As a small business owner, you will know about Profit & Loss Statements and Balance Sheets.
They tell you about your business profitability and net assets. You can see, from one period to another, whether you are making more profits than before, or less. They are the start to giving you information about the performance of your business, and hopefully leading you to create strategies to improve profitability and to increase wealth.
However, they have their limitations. For a start, they are historic. They give you the bigger picture, but unless you analyse them, they fail to break it down into the component parts.
Where is the profit coming from, or where is it not? How solvent are you and what's up ahead?
That's why it's important to dig deeper and put some attention to key financial ratios.
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12 Strategies To Survive Any Downturn
As a small business, we feel the downturn in the economy much more keenly than any large business.
Generally, small businesses have less capital behind them, less reserves. Small businesses find it hard to "hang on" until the upturn because their volumes and margins are tighter.
But it is possible for any small business to survive any downturn if they follow a series of common sense business strategies.
These strategies are common sense strategies that you should be using no matter what the economic climate, but sadly when times are good businesses allow themselves to get “fat” and some of these every-day disciplines are allowed to slacken.
The strategies are both defensive and "offensive" strategies.
When times are tight and profit and cash performance are poor, it is difficult not to panic and look to tighten all the hatches defensively. However, you can tighten activity too much and turn defensive strategies into a downward spiral for the business. While it is natural to concentrate on the defensive strategies such as cutting costs, it is important to keep in mind what I call "offensive" strategies – initiatives that your business should undertake to ensure that you are the one that keeps selling when others are closing...
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8 Financial Ratios To Measure Your Business Performance
As a small business owner, you work hard to make your business a success. You record your financial transactions, and whether you use your own software, or you ask your accountant to prepare them, from time to time you print a financial report and look at your business' financial performance.
However, those reports, commonly your Profit & Loss and your Balance Sheet, can only tell you so much about your business. They will give you clear information about the dollars at play, but how is your business performing really, from year to year?
That's why it is important to review financial ratios from time to time.
Financial ratios are the relationships between key numbers in your accounts.
Some financial ratios tell you about the profitability of your business. Others inform you about your liquidity, and yet others will tell you about the efficiency of your financial assets.
An example of a financial ratio providing information about your profitability is your Return on Equity, or the rate of return on the investment you have made in your business. If your Return on Equity is 6% and bank interest on an equivalent investment with no risk is 2% you need to ask yourself if the extra 4...
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6 Things to do before you start your own business
So you want to start your own business?
If you are like all small business people, you have decided to start your small or kitchen table business because of factors such as being your own boss and all that picture entails. Today, this seems even more possible due to the technology that you can use from home or a shared space that allows you to keep costs down in comparison to a bricks and mortar business.
While there are even government websites encouraging you (there's one that has a header "Open for Business: Simple, Fast, Easy) headlines still exist that shout out nearly 80% of businesses close within 18 months of starting - and you can bet most of these are micro, small, kitchen table businesses.
Nevertheless our enthusiasm as human beings for the life of freedom is boundless, and once you conquer fear of failure, most of us grasp the chance and plunge in.
The question is not "will you start your own business" but "how will you start your business with least risk of failure". So here are the 6 things I believe you need, gleaned from 35 years advising small business.
No. 1: Know yourself! This is probably the most important advice...
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