The financial and operational health of your business influences many actions you take as an owner, from the type of jobs you bid on to whether you can acquire new heavy equipment and other assets. You’re able to make smarter decisions that can help you address existing problems or continue along a path of prosperity when you have a true understanding of the current state of your company. Let's look at how to evaluate business health and use that information to create an effective.

Understanding the indicators of business health

Financial performance

As Investopedia pointed out, the bottom-line profit margin is the single-best indicator of business success. Maintaining an updated profit and loss (P&L) statement can enable you to figure out how your current overall strategy performs and if any changes are needed. P&L statements are vital for several tasks including more in-depth profitability reviews that focus solely on finances. Key staff members or your accountant should create and regularly update such a document as up-to-date information about your income and expenses is invaluable.

Entrepreneur highlighted more specific numbers to consider in a more in-depth analysis of financial performance. The amount of working capital (the available funds you use on a day-to-day basis to address a wide variety of financial needs) your organization has available plays a crucial role. Without a steady stream of it, it's hard to stay current with bills, pay employees and handle any other expense. Working capital is closely tied to accounts receivable as well. If your company gets regular work and impresses clients but has trouble collecting payments, financial issues can quickly crop up. If your profit margin isn't where you need it to be, look at these more specific metrics to understand where the issue might come from.

Identifying business opportunities

Financial health can only improve or continue in the right direction if your organization has good prospects for future work. A lack of potential jobs or contracts can quickly cause major problems for your business. With that in mind, it's crucial to make sure you regularly identify potential jobs, network with others in the industry, build relationships with past customers and use other tactics to find more jobs. Most importantly, you need to focus on work that makes good fit with your company's strengths and current abilities.

A pipeline of potential jobs and information about future projects is a core element of overall business health. Is your business looking for work? Invest time and effort into building relationships in your local community despite in addition to delivering excellent work and creating happy customers.

Establishing goals

As a business owner, you have unique goals that set you apart from other businesses in your industry. Whether you want to grow your company into a local, regional or national giant in your field, maintain your current level of activity, or sell your enterprise once it becomes large enough, your objective can help you tell if you're moving in the right direction. For example, a business owner emphasizing slow growth shouldn’t assume extremely large or complicated projects or make significant investments. Alternatively, a business seeking rapid expansion might find such a strategy more aligned with their goals.

Make sure the actions you are taking to move business forward are aligned with your long-term goals. Regularly evaluate your organization's progress to ensure you're not just righting your ship or growing, but doing so in a way that contributes to achieving your objectives.

Smart planning to get ahead

Understanding the current position of your business helps you address the three major areas of concern that were previously outlined. Establishing goals and reviewing them regularly is a vital step in keeping your business on track for growth. Identifying “big-picture” concerns such as finding new sources for potential jobs or improving collections can help you take more strategic steps to right the ship.

Most business decisions are determined by budgets or generating revenue. Make sure you keep options open on the financial front and carefully consider every decision that can significantly impact your business. From leasing or financing versus purchasing heavy equipment to investing in training and tools that help your employees become more productive, a well-planned change has the best chance of creating a positive impact for your company. By keeping both your goals and finances top of mind can help you confidently evaluate your company's global health and make the best decisions possible.