Use simple Financial Ratios to improve your business

Jacques Lejeune

One characteristic of SMB (Small and Medium-sized Businesses) is that they have to concentrate their financial and HR resources on essential tasks (no time here to split hair or institute complex - and often practically useless - procedures.

So you might wonder why I am advocating in this blog to use some simple financial ratios. In fact, you already use at least two of them intuitively

1. The one you most certainly use is : % of net margin on net sales. This key ratio is for most businesses one of the most vital as it gives you very quickly the net cash available to meet all your expenses. If such ratio goes down progressively, you will find yourself in a cash squeeze that even threaten the life of your business.

2. Another one you might also be using fairly frequently would be the % of marketing expenditure against your net sales. Here again, you might have decided that the maximum number of ratios might be, say 10. But depending on your business, some ratios might be more crucial than others. Have a look at the following link and decide to select 5 or 6 financial ratios that will made up your Dashboard (will be commented more in a future blog). Yes this is the name given by big companies to monitor their financial or commercial health.

Here are some examples of Financial Ratios

Did you think about getting some of them integrated into your monthly sanity check. Yes, congratulations, just maintain your accounting/financial books updated and verify if the ratios chosen show a positive trend. Do not spend undue time on them (unless you see one that really troubles you and you wish - you should in fact - to uncover the root causes of a problem). If you perform this regular sanity check, then you are on the road to financial success.

If you wish to know more about this topic, you can visit:

Going Deeper in Analyzing your Financial Ratios

By the Friendly Financial Advisor.
Designed to help Small and Midsized business (SMBs) owners on accounting, financial and business matters impacting their overall profit