Next, evaluate your company’s financial status carefully to see if this expansion is really something you can afford and how it aligns with your company’s objectives. This analysis is more important than ever in today’s turbulent, opaque times, as it is often difficult to plot the best way forward. You may need to use a more dynamic real-time approach than usual as well as a wider range of financial KPIs to keep up with the pace of change and create an accurate financial performance analysis.
When looking to expand, KPIs go beyond a classic balance sheet analysis, to help you identify the best opportunities, business partners and customers. “A complete analysis of the financial performance of an SME now requires a more dynamic and transversal analysis that goes beyond a single balance sheet photo,” advises Philippe Vammale, Risk Underwriting Manager at Euler Hermes France.
The crucial indicators to monitor include:
- Operating cash flow: the amount of money going into and out of your business.
- EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortisation): it’s is a measure of your company’s profitability.
- Debt-to-EBITDA ratio versus the industry average: the amount of income your business must generate in order to service your debt. This is a good indicator of how solvent your finances are compared to your peers.
- Working Capital Requirement, the amount of money you need to run the company. The lower the WCR, the more discretionary capital you have available to use for things like expansion once you’ve paid your bills.
To learn more about these indicators, check our article on the five key financial performance indicators you should follow to monitor your business performance.