Top 5 Questions to Ask Relating to Your Business’s Financial Health

It’s always good to approach your business with curiosity.

What’s driving you?

How’s your team doing?

What could be going better? 

But sometimes we don’t ask the right questions about our finances, because it can feel a bit intimidating. Who knows what we’ll uncover? 

There’s no need to be worried. Knowledge is power, and we’re here to make you more powerful than ever before. 

We’ve put together five key questions that will help keep your business on track and grow to new heights. 

Leading with Curiosity 

There’s a reason the wisdom of Socrates carries on today. He’s famous for asking questions. It’s a method that can help you reach useful insights.

A toga is not required, but certainly, a fun addition if you want to really get into it! 😉

Anyways.

Consider employing the “5 Whys” Method, which is popular among lean startups.

Whenever you think you have an answer to the below questions, try asking “Why?” again and again. You may discover some interesting root causes, causality, and insights.

Always pursue this approach without judgment. Even if it’s tempting to do so, the goal is insights and not blame. 

5 Whys Example

The “why” to many of these could have many answers taking you in different directions to explore, but here’s a simple example with one answer and follow-up question for each. 

• Why aren’t we profitable yet?

Our revenues aren’t exceeding our expenses.

• Why aren’t our revenues exceeding our expenses?

Our expenses are reasonable, so it must be that we need to work on our revenue model. 

• Why isn’t our revenue model working? 

We’re not sure, perhaps there’s some more research that needs to be done here. However, it’s based on assumptions from two years ago when we started, and we’ve learned a lot since then which could be updated. 

• Why haven’t we updated our revenue model?

We get caught up in the hustle and bustle of daily business.

• Why are we too caught up in the hustle and bustle of daily business?

We haven’t created a process that includes scheduled time and accountability for strategic thinking and updates. 

Okay, here are some good questions to get the curiosity going! 

Question 1: How’s My Cash Flow?

Cash flow is the lifeblood that keeps everything running smoothly. 

Unlike profit, which is a measure of your earnings over time, cash flow is the actual money flowing in and out of your business right now. If you’re not paying close attention to your cash flow, you could be headed for trouble, even if your business is profitable on paper.

Signs that your cash flow might be struggling include:

• Late payments from customers
• Overstocked inventory
• Unexpected expenses

To keep your cash flow healthy, make sure you’re invoicing promptly, negotiating favorable payment terms with suppliers, and keeping a close eye on your expenses.

Question 2: Am I Profitable? (And If Not, Why?)

This seems like common sense, but it’s key. 

While cash flow is essential for short-term survival, profitability is the key to long-term sustainability. It’s the difference between making money and just breaking even. 

To figure out if you’re profitable, take a close look at your revenue and your expenses.

• Are you pricing your products or services correctly?
• Are your costs under control?
• Is your sales volume high enough? 

Answering these questions and keeping an eye on your budget can help you pinpoint areas where you can improve your profitability.

Question 3: How’s My Debt Situation?

Not all debt is created equal. Some debt, like a loan used to purchase equipment or expand your business, can be a good thing. In fact, we recently wrote an article which will help you get a bank loan for your business. 

However, too much debt can weigh your business down with interest payments and limit your cash flow. 

If you’re carrying a lot of debt, consider strategies like consolidation or refinancing to reduce your interest rates and monthly payments.

Question 4: Am I Saving Enough?

Even if your business is doing well right now, it’s important to prepare for the unexpected. A rainy day fund can help you weather tough times, like a sudden economic downturn or an unexpected expense. 

It can also give you the flexibility to take advantage of new opportunities, like expanding your business or investing in new technology.

Make sure you’re setting aside a portion of your profits each month to build up your savings.

Question 5: What Does My Future Look Like?

Having a clear vision for your business’s future is essential for making smart decisions today. Financial forecasting can help you anticipate potential challenges and opportunities down the road. 

By using tools like financial modeling software or seeking the help of a professional advisor, you can develop a roadmap for your business’s financial future. 

This can help you make informed decisions about everything from hiring new employees to expanding into new markets.

3 Key Takeaways:

At New Economy, we’re always asking questions and coming up with helpful solutions. We want to help you flourish by taking control of your finances. Here are 3 key takeaways:

1. Stay Curious: Instead of making assumptions and judgements, keep an open mind and question the world around you.
2. Keep Asking Why: Go deeper and deeper to see if you can find and solve root causes.
3. Plan Ahead: Use questions and forecasting to make informed decisions about your business’s future.

Remember, asking the right questions is the first step to taking control of your business’s financial health. 

Don’t be afraid to seek help from a financial professional if you need it. By staying informed and proactive, you can set your business up for long-term success.

New Economy Team Members are Experts in Accounting for Entrepreneurs

If you need help asking the right questions, getting your finances organized, and decreasing your taxes, New Economy is an excellent partner. 

We’ll help you get your accounting and taxes done, and done right.

Schedule a time to meet with our Founder, Jeff, and discuss how we can add value to your situation.