This is a good time of year to assess the health of your company. Review these 10 elements and score your business to find out where you stand.
- Cash flow. Having a cash flow positive company is critical for success. This means the business has more cash at the end of the month than the beginning. How to score: Add 2 points for cash flow positive. Subtract 2 points for cash flow negative (less cash at the end of the month).
- Quick ratio. This simple balance sheet formula divides current assets minus current liabilities. Ratios greater than one mean the company has enough current assets to pay its current bills. How to score: Add 2 points if the company's quick radio is above one. Subtract 2 points if it is below one. Note that a healthy quick ratio number will vary by industry.
- Customer annuities. This means repeat customers pay the company automatically every month. How to score: Add 2 points if this is true. Subtract 1 point if the company needs to recreate its revenue and find new customers every month.
- Fixed overhead expenses. High fixed overhead expenses do not give companies flexibility as sales and profit changes. How to score: Add 1 point if most of the company's expenses are variable. Subtract 1 point if most expenses are fixed or they are high compared to sales.
- Management team. Strong companies are not about their owners, but their team leaders. How to score: Add 2 points for a truly collaborative organization. Subtract 1 point if the CEO makes all the top down decisions.
- Employee turnover. Loyal employees generate more profit for companies than those with high turnover. How to score: Add 2 points if the company retains employees for at least 5 years. Add 1 point for 3-5 years. Subtract 1 point if employees stay 2 years or less.
- Strategic and focused plan. Companies that have a written plan about where they are going and employees that are clear about the company's direction succeed. How to score: Add 1 point if every company employee can articulate the plan. Subtract 1 point if they can't.
- Systematic sales and marketing plan. Many small businesses only market when they have no sales, but immediately stop when they do. How to score: Add 2 points if the company has an ongoing systematic plan including social media. Subtract 2 points if sales and marketing is mostly improvisational.
- Infrastructure. Growing companies need to have an infrastructure that supports them. Nextiva uses the integration of tool from Marketo, SalesForce, and NuviApp (social) to deliver reliable communications solutions to their business clients. How to score: Add 1 point if the company has integrated systems that can be effectively used by employees and customers. Subtract 2 points if each system is independent from each other or does work effectively.
- Outside advisors. Small business owners need to ask for help. How to score: Add 1 point if the owner has a formal advisory board. Subtract 1 point if the owner is insulated and never asks anyone outside the company for advice.
Above 10: Congratulations! Your small business is healthy and well positioned for 2014. Look at improving any area where the score was negative to increase your strength.
0 to 9: At risk! Key parts of your small business need to be improved in 2014. You are vulnerably to changes inside and outside the company. Pay attention to the elements where your score was negative.
Below 0: Danger! Too many parts of your business are unhealthy and your company risks going bankrupt this year. Seek help immediately!
What is your score?Tags: Business Planning, business tips, Business Trends, Finance, Money Management, Startup