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Anita Campbell, over at Small Business Trends, posted some very useful advice about taking the financial temperature of your small business.
But managing your business for financial health is about taking a big picture view of your business, as interpreted through the detail of your financial statements.
It’s the small business, financial interpretation of think global, act local.
Having previously run due diligence numbers on small companies during M&A opportunities, I can’t stress how important it is to “normalize” your financial picture. You can easily and quickly get lost when looking through rows and columns full of numbers for hours in trying to interpret your financial health.
Using ratios not only gives you a quick review of your financial health but comparing them against industry averages certainly helps give you a great idea as to where you stand against your competitors / with your peers.