How Can I Gauge My Company’s Financial Health?

October 25, 2021by Holly Sikora0

Do you ever wonder how big businesses do it? What is it that makes them so successful and truly sets them apart from the rest?

No business has a miraculous strategy or top secret to success. Rather, it’s about having a vision and a strong foundation and a well-monitored strategic plan in place and controls to measure the success of the plan.

However, even focusing on the basics can sometimes fall short. Evident from the effects of the COVID-19 pandemic, where the US economy suffered tremendously. Almost 98,000 businesses had to shut down as they couldn’t withstand the financial implications for a prolonged period.

An entrepreneur working on business financialsThis serves as the perfect example in establishing the importance of gauging your company’s financial health. Incorporating a sensitivity analysis into your business’s financial planning is a vital component among many other tools to prepare for unforeseen events like these.

Let’s look at how sensitivity analysis helps and what other ways you can adopt to gauge your company’s financial health.

Using Sensitivity Analysis

Creating a financial model and putting different inputs to work out several scenarios can help see how good your company’s financial health is. Moreover, it can help dissect how capable it is to withstand certain economic developments like a change in interest rates, inflation, or some other factors.

For example, if your business has a large portion of its capital from debt financing, a rise in interest rates will not be an ideal situation.

A sensitivity analysis will help determine the extent to which the company can deal with an increase in interest rates.

A business' financials displayed through a graph

Going Over the Payables and Receivables Cycle

Another key aspect that shows how quickly your business gets money from debtors and how long it usually takes to pay off your creditors. A favorable situation would be where the receivables cycle is short while the payables cycles are longer.

Professional accounting services keep track of these things precisely and having a good idea of this can help you see where your business currently stands financially.

Analyzing Cash Flows

High profits may mean nothing if your business is suffering from poor cash flows. Various problems can arise if cash flow levels aren’t optimal.

If your business isn’t doing well in this area, maybe it’d be suitable for you to avail professional bookkeeping services to get better expertise to handle it. Moreover, these services can help improve your business’s financial strength.

Gauging Business’ Liquidity

Your business’s ability to meet payroll and stay current on its debt service and other liabilities in the short term is instrumental for your business’s financial health.

Inability to do so can lead to a poor market reputation, deteriorating relationships with employees, suppliers and creditors, and the business may even face a going concern risk.

If you’re an entrepreneur and want your small-scale business to be financially healthy, choosing Ally Books and Taxes is a wise decision!

We provide specialized Small Business accounting service to help streamline your financials and be stable. We also provide customized small business consulting services to take your business in the right direction.

Get in touch with our certified experts today.

Leave a Reply

Your email address will not be published. Required fields are marked *

Ally Books and Taxes
Work with a credentialed accountant to get the best financial services at competitive rates.
Avantage Social links
Contact
8 Morningstar Court
Sicklerville, 08081
Camden

856-302-1099

Holly@allybooksandtaxes.com

Monday – Friday: 9 a.m. – 6 p.m. and by appointment
Ally Books and Taxes
Work with a credentialed accountant to get the best financial services at competitive rates.
Quick Links
Avantage Social links
Contact
8 Morningstar Court
Sicklerville, 08081
Camden

856-302-1099

Holly@allybooksandtaxes.com

Monday – Friday: 9 a.m. – 6 p.m. and by appointment

Copyrights 2021 ALLY BOOKS AND TAXES. All rights reserved.

Copyrights 2021 ALLY BOOKS AND TAXES. All rights reserved.