Most of us start a business because we want to make money, tired of working for someone else, we are good at what we are doing and host of other reasons. We may be good at few things related to the business. However, when it comes to finance, most of us lacks the basic knowledge to recognize telltale signs. You need to seek assistance of a financial professional when necessary. You should also know some basic financial concepts in order to seek additional help when needed. Here are two things to practice to gauge the success of your business.
Inventory turnover rate: This tells you how fast you move your product through the system. If your rate is slowing down, your cash is tied up in the inventory. This will slow your business growth. It is easy to calculate the ratio. You need to divide the cost of goods sold by inventory to get the ratio.
Days sales outstanding (DSO): If you are not collecting accounts receivable on time, you will be running into a cash flow problem. So, divide the accounts receivable by annual sales and multiply the result by 365. If the ratio is less than 45 days, it will be an acceptable time frame.