Is Your Small Business Heading in the Right Direction? Here Are 5 Ways to Tell

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Goals are a great way to measure your progress and tell you if your small business is in good shape. Find out what other signs show you’re on track. 

Running a small business can be tough, especially in the current uncertain economic climate. It’s healthy to take a step back every so often and think about whether you’re on the right track. But how can you know for sure? Making money is important. So are your relationships with your customers and employees.

Here are five signs your business is in good shape.

1. You have clear goals and know how you’ll reach them

The only real way to know if your business is heading in the right direction is to know where you’re hoping to go. If you create and sell funky t-shirts online, your goals might be different from your local cat cafe. Goals are specific actions that will take you toward making your vision a reality.

The trick to setting goals is to make sure they’re measurable and as specific as possible. So, rather than saying “I want more customers,” you might say “My goal is to get 100 (or 10,000) more customers by the end of September.” Track your progress along the way, and don’t be afraid to break a big goal into smaller milestones. It’s also good to share goals with your team so you’re all on the same page.

2. Your cash flow is healthy

Cash may no longer be king, but cash flow can make or break your small business. If you can’t pay your suppliers or cover this month’s payroll, things can get sticky quickly. Perhaps you’ve made a lot of sales and are waiting for clients to pay their invoices. But until that money is in your business bank account, it isn’t going to help you pay your rent or buy the supplies you need.

Negative cash flow — when your expenses are greater than your revenue — happens sometimes, particularly when you’re starting out. A business credit card can sometimes help to cover short-term cash flow problems. But if you regularly find your cash flow is negative, it could be a sign of trouble. Perhaps you’re not generating as much as you’d hoped or your costs have crept upward. Or maybe there are some big unpaid invoices you need to chase down.

Cash flow isn’t the only financial indicator to watch. More widely, you also need to look at your balance sheet and income statement. Together these will show you whether your revenue is growing and whether you’re in a good position financially.

3. Your employees want to work for you

Good employee morale is the oil to your business engine. If your staff want to work for you, they’ll be more likely to go the extra mile, be more creative in solving problems, and be more productive. They are also less likely to quit, meaning you don’t have to spend as much time recruiting and training more people. Plus, it makes the hours you spend working more pleasant for everybody.

The real question is how you can create a positive environment, particularly when time and money are tight. As a small business, you may not be able to pay for endless snacks and install bean bag chairs and ping pong tables. You’d be surprised at how far good communication can go.

For a lot of people, it’s more important to know that their contributions are useful and valued than it is to play ping pong at lunch time. Make sure your staff both understand and buy into your vision. Talk to them about how the company is doing and celebrate with them when you meet goals.

Listening also helps. If you don’t already have systems that allow staff to tell you what they’re thinking, consider introducing them. That might involve formal feedback processes or simply setting aside time to talk more with your team. The earlier you hear about potential problems, the less time they have to fester.

4. Your customers keep coming back

Repeat customers are a surefire sign you’re doing something right. It’s also much more cost effective. According to a report by Forrester, it costs five times more to acquire a new customer than it does to retain an existing one. If someone’s already bought from you once, they’re more likely to do it again — in some ways, you’re pushing on an open door.

If you find that you’re spending lots of time and money chasing new customers but only a few of them come back, take steps to reduce customer churn. That might involve using your website and social media presence to build a community that people want to be part of. Or using customer relationship management (CRM) software to track and improve the way you interact with your clients.

5. You are able to borrow money if you need

The double whammy of high interest rates and economic uncertainty mean it’s harder than ever for small businesses to access credit. A recent Goldman Sachs survey found that over three-quarters of small businesses are concerned about accessing capital. Of the 17% of business owners who’ve applied for credit in the past three months, 61% have found it difficult.

If you wait until you actually need to borrow money to make your company more creditworthy, it could be too late. Like your personal credit score, it takes time to build a credit history that shows your company is likely to pay back a loan. Take steps, such as registering your business, to improve your business credit score.

Bottom line

There are lots of factors that show whether your business is heading in the right direction. While it’s important to look at the figures and evidence in front of you, it’s also good to trust your gut. If you’re happy and feel that you’re on track, that in itself is a powerful sign.

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The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.Emma Newbery has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Goldman Sachs Group. The Motley Fool has a disclosure policy.

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