Keeping an eye on the health of your business is definitely beneficial. It will help your company to thrive and give you a competitive edge over others. Many business owners rely on accounting software which is an excellent tool to keep track.
Having a set of KPIs or key performance indicators ensures that you stay focused on your financial goals. The metrics might seem confusing at first, but there is plenty of online accounting software in Malaysia to help you out.
To begin with, use these 5 metrics to measure the financial health of your company.
1. Gross profit margin
As a business, you must be generating surplus revenue. But your gross profit margin is not the whole of your revenue. Your net profit is calculated by factoring in your expenses and investments. Experts recommend a profit margin of 10%. Anything less can be worrisome. However, it should be remembered that profit margin can vary according to the industry.
A good profit margin lets you tap into the true potential of your business. The main goal for your profit margin is to secure higher sales revenue and lower costs in delivering the product or service of your business.
2. Receivable accounts
Do not be fooled by a steady inward flow of revenue. Keeping a check on the cash flow can be crucial for your business. The cash flow is the actual cash you have after paying all your bills. Receivable accounts may not show some pending payments. Calculating your receivable accounts is easy. It will give you a good idea of how much you can expect and where you stand financially.
Simply add your opening balance to the closing balance and divide it by two. You can do it every month or once per fiscal year. This report is a significant indicator of available cash flow.
3. Days sales outstanding
With the help of these metrics, you will have an idea of your daily receivable amount. DSO is a metric that shows the number of days that have passed before a business starts receiving revenue. It is an important parameter to use in analysing your next steps. It acts as an indicator of your expected cash flow. Experts advise the avoidance of longer DSO periods to ensure smooth and continuous cash flow. Though shorter DSO is preferred, it can be time-consuming in some cases due to the nature of business.
It also gives an insight into your activities or products while you trace the cash flow. You will have a better understanding of the total cost of each activity.
4. Current and quick debt ratio
Current assets are the ratio of your expected income in a year. Current debt means liabilities to be taken care of in a year. The ratio should not ideally be more than 3%. It is an excellent measure of impending cash flow problems. The quick ratio, known as the acid test, is best for giving you instant insight. It shows your position at any given time.
Debt ratios are used to understand where your company stands in the market among competitors. You will have a clear understanding of any financial risks to your business. It also helps determine how sustainable the business will be in years to come. Keeping track of your liabilities and assets is a great way to maintain financial stability.
5. Customer acquisition and retention
Businesses thrive on their customers. If you have returning customers or a healthy customer balance, your business is well-placed. A higher number of customers and a greater retention percentage is the key. Always keep track of customer retention goals. These metrics need to be monitored on a long-term basis. After getting the report, you can take crucial decisions. You can adjust your customer engagement policies and customer support. Keeping a tab on conversion through marketing and other channels can also be helpful.
In your pursuit of a healthy financial status for your business, Financio, one of the best accounting software in Malaysia, will bring marked improvements. With the best service team at your disposal using the best accounting software, you will not deviate from any goals. Get in touch today and make use of our expert assistance.