Accepting the fact that you can go out of business is the first step towards building a business that withstands time. There are obvious signs that reveal if your business is failing, but it might be too late then. Always analyses these numbers and be observant of them to protect your business. Learn about these 7 numbers that warn you in advance, if you’re going out of business.
It is the first place to look in your book to find the health of your business. Are you adding to the number? Compare sales numbers by timeline of weeks, months, years and same time last year. Though there might be various numbers that say otherwise, the bottom line of a business is its sales number. Without sales, the money spent won’t come back.
If your sales numbers are declining for an extended time, it is a warning sign that you are going out of business. Successful businesses become successful large businesses when they understand that sales is king and focus their business on generating leads and closing sales.
If more money is coming in than is going out, you are in a “positive cash flow” situation and you have enough to pay your bills. If more cash is going out than coming in, you are in danger of being overdrawn, and you will need to find money to cover your overdrafts.
At times, you may need to keep track of cash flow on a weekly, maybe even a daily basis. If this monthly cash shortage continues for several months, you’ll get further and further behind. This is why failing businesses typically are over borrowed or have no adequate working capital to cover shortages in cash flow.
Companies use gross margin to measure how their production costs relate to their revenues. For example, if a company’s gross margin is falling, it may look for processes that allow it to cut labor costs or for suppliers who offer lower costs on materials. Alternatively, it may decide to increase prices to boost revenue. Declining gross margin could mean either you are paying more to your vendors or your customers are not paying as much for your product. Thus, a warning you’re going out of business. Learn how to calculate gross margin from Investopedia.
Average Revenue Per Unit (ARPU)
ARPU is a measure of the revenue generated per user or unit. Average revenue per unit allows for the analysis of a company’s revenue generation and growth at the per-unit level, which can help businesses to identify which products are high or low revenue generators. This number essentially tells you how much each customer or unit of sales is worth to the business. Therefore, the customers and the ARPU should rise directly proportional to each other, else there is a risk of going out of business, when either one falls and the other stay stagnant.
Repeat customers are someone who generates recurring revenue for a business. The repeat customers are desirable because you don’t have to spend as much money on marketing to them. They will keep coming to your business as long as you continue to provide good product at reasonable value to them. Increase in repeat customers signifies you are providing good value to your customers. The drop in repeat customers is a tell-tale warning sign your customers hate you and your going out of business.
Outstanding receivables show the total amount of money you need to collect from your customers. This is the amount your customers owe you for the purchase they made from your business. You know something is not going right with your customers if the outstanding receivables continue to inch up. The rise in total outstanding receivables warns you about going out of business due to bad cash flow.
Liabilities and Borrowing Interest
To be running successfully, a business needs to know what is its liabilities and rate of interest at which you have to pay it back. In order to successfully run a sustainable business, the cost of borrowing should be less than the profit they make. It is an ideal position to be debt free. The time of repayment must also be considered for the calculation of the interest rate.
Analyze and calculate the total liabilities that you have to pay back. If the number is more than the value of assets or affects the cash flow, its Game Over for your business. So, be vigilant and cautious about your borrowings and check to see if the numbers warn you of any distress that might make you go out of business.
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