You started your business with a goal in mind. Do not leave that goal to chance.
Have you ever been concerned about the amount of debt your business carries? Have you wondered how you will pay your vendors, or even your employees? Would you like a snapshot of your assets and liabilities so that you could quickly know the financial health of your business? These concerns could mainly be addressed by one particularly important calculation.
That calculation is called the current ratio, a simple liquidity ratio that requires you to get two numbers from your current balance sheet and then do some simple division. The current ratio is a numerical value that shows your ability to take care of your short-term obligations. In other words, whether you have enough resources to pay your debts. You will need to find the section of the balance sheet labeled as current assets, and another section labeled as current liabilities. If you do not currently have a prepared balance sheet, please contact me so that we can get that essential financial statement prepared for you.
The formula for current ratio is current assets divided by current liabilities. Current assets are those assets (resources) which turn over regularly, usually within a year. The main categories of current assets are cash and bank accounts, inventory, and accounts receivable. Current liabilities are those liabilities (debts) which the company expects to pay off within a year's time. The main categories of current liabilities include accounts payable, expenses, dividends payable and short-term debt.
A current ratio of 2:1 is one indicator that a business is in good standing and should be able to comfortably pay its debts. The 2:1 current ratio shows that your current assets are double your current liabilities. A ratio of 3:1 shows that your current assets are triple your current liabilities, and so on. A current ratio of anything less than 2:1 requires your immediate attention, and our free 30-minute bookkeeping analysis can give you valuable insight on how to address that situation.
Please do not be the business owner that does not periodically check the financial health of your business, because its success depends greatly on those figures. Let Skilled Bookkeeping and Business Services LLC enjoy taking care of your books so that you can continue to enjoy helping your business flourish.
