How do I generally decide on what issues to focus when managing a small business?

Like any investment, you must begin with your original investment goal. If that goal is to earn a stable earnings growth in the company over some time period, or triple your revenue (and increase your profits), then this requires specific focus on the drivers of those outcomes.

How do I determine what component or functional area of my business affects the drivers the most?

To decide what part of the existing business needs the most attention in order to achieve our goals, it is best to see how this functional area is performing, and how it should perform. If your goal is to increase earnings, then there are a finite number of actions you can take in order to do this. If your end goal is to sell the company for a profit to another company, then you must identify ways to increase the inherent value of the company, such as by efficiently using cash, productively using people, properly managing expenses, taking care of employees and clients, increasing sales or repeat business, managing taxes properly, and/or patenting or trademarking.

Why is understanding financial metrics, and corrections made as a result of understanding these metrics, important to successfully manage or invest in a small business?

According to experts at Inc.com, owners need to focus attention beyond simply looking at the profits and losses of a business, since many metrics may tell the owner what may happen in the near future. Certain metrics indicate warning signs that may illuminate a potential problem weeks, months, or years in the future. If you correct these problems as soon as you identify them, you can continue on a path of financial success.

What are some key metrics that a small business owner should analyze to grow his business?

According to management experts at Forbes.com, entrepreneurs and small business owners may be very adept at creating a business, but may lack the skills or discipline and attention to detail that proper management of the financial aspects of the business requires. There are many different financial metrics a small business investor or owner should track, including: sales revenue; customer loyalty and retention; cost associated to acquire a customer; staff productivity; profit margins/earnings; monthly profit/loss; overhead expenses; fixed/variable costs; inventory control; and hours worked per functional process. Experts interviewed by The Washington Post would also specifically include pre-tax net profit margin, current ratio/quick ratio (assets divided by liabilities/cash plus accounts receivable divided by current liabilities), and accounts payable days/accounts receivable days (how long it takes to pay and receive payment).

 
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