Financial success looks different for every business. A new business will measure financial success differently than their more established peers. An established business will measure financial success differently than an equal business from a different industry. However, some metrics for measuring success can be used no matter what business you are in.
Some of the most financially successful businesses share these basic characteristics.
Detailed Business Plan
The best way to keep your company on a path to success is to explicitly record what success will look like for your business. Maintain a detailed business plan that lays out the goals you have for your business and how you plan to achieve those goals.
This plan does not have to stay the same as your company grows and improves. It will, however, give your business a solid foundation by which to measure future success. Financially successful companies improve their business plan as they go along, but an important first step is having a plan at all.
Diligent Record Keeping
You cannot measure financial success unless you know where your money is and where it is going. Regular financial reporting and diligently kept financial records will give you financial visibility into your money. With a detailed record of where your money is going, you can see where you need to make adjustments or investigate further before a hiccup becomes a problem.
After all, financial visibility means better business decisions. That way, you can have confidence in your financial data before you plan for your business’ future.
Many financially successful companies maintain a dynamic financial reporting system, rather than a traditional, static one. This way, business owners can access financial data that is accurate and focused in real time.
Low or No Debt
Financially successful business owners disburse their money like this: you pay the government first, then your lenders, then yourselves. Any taxes or government loans you owe need to be taken care of first. Then you make payments on your debts and any interest on those debts. Then, you can start looking toward spending more on bettering or growing your business.
This method of disbursement helps ensure that you will have low or no debt as you move forward and take new steps for your business. Financially successful companies can grow and improve without carrying their debt, startup costs, or accruing interest payments with them.
Investments in Your Company’s Future
A big part of ensuring the financial success of your business is keeping an eye on both its present and its future. Maintaining a detailed business plan that lays out where your business is going is a great first step. However, most financially successful businesses also take it a step further.
These companies are also taking strides to actively invest in their company’s future. These investments might include diversified product menus that reach a larger target audience, or a merger with an interested competitor. Financially successful business owners keep an eye on any and all opportunities to invest in their future growth and success.
One of the biggest factors for measuring the financial success of your business is growth of earnings. Earnings growth is typically measured as a percentage over a set period (month over month, quarter over quarter, etc.). To achieve earnings growth, your current earnings must exceed your previously reported earnings. This is a great way to measure the internal financial success of a new or growing company.
To take this metric one step farther, you can also measure your company’s earnings growth against other companies in your industry or sector. As your company grows and meets with business success, your earnings growth rate should be competitive with your industry peers.
Once your business is seeing longer periods earnings growth, you can start to use the stability of that growth as a metric of financial success. Earnings growth is an important part of short-term financial success, but earnings stability is a good measurement of long-term success.
For example, after a recession, earnings growth can serve as a measure that you are coming out of a period of low earnings and minimal growth. Earnings stability can serve as the measure that your business is coming out of the recession and seeing long term results.
Strong Business Network
There is a well-known saying about raising children: “It takes a village.”
The same applies to running a business. Financially successful businesses have a strong network to call on. Your business network can consist of sister companies in or adjacent to your industry. This way, you can recommend clients to one another or host themed events together.
A strong business network has at least one person from multiple industries. As you continue to grow and improve your business, you can establish a larger network and make more connections. Financially successful business owners treat every business interaction as the potential for a new network connection.
Your business is unique, and the way you measure financial success is just as unique. Start putting your business on its path to financial success today.