How to Assess the Health of Any Business
~by Marlena Stoddard~
Just because a business hasn’t yet closed its doors doesn’t mean it is in good financial condition. Some companies may be able to borrow money from friends, relatives or financial institutions to keep them going in the hopes that they will one day turn a profit. In some cases, the owners themselves contribute capital to keep their dream alive.
How can you tell if a business is healthy or not?
Take a Look at Its P&L Statement
The profit and loss statement will give you a good idea of how much money the company brings in, what its sources of revenue are and how much debt it has. If the statement shows a large number of owner contributions or outside loans, it may be a sign that something is wrong. Either the company is not making enough to meet expenses or it is spending too much on people or equipment it cannot afford. According to the experts at Navicor Consulting, the number one point of failure for new businesses is misinterpreting the profit and loss report. At the same time, the number one path to success is interpreting profits and losses correctly, and in the appropriate context.
Is the Company Able to Find Customers?
Looking at a company’s customer acquisition rate as well as the number of customers it has currently can indicate how well it is doing. If a business can attract a paying customer or client base, it is logical to assume that it has a product or service worth offering.
It may be even more encouraging if the customers are government agencies or other large companies because they may be able to sign long-term and lucrative contracts that may not change over the course of many years. If either are the case, it may be a sign that something as simple as a price increase or tweaking the company’s process could be what it needs to become profitable.
Does the Company Have a Strong Brand?
A company’s brand is essentially its identity and what it uses to make a good first impression. You know an organization has a strong brand if consumers, who may not use the product or service, know what the company provides or at least knows what it prides itself in offering to the customer. If a business knows how to market and position itself properly, there is a good chance that it is profitable or heading in that direction.
Understanding the health of a business is important whether you are an owner, an investor or someone looking to partner with it in some capacity. Looking at a profit and loss statement as well as looking at its current customer base and branding efforts are all ways to quickly ascertain whether a business will survive and grow in the long-term.
Marlena Stoddard is a freelance writer who received her BA from the University of Georgia. She currently resides in Atlanta with her husband, two kids and puppy ‘Molly Belle’.