financial ratios by industry

There’s no magic formula to running a successful business. While an equation would be helpful, the most business owners can do is learn from fellow entrepreneurs. By looking at the common threads between successful small business owners, hopeful (and experienced) entrepreneurs can learn about what they should and shouldn’t do.

First, let’s look at what causes many small businesses to fail:

Incompetence: Despite their intentions, many business owners aren’t educated enough on the intricacies of business ownership. About 46% of businesses fail because of it.

Lack of managerial experience: 30% of businesses fail due to a lack of managerial experience. When one lacks experience with leading employees, good credit practices, reviewing important data (such as financial ratios by industry) and the logistics surrounding borrowing money, businesses can very quickly run into trouble.

Lack of product knowledge:11% of businesses fail because of a lack of experience in the goods or services they offer. This can lead to incorrect pricing and wasting money. Educating yourself on important logistics like financial ratios by industry, financial statement trend analysis, benchmarking analysis, business valuation software, and budgeting and planning software will lay the groundwork for your business’s success.

Fortunately, it’s easy to learn what makes a business successful. While it may not be as simple to implement, knowledge is the first step:

1. Know What You Want: If your answer to that is simply “money,” you’re already setting yourself up for failure. While money is a necessity, it shouldn’t be the driving factor behind running a business. The most successful entrepreneurs started out hoping to solve a problem, do what they love, give back to their community, and/or provide awesome service for their fellow community members.

2. Know What You Know: Don’t deviate from your knowledge base. If you know plenty about sporting goods from years working on a golf course, utilize that. If you’ve never baked a cake in your life but want to open a bakery, you will be creating extra challenges for yourself. When you know the ins and outs of the product/service, it will be easier for you to find financial ratios by industry.

3. Make the Most of Everything: Don’t let any resources go to waste! A large part of business ownership is learning what corners to cut. Entrepreneurs are the masters of efficiency and apply their skills to a variety of things other than money. For example, a small business owner who is going through a dry spell may skip buying brand new office equipment and pull together used equipment to suffice.

4. Don’t Put All Your Eggs in One Basket: The same advice you’ll get from an adviser for your personal finances applies to business ownership. By diversifying your assets, you can avoid a sudden financial crisis if anything goes awry. Once business owners have established the foundation for their company and are able to bring in a steady profit, they should be looking to expand their investments.