Running a start-up is not that easy than it might look from the surface. There are numerous tasks that you have to perform with the limited resources that can be quite challenging. Among all, finance is the most essential and also the complicated aspect of a business, be it a small firm or a large enterprise.
When you are running a business, you have to deal with a plethora of expenses. A normal start-up has to incur a lot of expenses including:
- Marketing and promotional expenses
- Space rentals
- Equipment charges
- Administration fess
- Maintenance charges
- Manufacturing expenses
- Employees salary
These are the major expenses that any business has to deal with, and there are many others that come along the way. Now, handling all of them can be difficult, especially when you are a start-up. Now, the best step that you can take to improve the financial infrastructure of the business is by checking the financial ratios.
Financial ratios that can help in the growth of your business
The financial ratios are nothing but the comparison of the certain financial component of the company. This helps in determining the health of your business and to figure out whether you are going in the right direction.
Here, in this blog, we have different types of financial ratios that every start-up must analyse from time to time. So, let us get started.
Determine the Cash ratio
The liquidity defines how much cash and financial assets you have that can be converted easily. Such resources are required to pay the debts and also help in maintaining the overall financial health of your company.
The cash ratio indicates the ability of the company how much it can generate cash to meet any short term or urgent financial goals. This ratio is taken out by dividing the total number of assets that you owe in the form of cash, inventory and receive payments by the total liabilities including the total debts, business ongoing expenses and the line of credit.
The Inventory turnover ratio
Checking this ratio will provide the duration or result on how long it takes for your business to sell the entire stuff of your inventory for a particular period.
Let’s say, you want to measure the inventory turnover of your company for the period of 2 years. Then, just divide the overall amount that you had to spend in purchasing the goods to the number of stocks left in the inventory for that particular period.
This indicates the quality of the inventory turnover whether you are managing to clear the inventory easily or not.
Knowing the productivity ratio
Now, it is important to analyse whether your business is performing well or not from time to time. For this, productivity is an important factor that every business should keep measuring. Being a start-up, you have to take efficiency as the priority because this is the only way you can compete with the established and big players in the market.
Now, check all the factors that decide the company’s efficiency such as:
- Working strategy
- Tasks Management
- Employees performance
- Customer satisfaction
- Service quality
- The availability of equipment
If you think that your business needs to updates the infrastructure, then you must immediately do it to boost productivity. You can go to banks for a loan, but if you are already struggling with your past debts, then this might be quite difficult. Instead of that, why not approach a reputed direct lender in the market where you can easily manage up to a £10000 loan despite the bad credit.
The debt ratio
Well, every business needs funds to allocate their resources and manage expenses. For this, they either approach an investor or seek out for a business loan. However, having too much debt can be problematic for any business.
Thus, you must check the debt ratios to assess how long will take your business to reach solvency. This will let you know what are the assets and liabilities that are financed with the funds of the creditors and investors.
Wrapping up, these were the financial aspects that you every business must consider to boost its growth. The ration can be a good metric source to measure the financial performance. There will be other factors as well that can help you, but keeping all these factors in check will surely help you in reaching your business goals faster.