Entrepreneurs always want to believe that their business is doing well. Unfortunately, excessive optimism can be toxic to a business' success if it's not accompanied by a realistic view of how the company is doing right now. Make sure your business is going in the right direction by performing these simple checks:
Are you using profit as your bottom line? Some businesses gauge their performance on sales alone. They try to increase sales, but don't pay any attention to how they are increasing their expenses in the process. Always look at your financials to make sure you aren't building sales at the expense of profits.
Which products or services are you really selling? Some items clearly have better profit margins than others. Supermarkets barely break even on some of their items. If you are selling a lot of products that don't offer high yields, that is an indicator that you need to change your marketing priorities.
How are your inventory levels? If you are overstocking your inventory, then your sales aren't meeting what you are buying or producing. This inventory will depreciate while it sits on your shelves and you will have to pay to store it. This is a sign that you need to scale down until you are able to increase demand.
Are your forecasts accurate? Do your sales and profit projections hit the mark? If not, then you are using the wrong metrics. This will cause you to make mistakes such as ordering the wrong amount of inventory or taking on the wrong amount of credit. Work on getting a better understanding of your market so that your projections are useful and accurate.
Do your liabilities exceed your receivables? Debt is not necessarily a bad thing. However, you want to make sure that it doesn't get out of control. Always make sure you have a plan.
Are you depending too much on a couple of clients? You may do well with only a couple of clients. However, it can be dangerous to receive the majority of your business from a small amount of clients. Your clients can go out of business just like anyone else, so you may want to diversify early to avoid a potential crisis down the road.
Are you investing enough in your business? Especially in this economy, many businesses are pinching their pennies. There is such a thing as being overly cautious. Make sure you continue to invest in your business so that it will continue to grow--just exercise common sense in the process.
Your financial statements and other records will tell you whether or not your business is in good shape. Make sure you review these documents regularly. The last thing you want is to find out that your business is falling apart after it is too late to do anything about it. Take the time to give your business a regular checkup and make sure that things are headed in the right direction.