Much of the information you’ll come across while thinking about scaling your business is about strategy. Successful expansion, on the other hand, is more about properly managing your numbers and planning for a long-term scale. Fortunately, this can be accomplished by tracking the appropriate data using accounting indicators and incorporating them into your growth strategy.
Your key performance indicators (KPIs) are numerical values that demonstrate how well you’re doing in terms of revenue, profit, and growth. Here are the KPIs you should monitor to see if you can scale your company.
Working capital refers to the liquid assets you have on hand to meet your immediate financial obligations. This could contain short-term investments, receivable accounts, and available cash, all of which help to define how your company makes money.
Working capital is the difference between your current assets and current liabilities, and it reflects your company’s operating efficiency. This ratio shows how well your company can cover the short-term debt with short-term assets. Solid working capital has a ratio of 1.2 to 2.0 in most cases. Negative working capital, or operating on a debt, is anything less than 1.0. A ratio of more than 2.0 may imply that you aren’t getting the most out of your surplus assets.
The total cash generated from your business activities is known as operating cash flow, and it reveals if your company has enough cash flow to continue operating or whether you require further investment. The operating cash flow focuses on money coming in and going out of your main business functions, such as inventories, services, salaries, and sales.
Any investments or financial transactions that aren’t part of your working cash flow, such as dividend payments and purchasing capital, are considered distinct transactions.
The current ratio is used to assess the short-term liquidity of your company. It denotes your ability to earn adequate income to pay off your debts in the event of a financial emergency.
Current liabilities and current assets are the two components of the current ratio.
Any liquid assets that can be converted into cash within one business year. Marketable securities, inventories, or accounts receivable, are considered current assets.
Current liabilities are debts and financial commitments that are recognized on a balance sheet within one business year, such as account payables and short-term debts.
The practice of anticipating your future financial status is known as cash flow forecasting. Further, this is calculated by forecasting the amount of money that will flow in and out over the next few months, or years. This is a critical measure to consider as you prepare to scale up your company.
Return on investment (ROI) is a metric that compares your profits or losses to your initial investment. The return on investment (ROI) is a percentage that is used to compare the profitability of various investments.
Moreover, you can build a strategy for maximizing your investment options to fuel growth and profitability if your ROI is favorable or if additional opportunities for better ROIs are available.