When do you know that the business is doing well?

When do you know that the business is doing well?

The blog is meant for both start-ups (fairly new companies) or medium to large enterprises.

Most businesses start with a loan. The loan could be the capital which the owner ‘s money was injected into the business to start / funding acquired from various institutions / some even lucky enough are afforded the business grant.

However the loan remain a liability to the business, until such time the company has generated more income to payback the loan. Under no circumstances should the money injected into the business be referred to as the Revenue. It is borrowed money. It is the business obligation to pay the money back.

I have met businesses that assume that by acquiring business assets via credit equate to the business doing well. And that’s not the case.
However this will be the case when the loan have been paid off and the business is in full ownership of the assets obtained.

For example: Inventory bought on credit: Stock need to be sold and be converted into sales to be able to pay back the amounts owed to the suppliers. And furthermore be able to pay for the business operational expenses such as salaries, rent, taxes, etc.
This is the reason why we can never assume that by just a mere fact that there are revenues in the business then it means the business is doing well.

In short a business must be able to take care of it’s financial obligations in hope to be on full ownership of the business assets. Until the assets are paid in full, the assets purchased on credit still belongs to the seller. Thus we cannot claim success / ownership.

Here are characteristics that may symbolize that a business is doing well.

1. Revenue Is Growing.

2. Expenses Are Staying Flat.

3. Cash Balance Demonstrates Positive Long-Term Growth.

4. Debt Ratios Should Be Low.

5. Profitability Ratio Is on the Healthy Side.

6. Activity Ratios Are In-Line

Advise: Fight for a constant growth all the time. Let your profit margin grow from month to month. While you are growing the profit margin careful that the expenses do not accelerate unnecessarily. They will harm the growth.

Tip: It will be wise to pay off the obligation as quick as possible to cater for more resources, that way we will be able to measure the business growth.

Check out our next Blog soon.

Compiled by Ms Dee on behalf of Matsobanemetja Business Consulting (Pty) Ltd.