For emerging growth companies that have managed to survive yet are facing the quandary of how to sustain their fast growth, now could be a good time to evaluate if it’s built for continued success. These are some of the key financial health indicators for knowing whether your startup is built for speed and scalable growth.

What Is the Best Measure of a Company’s Financial Health?

Some finance and accounting experts would point to cash flow as the ultimate measure of a company’s financial health. Without cash, a company can end up on a downward spiral of overdue payments and broken credit obligations. Healthy cash flow, however, puts the company in a position to build loyalty with customers, suppliers, and other partners—a situation made possible when the company has full visibility of its incurred expenses and the ability to produce reliable budgets and forecasts.

Proper cash management and healthy cash flow also enable a company to be able to handle the unexpected—while there are specific situations that no one can predict in business, you can pretty much count on something unexpected occurring and the need to tap your cash reserves.

Other Key Financial Health Indicators

• A strong financial foundation: Are your company’s financial operations running smoothly, or do you have only a loose view of what’s going on in the business? When you have the layers of the financial function in place (from day-to-day accounting coverage through controller insights and CFO-level advice), up-to-date and appropriate technology systems for your company size, and processes that are repeatable and practical, you have the building blocks for creating and understanding information required to make smart decisions.
• Planning capabilities: Do you have members on your team who are forward-thinking, or is everyone looking backward or only at the present moment? Setting realistic goals, planning for various scenarios, and devising strategies usually fall under a CFO’s purview—this role’s unique perspective can be invaluable, even on an outsourced/part-time basis, for helping to keep the company continually moving forward, while constantly being aware of what’s really going within the business.
• Capital: Cash is king, as we’ve indicated, but you also need other means for building, growing, and hiring—so you need to keep watching on your capital levels and know when it’s time to seek additional funding and where to turn. This is another prime area for a CFO to tackle, as the company explores the pros and cons of debt and equity financing and whether it’s set up to win over investors.
• A strong support system: Another one of the company financial health indicators that may receive less attention is the ecosystem you have built around your startup. From the specialized advice you receive to your tax and accounting experts and more, you need to build a network of service providers you can trust and turn to at a moment’s notice. This ecosystem is partly what’s keeping your company strong and capable of scaling as appropriate.

What Is the Best Measure of a Company’s Financial Health?

The very best measure of a company’s financial health can depend on the company, whether it’s a pre-revenue company, or a company racing toward an IPO, preparing to seek a second round of funding, or getting out of the gate with a new product. Can the company withstand big changes? Would potential acquirers be impressed once they see what’s under the financial hood, or would the truth make them back away?

There are so many factors that go into determining the financial health of a company that it’s worth taking an assessment (a financial health index, if you will) and seeing where the company is at today and where improvements could be made.

Is it time to evaluate your company on its financial health? Reach out to ZRG to assess your emerging growth company today.