When you’re running a business, it’s easy to get caught up in the day-to-day activity and lose sight of the big picture.

Taking stock of the health of your business is important. Knowing where you are allows for more effective planning, early warning about any issues, and the chance to better chart a course for success.

There are some quick ratios that will help you to gauge the health of your business. We can help you to assess your business health and show you how to calculate these vital checks.

Liquidity Ratios

Liquidity ratios are about how quickly you can turn your business assets into cash – which helps you assess whether you’ll be able to pay the bills if cashflow gets tight.

High ratios are better, as this means you’ve got more assets than liabilities.

Current ratio

Current ratio = Total current assets / Total current liabilities

As a general guideline, 2:1 is a good current ratio, but this does depend on the kind of industry you’re in, and the nature of the assets and liabilities.

Quick ratio

Quick ratio = (Current assets – stock on hand) / Current liabilities

This measure excludes your existing stock, which you may not be able to quickly turn into cash, and is seen as a more realistic quick snapshot of your position.

Solvency ratios

Solvency ratios look at sources other than cash flow to see whether your business will be able to settle debts.

Leverage ratio

Leverage ratio = Total liabilities / Equity

This is a measure of whether your business is reliant on debt financing or equity to fund your assets. A higher ratio can make it harder to borrow money.

Debt to assets

Debt to assets = Total liabilities / Total assets

This tells you what percentage of assets is being financed by liabilities.

Profitability ratios

Profitability ratios will let you know how efficient your business operations are. Where possible, it’s good to measure your business against others in your industry.

Gross margin ratio

Gross margin ratio = Gross profit / Total sales

This ratio tells you whether you can cover the necessary business overheads from your sales.

Net margin ratio

Net margin ratio = Net profit / Total sales

This measure tells you the percentage of sales dollars left after you’ve settled your expenses, except for your income taxes.

Checking in on your business health is a great habit to get into. Using these ratios helps you to understand your current business health and allows you to plan. Talk to us about how to calculate the factors in these ratios in order to keep your business on the right track.

The following content was originally published by BOMA. We have updated some of this article for our readers.

Having a well-planned marketing budget can help you allocate resources to the right digital marketing channels and maximise the effectiveness of your campaigns.

But where do you begin when it comes to managing and tracking your budgets?

Businesses spend between 2% and 5% of their revenue on marketing to promote their products and services. That might not sound like much, but bear in mind that it’s vital to use your working capital wisely. So, whatever the size of your marketing spend, you want to make sure that every penny is successfully helping to raise awareness of your brand and your products.

When it comes to marketing spend, you and your executive team will want to see real-world results from your marketing – and tangible evidence of that elusive ROI.

To get in control of your marketing budget:

• • • Decide which marketing channels will be most effective – Whether you’re considering video, social media, blogging, events or above-the-line advertising, think about which channels are likely to deliver the best results. Do your research, talk to your customers and use the channels where your audience are most likely to engage with you.
    • Understand your marketing spend across different channels – each channel in your marketing strategy has to deliver. But how much cash should you invest in each channel? Talk to other marketers in your sector, look at industry benchmarking and get a ballpark figure for a ballpark spend on each channel. By adding up the costs for each channel, you get a total figure for your overall marketing spend. Make sure this doesn’t overrun the planned percentage of your revenue that’s set aside for marketing.
    • Calculate how much revenue and profit you’re likely to generate – you can never predict the exact outcome of your marketing activity. But you can set revenue targets for each channel, and set clear goals for both the financial and non-financial ROI you’re likely to achieve. For example, how many customers will each channel bring in? How will this impact on cashflow? What’s the desired impact on your revenue and profits?
    • Track your marketing spend in your cloud accounting – the latest cloud accounting platforms make it very easy to record and track your marketing costs. Track your marketing spend by channel, product or cost code to give yourself a detailed breakdown of all your spending. This gives you the data needed to track performance over time, so you’re in complete control of the money you’re spending.
    • Manage your data and make informed decisions – if you combine the data and reporting from your cloud accounting and your marketing software, this gives you the best possible management information relating to your marketing. In turn, this gives you the information you need to make informed decisions on your marketing. Ask yourself:
      • • Where are you spending the most money on marketing?
        • Which channel is converting the greatest number of targets?
        • How much of your marketing budget have you spent – and what remains?

By finding the answers to these questions, you make it much easier to make sensible decision on how to improve your ROI and how to boost your overriding digital presence as a business.

Talk to us about tracking your marketing spending

If you want to drill down deeper into your marketing spending (and the ROI this money is delivering), please do book some time to talk to us.

We’ll help you set up new cost codes in your accounts software and refine your marketing budgets per channel. We’ll also work with you to customise your dashboard and management information, so you have all the financial and non-financial data you need at your fingertips.

The following content was originally published by BOMA. We have updated some of this article for our readers.

There are certain items of equipment, machinery and hardware that are essential to the operation of your business – whether it’s the delivery van you use to run your home-delivery food service, or the high-end digital printer to run your print business.

But when a critical business asset is required, should you buy this item outright, or should you lease the item and pay for it in handy monthly instalments?

To buy or to lease? That is the question

Buying new pieces of business equipment, plant, machinery or vehicles can be an expensive investment. So, depending on your financial situation, it’s important to weigh up the pros and cons of buying, or opting for a leasing option.

First of all, let’s look at why you might decide to buy the item…

Buying: the pros and cons:

• • • Pro: It’s a tangible asset – when you buy an item, you own the item outright and it will appear on your balance sheet as one your business assets. As such, by owning these assets outright you increase the perceived capital and value of your business. You can also claim the cost of the asset against your capital allowance for tax purposes.
    • Pro: It’s yours for the life of the asset – once you own the item, you have full use of the equipment for the duration of the life of the asset. Your use of the asset isn’t reliant on you being able to keep up regular lease payments, and if your financial circumstances change then you can sell the asset to free up the capital.
    • Con: It’s an expensive outlay – paying for the item up-front is a large outlay for the business and will require you having the cash to cover this cost. Spending a large lump sum in this way may take cash away from other areas of the business, so you need to be 100% sure that this purchase is the right decision and a sound investment.
    • Con: You may require extra funding – if you don’t have the liquid cash available to buy the item outright, you may need to take out a loan. Asset finance is available from funding providers, but does tie you into a loan agreement that will add to your liabilities as a business – reducing your worth on the balance sheet.

Leasing: the pros and cons:

• • • Pro: Leasing has a cheaper entry point – if the item you need to purchase has a large price tag, leasing allows you to make use of the asset without the cost of buying it in full. For start-ups and smaller businesses with minimal capital behind them, this can make leasing a very attractive option. You may not own the asset, but you can make use of it – and this may be the difference between the success or failure of your business.
    • Pro: You can spread the cost – there is still an associated cost of leasing, but you can spread the cost over a longer period, making it easier to find the necessary liquid cash to meet your lease payments. With this money saved, you can then invest in other areas of the business, helping you to expand, grow and bring in more customers and revenue.
    • Con: You don’t own the asset – there are different types of leasing agreement. Under a capital lease, you do own the asset (once you’ve paid if off). But if you opt for an operating lease, this is a more short-term lease and you won’t own the asset at the end of the contract. Ownership does have its advantages (including being able to sell off the asset if required) so it’s important to consider what kind of leasing agreement you’re entering into and what the advantages/disadvantages may be.
    • Con: You may pay more in the long run – most leasing agreements will attract additional costs and interest on your agreement, so you may well end up paying more than the market price for your asset in the long term. If you can cope with the higher cost, this is fine, but bear in mind that buying outright may have offered greater value.
    • Con: You may lose the use of the asset – if you can’t keep up your lease payments (due to poor cashflow for example) then the owner of the lease agreement may recall the asset. If this item is crucial to your business model, losing this key asset can have a profound impact on your ability to operate. In this respect, leasing is a more risky prospect, but also an easier option for businesses with less cash to splash.

Talk to us about whether buying or leasing is the best way forward

Whether you opt to buy or lease your equipment isn’t always a straightforward decision to make – so it’s a good idea to consult with your accountant early on in the decision-making process.

We’ll help you review your current financial position, assess your available cashflow and look at your regular cost base to decide whether buying or leasing is the right thing for your business.

The following content was originally published by BOMA. We have updated some of this article for our readers.

Generally speaking, an exit strategy will be put in place years before your planned exit date.

This gives you time to work on your sale plan and deal with any succession issues. But more importantly, it gives you the time needed to add additional value to the business prior to a sale.

Every business has its own unique sale value, based on the size of the business, the worth of its assets and the perceived value of the company on the open market.

But what can you do to add value to your business and achieve a better sale price?

Make sure you’re running a tight ship

When you sell a house, estate agents will advise you to redecorate, clear out the rubbish and add more to your sale price as a result. The same is true of selling a business.

A potential buyer will generally want to purchase a business that’s in good shape. Sometimes a buyer will purchase a badly performing business to either a) whip it back into shape, or b) buy it cheap, sell off the assets and make a profit. However, if profit is what they’re looking for, a well-organised and efficient business is a better prospect.

Adding value starts by doing your housekeeping and making sure the whole business is in a good position to hand over. That means having:

• • • Modern, digital systems to keep your operations efficient, secure and well integrated
    • Excellent record-keeping, compliance and governance procedures in place
    • An excellent customer base to provide stable sales and good revenues
    • A good brand awareness and positive reputation in your sector
    • Efficient executive, management, operational and administrative teams to run the business in the smoothest and most effective ways.

Resolve any ongoing business issues

Every business will have a few ongoing business issues to contend with. These could include legal worries, court cases or bad debt in the business, and they can all have a negative impact on the company’s value. The more you can do to resolve these issues and present a worry free environment for the new owner, the better.

Work with your lawyers, solicitors, HR advisers and accountants to find resolutions for any long-standing problems in the business. If you can hand the business over without a long list of potential headaches for your buyer, that’s likely to add value to the business. Trust is also important in a sale. Being transparent and open about any previous issues will also create a better relationship between you (the vendor) and your buyer.

Improve your financial health

Most buyers will be looking to purchase your business and turn a healthy profit. To do this, they’ll want to know that the company is financially healthy. This means having books that balance and plenty of potential for them to continue this company as a profitable venture.

So, which areas of your finances should you be looking at? The key here is to be in control of your financial management, and to have a strategy in place that will improve each area of the business over time as you near your sale date.

This will include

• • • Strengthening your balance sheet, so you can present an attractive set of accounts
    • Improving your profit and loss, by increasing revenues and cutting your expenses
    • Boosting your cashflow position through careful cashflow management
    • Reducing your debt liabilities, by resolving late payments and bad debts
    • Polishing up your credit score, by partnering with a credit improvement specialist
    • Making sure the business is well funded, by working closely with lenders.

Get your executive team ready to take over

You may well remain the lynchpin in your current business. But a business that’s still 100% reliant on its founder is not an attractive proposition to a buyer. If the business is still reliant on your everyday operational input, and you then walk away, that business can no longer function effectively. To remedy this, you need to step back and get your team ready to take over.

The easiest way to do this, is to think about the key areas where you still have input, and to then systemise these and put them under the remit of a member of your executive team. If you’re still signing off the payroll, pass this to your finance director. If you’re still taking part in all client sales presentations, defer this to your sales director.

You’ll need to be able to sell up and step away from the business without there being any operational or leadership issues for the new owner.

Work with your advisers to proactively add value

Business advisers in the M&A market have the advantage of having worked on hundreds of different business sales, across a multitude of sectors. They know what looks attractive to a buyer and what the main red flags are in a purchase. And, importantly they know how important it is for your business to have a razor-sharp focus on adding value.

A good firm of advisers delivers a range of different advisory services. By gradually enhancing every element of the business, you’ll end up with a far more attractive business to sell.

Keep any staff problems, legal issues or accounting challenges to a minimum, so the business is as attractive as possible to potential buyers, and the sale can be completed quickly.

Talk to us about adding value your business

To meet your personal and financial goals for this business sale, you want your company to be an attractive proposition on the open market. This process of added value isn’t instantaneous, but with the right advice and planning, you can move towards a more valuable sale price.

If you’re in the process of planning your exit, do come and talk to us. We’ll help you plan your exit strategy, adding value at each stage of the plan to boost your return from the sale.

The following content was originally published by BOMA. We have updated some of this article for our readers.

It can feel challenging to chase up payment of invoices when the economy has been down, but it is important to keep cash flowing into your business so you can cover expenses and meet your obligations to others.

As with all dealings in more difficult times, some empathy and a lot of open communication can go a long way.

The following tips are useful to keep in mind when asking for payment.

Communication – Connecting with your customers is important. Try to make it personal to their situation rather than a one-size-fits-all email. Connecting on a more personal level shows you value them and are conscious of the impacts that the current situation may be having on them. The empathy you show now will also be remembered when the economy recovers. Be proactive – early communication will help you stay on top of cash flow and will also alert you if you need to account for late payments.

Offer flexible payment options – for customers who can’t pay in full, consider breaking invoices into multiple payments with payment terms moved to a longer timeframe. Set up a credit card facility to give customers other options for payment. After all, the easier you can make it for them to pay you, the quicker you will get paid. If you don’t have payment services set up in your accounting software, we can help you do this. Offering a discount for early payment might provide the incentive, for customers who can settle, to pay your invoice before others.

Total Outstanding – Make sure you keep track of how much customers are in arrears. While you can continue to allow credit, you want to make sure you’re not creating too much risk. Allowing continual extensions to payment while also letting more to be added to their total amount outstanding can create a cashflow crunch. Get in touch if you want help to better track your cash flow.

Keeping cash flow going is vital for your business so the earlier you communicate with customers the better.

The following content was originally published by BOMA. We have updated some of this article for our readers.

When you run a small business, the amount of work can ebb and flow.

Unexpectedly busy periods can create too much work and stress for a small team or one-person business. But if a surge is seasonal or unreliable, you don’t necessarily want to commit to taking on another employee.

One solution is to use outsourcing to give you some flexibility during busy periods.

What could you outsource?

There are several types of jobs that can be ideal for outsourcing:

• Tasks you dread, usually procrastinate or that cause you massive stress
• Tasks where you or your business have low expertise
• Those tasks which don’t require the contractor or freelancer to access your systems or deal with your clients.

For example, if you aren’t managing your digital marketing, outsourcing your social media management could work well. Or it might be branding, HR or customer service. And if you need help with your payroll or accounts, we’re only a phone call away.

If you can take stressful tasks off your plate, or reduce your workload at peak times, you can increase your revenue and productivity without overcommitting to payroll.

Who could do the work for you?

We’re here to support you with your accounting and payroll requirements. For other types of work, you could consider a local or an offshore provider. There are plenty of platforms and organisations that will help you, but do shop around as the quality varies enormously.

The advantages of a local provider are that they’ll be in the same time zone, with no language barrier and operating under the same regulations. International providers, on the other hand, can be considerably cheaper.

Need help getting started?

Considering outsourcing and wondering how much to spend or where to start – or you need help with accounts and payroll? Get in touch, we’d love to help.

The following content was originally published by BOMA. We have updated some of this article for our readers.