Measuring and maintaining your company’s financial health is always important, but perhaps it has been even more important this year. Financial health is the way a company measures its financial aspects. For many businesses, accurately understanding and measuring their financial health isn’t easy.

Large functions of our economy still depend on small businesses to stay financially healthy, and since the COVID-19 outbreak, it has been difficult. Perhaps the most important thing a business can do this year–and any year– is to stay on top of their financial health. This is done through understanding where your company stands and planning for the future.

Boost Your Financial Literacy

Financially healthy businesses don’t get that way by accident. It takes dedication and organization by a company's leaders to become financially literate. The good news is you can boost your financial literacy on your own. To begin, familiarize yourself with these important terms and ideas:

• Profitability
• Cash flow cycle
• Liquid/near liquid assets
• Working capital

Know When to Hold 'Em and When to Fold 'em

While investments and growth are important to a business, they should be thoroughly considered. Before diving into a new venture, ask yourself if it is the right time to make a major purchase or expansion. If your business can operate successfully without it, pause for a moment and weigh the purchase against your regular cash flow. Can it wait? Would it be a better investment next quarter, or maybe next year?

Separate Business and Personal 

One of the most dangerous mistakes business owners make is not separating their personal finances from their business finances. This can make business loans or business credit accounts more complicated. It’s important to separate business expenses into a separate account. And make sure you are paying yourself a salary! That way, you have a better record of your company’s cash flow. You’ll be especially happy you did once tax time comes around.

Identify Opportunities for Growth

Once you have a good understanding of your business finances, cash flow, and profitability, you should think about growth opportunities. Keep in mind that successful growth will look different for every company. You might measure growth in your company’s value, profitability, number of clients or employees, services provided, etc. Analyze these figures with your company’s goals. Are you heading in the direction you want? Have you been derailed from your goals? if so, what are the next steps to get the company moving in the right direction?

A good understanding of how your company performs is just the first step. It’s crucial to plan for your company’s future. Even if you’re in a good place right now, we’ve all seen how unexpected circumstances can turn even successful companies on their head. 

Review Your Business Goals

Setting measurable goals is important. Perhaps you follow a certain business model or structure that sets incremental goals for your company and your employees. If not, take the time to look into a few. One popular method is setting SMART goals. These are Specific, Measurable, Achievable, Relevant, and Timely goals that your business sets for the future. You should also set review periods regularly. It’s important to check your progress regularly and reflect on what is working, what isn’t, and how to best reach your goals.

Analyzing your company’s financial standing is important to growing and developing your organization. As we’ve outlined, it’s first important to understand the areas you should be monitoring then set goals to improve and grow your business.

Falcon National Bank is proud to be a partner to businesses small and large. Whatever your business goals, we would love to help you reach them. Contact one of our bankers to get started.