As a small business owner, you might think that when you’re attending to customers or clients and your products are moving off the shelves — or your services are selling — everything’s going well. In spite of customer traffic and sales, however, it’s crucial to measure the health of your business.
Just as doctors use certain indicators to determine a patient’s health, you can use certain key performance indicators , or KPIs, to get a sense of how well your business is doing. Among the top KPIs to pay attention to are your cash flow forecast, indicators related to your sales funnel, and your inventory turnover rate, all of which can help you with planning as well as assessment.
Cash Flow Forecast
Good cash flow management helps your business run smoothly. Cash flow forecast is a key performance indicator that shows your likely cash flow in the coming weeks or months, or the amount of money you expect to come in and flow out of your business, including expenses and income.
Prepare your cash flow forecasts by first estimating your sales for a specified time period. You can use previous sales over the same period if you have a seasoned business. New businesses might take things like industry trends, customer surveys, and supplier feedback into consideration to estimate sales. Next, take payment timing into account — the shorter your invoicing period, the better. Then add up your expenses.
To project your cash flow, start with your total cash balance, or what you have in the bank. Next, add in your projected revenue, and subtract your projected expenses. Knowing your cash flow helps you make adjustments to keep your business operational and can even help you gain business loan approval.
