There are several factors to landing your company in the green and keeping it there. Here are five key metrics to look at that will measure this for you.
Company Revenue is Growing
Take a step back and pull a brief snap-shot of a reporting period and see if sales are increasing. Be careful to make sure that you choose a period of time that allows you to adjust for things like seasonal sales. A constant increase in revenue, however small or large, is measurable over time and will tell you if your company is doing the right thing. You will also want to watch for roller-coaster revenue – increases and decreases that seem to hit a particular threshold you just can’t seem to break through.
Expenses are Staying Flat, or Growing Slower than Revenue
Right in line with making sure your revenue is growing is controlling your costs. Of course, as your company grows, you may have to increase what you purchase. It is natural for a business to spend more as they make more. The metric your company needs to watch is that expenses are not growing larger than your revenue. When that starts to happen, and your expenses outweigh your revenue, that will indicate that an adjustment needs to be made. Are you making significant investments that you expect to pay off in the future? Be sure to account for these types of expenses in a way that makes it easy to review them separately. Reviewing expenses as a percentage of their related revenue can help you spot issues quickly.
Debt Ratios are low
Just like in your personal life, debt ratios are going to be something that is very real. But if the ratio in which your company is in debt is very low, it can make for more financial freedom. Maintaining a ratio much like 2:1 or lower is preferable. Anything larger than that your company will start to hurt no matter how much the company is worth.
How is your customer retention rate? Do you have a lot of new customers, but not a lot of returning ones? In some businesses, this might be the normal model – but in others, it’s a sign of longer term problems. Keeping an eye on your customer satisfaction metrics and Net Promoter Score can warn you of issues before you start to feel them financially. And long term, repeat customers are far less costly to attract than new customers.
You may have an amazing product, great sales, and still have an issue you can’t easily see. How are your employees feeling about the company? They are the backbone your business is built on – and if your turnover rate is higher than the normal industry standard for your industry, you are going to find yourself struggling to keep up with demand or service your customers.
At the end of the day, the metrics you track need to be available at your fingertips. You’ll want to make sure you have the right financial system in place that allows you to gain accurate, real-time visibility into your key metrics. Is your financial system working for you?