often use a particular mechanism to keep tabs on the financial health of their business. What do you use to keep tabs on your company’s level of financial health?

Jason R. Kaplan: It takes the watchful eyes of the right team and several measures to accurately see how we have done, where we are at today and what we can expect in the future. Here are a few of the financial and operational metrics we regularly monitor:

  • Solvency — Do we have what we need in the bank to cover our monthly/quarterly/yearly expenses? How many months could we survive if sales abruptly stopped?
  • Overhead per dollar of new revenue — We want to grow revenue but we also keep an eye on what we are spending to support that growth.
  • Revenue diversification — We strive for repeat/recurring business and track and measure revenue from new customers; we are a healthier business with a good mix.
  • Cash is King — This might be the easiest metric to measure. We want to see an improving cash position every month.

One also needs to be careful of just relying on the standard financial ratios as many of them are backward-looking. Qualitative measures ultimately flow down to the financial health of your business. Items such as customer suggestions and complaints are closely monitored.

Originally published in October 2014 at http://inbusinessphx.com/in-business/feedback-october-2014