In these challenging economic times, taking the temperature of your business on a regular basis is more important than ever.
A Business Health Check with Lamont Pridmore will enable you to see what is working well, identify your challenges, compare your business to others in your sector and create an Action Plan for success.
It can also help you develop stronger performance and stop negative trends before they become problematic.
By developing an Action Plan, you can ensure the business is continuously improving, generating better cash flow, and achieving greater profitability.
A Business Health Check will assess several important metrics, in a 14-page report covering your business performance and comparing you with others in your sector:
Liquidity
- Current Ratio: Measuring the overall liquidity position of your business will alert you to concerning big decreases in the current ratio percentage over time.
- Quick Ratio: Another good indicator of liquidity, particularly when combined with other measures, is to consider the time available to pay current liabilities.
- Stock Days: Stock (in days) on hand (if applicable) indicates how you manage the production processes and how quickly a business can respond to market and/or product changes.
- Trade Debtor Days: The lower the average length of time between credit sales and payment receipts the better, which is crucial to maintaining positive liquidity and good cash flow.
- Trade Creditor Days: This ratio measures how timely a business is in meeting payment obligations to suppliers.
Profit margin
- Gross Profit %: The percentage of gross profit to turnover is an important business planning statistic. It indicates what percentage of gross profit can be generated by future turnover.
- Net Profit %: One of the more important barometers of a healthy business is measuring what percentage of profit the company is generating for every pound of turnover it earns. It should be tracked against industry competitors and is very important in preparing financial forecasts.
- Costs as % Turnover: Measuring total overhead costs of running the business including: wages and salaries, rent, IT, stationery, travel, repairs, marketing, advertising and finance costs for the company as a percentage of turnover is vital to control costs.
Turnover
- Turnover Growth: Comparing turnover data across accounting periods is important to ensure revenue is increasing over time and the growth rate is in line with cost increases.
- Pre-Tax Net Profit as % Turnover: This shows how much pre-tax profit is earned on turnover each year. The higher percentage the better as it shows how robust the business is.
- Borrowing as % Turnover: Shows the amount of external borrowing versus turnover and highlights the level of gearing in the business.
Borrowing
- Debt to Equity Ratio: The balance between money owed versus equity funds. Creditors prefer a lower ratio to decrease financial risk while investors prefer a higher ratio to enable them to produce higher returns.
- Gearing Ratio: Indicates the amount of external borrowing versus the amount invested by shareholders. A lower ratio is generally better as it shows the company is mainly financed by equity whereas higher gearing rates can mean an overdependence on debt, but it can produce higher equity returns if managed well.
Assets
- Return on Equity: Shows how much profit is being returned on the shareholders’ equity each year.
- Return on Assets: Indicates what percentage of profit each pound of assets used is producing each year.
- Gross Fixed Assets to Turnover Ratio: In businesses that have significant tangible assets, this asset management ratio shows the multiple of annualised turnover that each pound of tangible assets is producing and how effective the company’s investments in net property, plant, and equipment are.
We are owner-manged business specialists and experienced in working with all sectors of the Cumbrian economy.
Obtaining a report on your company’s financial health can help you plan for the future and give you peace of mind.
To improve your performance, profitability and cash flow, call Lamont Pridmore today – it will be the best next decision you’ll ever make.
