Download ATB's Small Business Pulse Check Tool.
Meeting with your accountant and other professional advisors on at least an annual basis is imperative to your business’ health. In those meetings, they will apply their expertise to help you understand exactly where your business stands. They will also help you see potential problems and opportunities that may be in your near future.
But what about the time between those meetings? It is equally important that you stay constantly up to date on what your business is doing, where it is going and what is affecting it. That is where using the Small Business Pulse Check on a monthly basis can be valuable.
If we liken your annual meeting with your advisors to your annual checkup with your doctor, then the
Small Business Pulse Check is like wearing a smartwatch that monitors your steps, heart rate etc. A great way to keep tabs on the essentials and watch for signs of trouble (or opportunity).
By dedicating an hour or two each month to this pulse check, you will put yourself in a proactive position and make it easier to see problems and opportunities on the horizon rather than reacting to them after they happen.
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The Small Business Pulse Check covers three parts of your business:
Financial
Income Statement Analysis
Begin by evaluating the key metrics from your income statement
Revenue
- Overall revenue shows the general consistency and growth of your business. (Track as a dollar amount.)
- Look for steady growth but expect it to fluctuate with the seasonality of your business. If large fluctuations occur (aside from seasonality), this is a sign to dig deeper to see why and what needs to be adjusted to handle the change.
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Gross margin
- This will show you the value you are getting out of your “Costs of Good Sold” of offering your product or service.
- Costs of Good Sold (COGS) can also be called Inputs or Direct Costs.
- COGS are the direct material and labour costs to produce the product or service you sell.
- Tracking gross margin is a good practice because as a percentage it can help you make accurate comparisons over time regardless of changes in overall sales or seasonal effects, as well as compare your performance to industry benchmarks.
| Gross margin = Revenue - Cost of Goods Sold / Revenue x 100) |
- If possible, compare your gross margins to industry norms.
- Watch for fluctuations. This may mean you need to re-evaluate your suppliers, material choice or pricing.
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Net margin
- This will show the efficiency of your business after all costs are accounted for. (Track this as a percentage).
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Similar to gross margin, tracking net margin allows you to understand how efficient the company is at converting revenue into profit regardless of fluctuations in revenue.
| Net margin = Revenue - Cost of Goods Sold - Operating Costs / Revenue x 100 |
- If possible, compare your net margins to industry norms.
- Watch for fluctuations. This may mean you need to re-evaluate some of your operating costs (e.g. leases, salaries, utilities, equipment maintenance costs, subscriptions, etc).
- For more on gross and net margin calculations check out this article.
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Balance Sheet Analysis
Accounts Payable (AP)
- Be certain of what bills you have coming due in the month and that you have funds allocated to pay them.
- Look at your payment terms and make sure you are using them to your full advantage. (e.g. If you have 60 day payment terms with your supplier and a 30 day grace period on your credit card, that is an extra 90 days that you can make use of cash that is allocated for a payment.)
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Accounts Receivable (AR)
- Know the total of outstanding payments and which customers owe you.
- Have a follow-up system and check each month that it is being followed. (Customers often need regular reminders to pay their bills)
- Identify customers who have outstanding balances, contact them to make payment arrangements as necessary.
💡Tip: Well defined payment terms and ease of payment for customers will help keep your AR in line.
- Remember, money that you have earned but has not been received cannot be used to fund or grow your business.
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Cash On Hand
- Know the total of unallocated cash (and equivalents) that you have.
💡Tip: Use our Cash Flow Forecast template if you want to dig deeper
- Look at ways to use that cash wisely. (e.g. Some may be kept in a highly liquid savings account in case of emergencies while some in short term investments)
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Strategic
Having an overall strategy in place is paramount to success. This part of the pulse check will help you focus on your goals and aid you in making the right decisions to reach them.
Goals and Vision
- Review the goals and vision for your company each month.
- Are you consistently progressing toward your goals?
- Is your company functioning in a way that reflects your vision?
- This is a ‘gut check’ exercise that will help you simplify decisions and stay on a consistent path.
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SWOT Analysis
- A holistic look at your Strengths, Weaknesses, Opportunities and Threats.
💡Tip: Use this guide to create your SWOT
- Strengths and weaknesses being an internal inventory of you, your business and your staff. Opportunity and threats being an external review of your market, competition, community etc
- Review and adjust this living document every month to be sure you are constantly aware of what is working for you and what potential obstacles are on the horizon.
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Sales and Marketing
- Check your actual sales and marketing activity against your plan. Did you follow your plan?
- Did that activity achieve what your plan intended?
- Look for points where prospects often exit the buying process.
- Identify what worked and what didn’t and then adjust as necessary.
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Operational
Equipment
- Take an inventory of your equipment and digital assets.
- Determine if each is being used to its maximum efficiency.
- For those that aren’t, find alternate uses or sell/cancel them to free up cash.
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People
- Think about each employee/contractor in your business.
- Are you asking them to contribute in ways that best reflect their unique skills and interests?
- Also ask yourself if they understand and are in alignment with your goals/vision.
- Adjust what is necessary to ensure your people are engaged, contributing and growing with your company.
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Process
- Review your sales, manufacturing, delivery, installation, communication, payment and any other process you have.
- Identify areas where bottlenecks, delays or errors tend to occur.
- Identify redundant steps.
- Adjust where necessary and document improved processes.
- Automate tasks where possible.
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By working through these points each month and inputting them into the Small Business Pulse Check Tool, you will give yourself a good “birds eye view” of your business each month. After a few months of using this tool, you will begin to see trends emerge. Pay attention to those trends, watch for anomalies and act quickly to adjust accordingly. This way, you can catch problems before they grow too large and identify opportunities before they pass by.