How Healthy Is Your Business?
by Barbara Weltman on September 1st, 2009
Give your company a financial health examination to determine if you’re in good health or in danger of becoming ill during these tough times. Dr. Jeff Cornwall, who heads up the entrepreneurship program at Belmont University in Nashville, TN (and who’s been a guest on Build Your Business Radio) suggests that you examine certain key indicators and, if you’re not in good shape, work now to cure your problems. I interviewed Dr. Cornwall to find some critical areas to explore; here are his suggestions.
Cash flow
The adage, cash is king, can’t be repeated too often. Even if your sales are still steady, cash flow may not be as sound as you’d like. In this tough economy, customers may pay you slower than usual and banks may reduce or eliminate your line of credit, which directly impacts the money you have to pay your bills on time. Carefully monitor cash flow using free or low-cost solutions, such as MyBizHomepage.com (it works for QuickBook users and is free).
Ideas for cash flow management:
- Create an emergency fund to ensure you can cover your expenses. Start building a 30-day fund and grow from there. Creating the fund is possible if you build savings into your budget.
- Reduce or eliminate credit to customers so they pay immediately. This avoids collections problems.
Debt
Whether a business grows or struggles, it’s surprisingly easy to take on debt. To be a healthy company, you need to limit your debt-to-asset ratio to 20%. If the ratio is 50% or higher, you risk losing your line of credit (even if not cut, the line may be slashed).
Barbara Weltman
Barbara Weltman is an attorney, prolific author with such titles as J.K. Lasser’s Small Business Taxes, and trusted professional advocate for small businesses and entrepreneurs. She is also host of Build Your Business radio and the publisher of Idea of the Day℠ and monthly e-newsletter Big Ideas for Small Business® at www.barbaraweltman.com.