This is a good time of year to assess the health of your company. Review these 10 elements and determine your small business health score to find out where you stand.
What is Your Small Business Health Score?
1) Cash Flow
Having a cash flow positive company is critical for success. This means the business has more cash at the end of the month than the beginning.
How to score: Add 2 points for cash flow positive. Subtract 2 points for cash flow negative (less cash at the end of the month).
2) Quick Ratio
This simple balance sheet formula divides current assets minus current liabilities. Ratios greater than one mean the company has enough current assets to pay its current bills.
How to score: Add 2 points if the company’s quick radio is above one. Subtract 2 points if it is below one. Note that a healthy quick ratio number will vary by industry.
3) Customer Annuities
This means repeat customers pay the company automatically every month.
How to score: Add 2 points if this is true. Subtract 1 point if the company needs to recreate its revenue and find new customers every month.
4) Fixed Overhead Expenses
High fixed overhead expenses do not give companies flexibility as sales and profit changes.
How to score: Add 1 point if most of the company’s expenses are variable. Subtract 1 point if most expenses are fixed or they are high compared to sales.
5) Management Team
Strong companies are not about their owners, but their team leaders.
How to score: Add 2 points for a truly collaborative organization. Subtract 1 point if the CEO makes all the top down decisions.
6) Employee Turnover
Loyal employees generate more profit for companies than those with high turnover.
How to score: Add 2 points if the company retains employees for at least 5 years. Add 1 point for 3-5 years. Subtract 1 point if employees stay 2 years or less.
7) Strategic and Focused Plan
Companies that have a written plan about where they are going and employees that are clear about the company’s direction succeed.
How to score: Add 1 point if every company employee can articulate the plan. Subtract 1 point if they can’t.
8) Systematic Sales and Marketing Plan
Many small businesses only market when they have no sales, but immediately stop when they do.
How to score: Add 2 points if the company has an ongoing systematic plan including social media. Subtract 2 points if sales and marketing is mostly improvisational.
9) Infrastructure
Growing companies need to have an infrastructure that supports them. Nextiva uses the integration of tools from Marketo, SalesForce, and NuviApp (social) to deliver reliable communication solutions to their business clients.
How to score: Add 1 point if the company has integrated systems that can be effectively used by employees and customers. Subtract 2 points if each system is independent from each other or does work effectively.
10) Outside Advisors
Small business owners need to ask for help.
How to score: Add 1 point if the owner has a formal advisory board. Subtract 1 point if the owner is insulated and never asks anyone outside the company for advice.
Scoring Totals:
Above 10: Congratulations! Your small business is healthy and well positioned for 2014. Look at improving any area where the score was negative to increase your strength.
0 to 9: At risk! Key parts of your small business need to be improved. You are vulnerable to changes inside and outside the company. Pay attention to the elements where your score was negative.
Below 0: Danger! Too many parts of your business are unhealthy and your company risks going bankrupt this year. Seek help immediately!
So what is your small business health score?
This article, provided by Nextiva, is republished through a content distribution agreement. The original can be found here.
Test Score Photo via Shutterstock
ed pierce
This seems like a very useful tool to help businesses either stay on track and expand or get back on track and become competitive again. I will have to site down later and see what my business scores and see if their are any improvements I can make.
Barry Moltz
Let me know!
Sorry, but I found this test to be way too subjective to have ANY value. For instance, under ‘Customer Annuities’ the test fails to take into account that some businesses (like as accountants) are such that they have to have long-term contracts with clients whereas others (such as coffee shops) may have a loyal following but they still need a steady influx of new customers in order to thrive.
Barry Moltz
This is exactly the point…coffee shops are a higher risk business then accountants. The coffee shop needs to receate it revenue daily.
Aira Bongco
This is a rather interesting way on looking at small businesses. I guess there really should be some points for the good things that a certain company is doing. I agree on the employee retention part. A company should be able to retain employees for 5 years.