The financial health of a business will determine its longevity and success. Understanding your business’s financial health is critical to keeping it running. When a business leaks money, it creates bigger holes within the operation.
Your job as a business owner is to ensure no hole becomes too big and address all concerns immediately. You must consider a few important things when checking your sanitation business‘s financial health.
Are You Covering the Cost of Doing Business?
Before analyzing your financial health, take a minute to look over your profit and loss statement. If it costs more to find clients and generate leads than you get from their business, you will have to rethink your business strategy. Determine what it cost to find your clients and what to charge them so you make a profit after all costs of doing business are covered.
The first place you need to check is if you’re able to generate leads effectively without breaking the bank. CRM tools, email marketing, and other advertising strategies cost money. Check your conversion rate and ensure you’re making a return from your marketing efforts.
Review the market to see how much your competitors charge for their services. Additionally, gauge to see how customers feel about paying for your sanitation services. You can stay on top of most economic shifts with proper market research.
Signs That Your Business Is Struggling Financially
Now that you understand what you should be looking at to analyze and assess your financial health, it’s important to consider signs that your business may be struggling. These signs don’t always indicate something is wrong financially, but they are symptoms of financial struggles.
Low Cash on Hand
Having low cash on hand is one of the first telltale signs that your business may be struggling. Low cash on hand doesn’t always mean your business is struggling financially, but it’s a big indicator that you’re most likely breaking even.
If you tie your money up in assets, equipment, or investments, you may have low cash. A company with low cash turns to creditors to provide them with more money. Turning to creditors leads to more debt and financial obligations.
Managing your equipment and keeping it up to date is important. The moment your equipment begins to wear, and you can’t afford to upgrade or maintain equipment, you’re seeing big signs of financial struggle.
The lack of equipment upgrades and maintenance may stem from a few significant problems. First, demand isn’t high enough to warrant equipment upgrades. Second, certain jobs are straining your equipment too much, meaning you don’t have the equipment to handle those jobs.
The final nail in the coffin for most struggling businesses is customers that aren’t happy with their service. As your business struggles financially, you’ll notice a lack of quality. This lack of quality may come from multiple sources, but most link to financial issues.
Whether that’s employees not getting enough money to perform at their best or equipment not being good enough to keep up with demand, eventually, you’ll lose customers and damage your business’s reputation.
Check Your Margins
Ensure that you’re making more than you spend. Businesses often don’t consider the cost of operating and spend more money doing a job and providing a product than they charge. It’s normal to spend more at the start of a business, but try to shift that as soon as possible.
Prices for equipment, services, and supplies will change over time, and it’s imperative to stay on top and adjust your prices according to your market.
If you’re in a situation where you’re not making as much as you’re spending, you have to adjust your margins. You’ll most likely raise your service and product prices to make up for the cost.
Analyze Your Overhead Costs
Sanitation businesses revolve around providing public facilities for clean water along with sewage and waste disposal. There are plenty of expenses that you must consider when examining the financial health of your sanitation business.
When considering your overhead costs, think of the following:
- Labor costs
- Legal fees
- Licensing fees
- Maintenance fees
- Administration fees
You’ll want to examine these overhead costs and determine where to adjust your expenses. For example, ask yourself if there is any way you can save money on supplies. Shop around to find better alternatives to your supplies and see if you’re getting the best deal on the market.
Consider all the software fees you need, such as accounting software, CRM tools, and other software utility expenses. There are plenty of software alternatives that you can swap to and get a better deal.
Review Your Finances
The most obvious step in assessing your sanitation business’s financial health is looking directly at your finances. The financials you want to look at are your balance sheet, cash flow, and income statement.
- Check Your Balance Sheet: The balance sheet shows a snapshot of your business’s financial position. It’s a snapshot of your assets and liabilities and will show the overall health of your business. Look for signs of debt and any outstanding payments.
- Check the Income Statement: Your income statement will show your company’s revenue and expenses. Check if you have a healthy revenue flow through your operation periods. Additionally, ensure that your income is covering your expenses.
- Check Your Cash Flow: Understanding where your money is going is imperative to the financial health of your business. Check all of your company’s cash sources and all company investments. Keep an eye out to see if your overall cash is increasing or decreasing.
- Analyze Your Assets: Your assets play a big role in the financial health of your business. Depreciating assets, such as machines, buildings, equipment, and vehicles, impact your operations and finances. You want to keep tabs on what assets are losing value over time.
To keep your sanitation business out of financial trouble, monitor its health as often as possible. Check your margins, review your financials, and look for any signs of financial trouble within your business. If you run into financial problems, deal with them immediately.
Detailed bookkeeping is key in gliding through recession times. Take the time to look at your numbers and determine where to cut spending. Analyze the return on investment of outside services like marketing dollars and adjust your strategy where you see low returns. Remember that your employees are your most important asset, so look elsewhere before you start eliminating benefits. Keeping these key points in mind will allow your business to sail through a recession and your business will benefit from the habit of meticulous bookkeeping.
Stay tuned for our next post we discuss how to retain quality employees in your portable sanitation business.