Your sales may be up, but that doesn't necessarily mean profits are. Check out a few other indicators to determine if your business is financially healthy. The following symptoms could indicate problems:
- High expenses. You've moved into impressive offices, bought a luxury car or in other ways are emulating established big business. Or, equally problematic, your payables are growing faster than your receivables.
- Low expenses. You're not reinvesting in your business. You're ignoring the need for newer equipment, marketing programs or professional services.
- Mounting inventory. You're buying or making more goods than you're selling.
- Limited clientele. One or two customers account for the bulk of your business.
- Excess liabilities. The sum total of all your debts payable in the next year is greater than what you own plus what is due you (receivables).
- Escalating receivables. If your receivables are climbing monthly due to growth in sales, great. If they're rising as a result of slow-paying or delinquent customers, not so great.
- Tax deficiency. You haven't set aside funds to pay estimated quarterly taxes.
- Static pricing. You haven't raised prices to market levels or to allow for rising costs--or, worse yet, you've lowered prices to maintain sales volume.
- Lack of systems. You operate without a business plan, budget or bookkeeping system.
One or two of the above need not arouse concern, but multiple symptoms may mean you need to revamp operations. Consider contacting a business consultant, accounting firm or the SBA. (For more on SBA assistance, see "Team Effort" on page 40 of our April 1998 issue.)
Paul DeCeglie is a former staff reporter for Journal of Commerce and American Banker. He can be reached at MrWritePDC@aol.com