It is extremely critical that you understand your business health because as business we need to understand all the vital signs to see how healthy our businesses if we leave this blurry and if we don't have clarity on that and unfortunately you're not running inefficient business and if you're not running an efficient business it can easily go bankrupt and that's the reason why we here business owner is pulling their hair out business owners going in debt going into bankruptcy and yet we see other people thrive having this vehicle that cash flows for them year after year and allowing them to have financial and location independence and that's the reason why we're doing this article for you today without further ado let's dive right in just as a disclaimer I need to make sure that we emphasize why we're doing this understanding having clarity of these numbers will allow you to know which levers to pull in order for you to be able to have more profits in your pocket and that's the reason why we're doing this now let's dive into number one.
5 tips to access your business health
1. Current cash balances
Make sure you guys understand your current cash bonds this is your emulation this is where you're able to deploy all your resources to either buy stuff to stay afloat whatever the case may be understanding how cash in your bank is super important as much as it sounds like it is something that is hey it's standard but a lot of people don't even know how much they have in their bank which is a reason why we need to understand their current cash balances that we have in our bank because cash is king .
2 .What does AR stand for
The second number that you need to understand is they are what does AR stand for it stands for account receivables understand where and who still owes you money so then that way you can go out and start reclaiming redeeming all these different accounts that people or your money whether it for vendors whether it be from suppliers partners whatever the case is make sure that you don't have that much AR pending because a lot of us we're just spending so much time working in the business and yet we forget that other people always money so these are low-hanging fruits that we can use to make sure that we up our cash balances right understanding who owes us money and make sure that you go after it with them.
3.Understand the cash flow
The third thing that you need to understand is cash flow from operations what does that mean it means that status call everything as is how much money are you spending what is your cash flow looking like from your operations if you're keeping the operation as is today if you're running at a loss every single month understand how much cash flow you're gonna be out if this takes for three months so that way you understand how much you've budgeted to spend and invest into your business whether it be profiting if it's profiting great then now you understand how much profits you can anticipate to receive in the next three months and then that way you can plan for investment purposes whatsoever.
4. You need to understand cash burn rate
The fourth thing that you need to understand is cash burn rate what does that mean that means your total expenses on the monthly basis understand that even if you're not in operations what is your cash flow burn rate this is super important a lot of people don't understand that if the does not come in you still need to pay for rent you still need to pay for your accounting your miscellaneous your labor costs all these things still needs to come into play to keep your operation up and running that's your burn rate understanding this because this is the minimum break-even you need to achieve in order for you to be able to break-even a lot of people don't understand that that's the reason why they're just rolling in the dark they don't know where they're heading they don't know what's breakeven for them because they don't understand their cash burning understanding your cash burning is super important because that becomes a huge milestone for you and your team.
5. Identify for your business health
The fifth thing to identify for your business health is variable versus fixed expense now let's identify what is a fixed expense regardless of how many people come into your restaurant you still need to pay for rent that becomes a fixed expense because regardless of whatever happens you still need to pay for your rental whereas labor becomes a variable expense because the more people come in the more staff you need to make sure that you have to help operate this business therefore it becomes a variable expense same thing with cost of goods sold the more meals you serve the more you need to order that is a variable expense identify your variable expense versus your fixed expenses this allows you to understand which levers to pull where can you shave off some of the expenses where can you shave off perhaps.
Some of your fixed expenses and where you can shave off some of your variable expenses the sixth thing to get clarity on for your business health is the payment deferrals what does it mean that means that items that can be deferred whether it be payments to your landlord to your vendors or suppliers whatever the case may be payments that you can actually have terms with whether it be a 30 day credit or a 60 day credit it is super important because running as a restaurant it is so so tight margins without having these terms without understanding the different payments that you can defer it becomes very very difficult for you run that tight chip understanding your deferral program and understanding different payment terms that you can have and establish with your vendors is super important that allows you to take that extra cash flow to reinvest into growing your business bigger and better or at the same time if you are in a crunch time if you're looking into trying to survive a recession and this is really important as well because now you can identify which of the payments that you can pay later on.
So there you go understanding business health is super super important this is only part one why is it important it is once again having the clarity of these numbers are so so critical for your success is the differentiating factor between running a business that's gonna drive you to the ground versus a business that's gonna allow you to thrive becoming a vehicle to cash flow for you the more you understand about the numbers the more you understand about these numbers the more clarity you have on your business and that is once again crucial for your success and that's the reason why I created this video for you as a resource for you to understand all these important factors make sure you guys download in the resource sheet below where it becomes a checklist for you and allows you to be able to fill in all the blanks for yourself and allows you to pivot learn which levers to pull in order for you to have more profits in your pocket .
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