Scaling a business is not a decision you can make on a whim and there will be a lot of planning and analysing with a trusted business advisor.
The decision-making process may be aided by your accountant, as well as the bookkeeping services and statutory reporting services you have outsourced. Outsourcing your finance can be of great use when scaling because you will have access to additional services like financial management services, company secretarial services UK, and financial reporting services.
If you are meeting your reliable financial business partner or accountant in Ilford to discuss expansion, these are a few key performance indicators or KPIs that provide quantitative data on your revenue, profit, and growth performance.
- Working capital
This KPI measures the liquid assets you have that meet your short-range financial obligations and is the difference between the current assets and current liabilities of your business. This indicates the operational effectiveness of your business.
An accountant from Ilford may explain that working capital indicates if your business can cover a short-term debt with short-term assets. A ratio between 1.2 and 2.0 is what you should be looking at and a value below 1.0 indicates that you are operating at a loss while a ration over 2.0 may indicate that you are not maximising your surplus assets for revenue.
- Operating cash flow
If you have decided to outsource your finance and use bookkeeping and company secretarial services, your attention may already have been drawn to this indicator. Operating cash flow is the total cash produced from your business operations and indicates whether your business has sufficient cash flow to operate.
The operating cash flow is an indicator that will give you a better idea of how your cash flow can be managed to accommodate expansion and growth.
- Current ratio
This KPI indicates the capacity of your business to generate enough revenue to cover your debts in a financial emergency and finance and accounting services may use the current ratio to evaluate the short-term liquidity of your business.
An accountant may look at two components under the current ratio indicator. One of these components is current assets, which are your liquid assets that can be turned into cash within a business year. Accounts receivable, inventory and marketable securities are all types of current assets.
The second component of this KPI is current liabilities like account payables and short-term debts. These are financial obligations and debts that must be paid within a business year and are recorded in a balance sheet.
- Cash flow forecasting
If you are planning on scaling and expanding your business, you may also check your cash flow forecasting, which is the process of estimating your future financial position. Financial reporting services will estimate the money you expect to flow in and out of your business. This can include all projected income and expenses over weeks, months or years.
While the above indicators are important when preparing to scale, this is especially important as it looks at your future financial position. A reliable financial business advisor will study your cash flow forecasting carefully before advising you on the steps to take when expanding.
This is important as you would not want to start expanding your business and then run out of cash.
- ROI, ROE, and ROA
Return on investment or ROI measures your profits or losses against your investment and is typically a percentage used to compare profitability or efficiency of various investments. This includes profits gained from marketing efforts as well as money used for marketing.
When studying these indicators with a trusted business advisor, you may want to look for a positive percentage. This indicates that you can maximise your investment options to fuel growth and profitability.
Return on equity or ROE is also an indicator of the financial management service you chose when outsourcing your finance will track if you decide to scale your business. ROE is your net income that is returned as a ratio of shareholders’ equity and determines the profitability of a business by disclosing the generated profit from the shareholders’ investment.
On the other hand, return on assets or ROA measures how much profit a business can generate from its assets. This is an indicator to watch when planning expansion and growth and financial statement services will calculate these key indicators to give a business a better idea of where it stands when making decisions on business operations like outsourcing your finance.