As the head of your business, you know leading a company is a tough job. You have the day-to-day stresses of keeping all the plates spinning – keeping customers satisfied, maintaining good relationships with employees, making sure you have the necessary equipment and technology, learning about the latest fire suppression systems, and more. The to-do list can seem endless especially when you want to maintain a balanced personal life.
With the pressure of all these demands, some business owners do only the minimum when it comes to monitoring the health of their fire alarm company. They may look at a monthly income statement and call it good if income exceeds expenses. While that’s certainly what you want to see, there’s more to check when assessing the overall health of the business.
Why spend time monitoring the health of your business? The main reason is that with good information, you can make smart decisions. Ongoing monitoring lets you see issues and make adjustments before those issues become big problems. And if your fire alarm company is for sale, you’ll need business performance information to show prospective buyers.
5 Metrics Every Fire Alarm Company Leader Should Watch
You don’t need a degree in finance to monitor a company’s health. Ask your leadership and accounting teams for these five key pieces of information each month and talk to them about trends they’re seeing.
Gross Profit Margin
Take a look at income versus expenses. If your business is healthy there should be a relatively high profit ratio. Gross profit margin is gross profit divided by revenue. The best way to grow this metric is to increase sales revenues while decreasing costs.
Maintaining a healthy cash flow is essential to the health of your business since this is what you’ll likely use to pay your bills. Your cash balance is cash received minus cash paid out.
“Expect the unexpected” is a business truism that applies here. A low cash balance in the bank could mean your company may not be prepared to deal with unexpected expenses.
Days Sales Outstanding (DSO)
This is the average age of accounts receivable. When this metric trends higher, your business may have cash flow problems. A high DSO means you should put more effort into collections, either by hiring an outside agency or strengthening internal procedures.
This is your debt divided by assets. It’s important because it shows how “leveraged” your company is (how much debt you’re carrying) and helps you understand how creditworthy your business is.
This may be the most important metric. After all, if your customers don’t stay with you, your business can’t survive. Keep a close eye on this. A higher rate means the company is doing a good job keeping customers happy.
There are certainly other factors you could look at; however, the above list covers the basics. Over time these metrics and good regular reporting habits will help you lead your fire alarm company to greater success.
The Importance of Monitoring Company Health
There are three big reasons to monitor these performance metrics:
- Keeping the business going by identifying potential issues before they end up becoming big problems
- Showing your company’s creditworthiness to potential investors and lenders
- Demonstrating the success of the company to prospective buyers
If you envision that you want to sell your fire alarm company or that your company may need funding, having these financial metrics at hand will be crucial.