Your whole business runs on repeatable Routines; and can’t operate without them!
Because they consume so much of your business’s time and other resources, you want them to be as streamlined and as effective as possible.
To save you research, we provide guidelines for important Routines below. Also see our companion Library of Prefab 90 Day GamePlans
Table of Contents
Introduction to the Importance of Routines
Your business can not operate without recurring Routines. But not all Routines are well designed and you may not have the most suitable set for your business. Read more here. Yellow Belt
Financial Routines
Profitability Ratios indicate when the rate of profit generation is falling behind the rate of sales revenue growth. This indicates cost growth exceeds income growth and remedial action is required. The first three of these ratios are very important for any business to monitor and should be one of the early Routines you set up
Gross Margin Ratio
A vital ratio which indicates when rising operating or variable costs like e.g. parts, labour, stock prices are rising faster than your revenue meaning a hit to your profit. One of Three critical ratios monitoring your profit. Yellow Belt
Overhead Cost Ratio
This important ratio monitors if you fixed or overhead costs like e.g. rent, communications, admin staff, insurance are rising faster than your revenue from sales. This is the Second of Three critical ratios monitoring profit Yellow Belt
Net Profit Ratio
This measures your final profit against sales revenue. If it falls, remedial action is needed and the two ratios above will indicate where most effective action is likely. The Third of the Three critical ratios to monitor and maintain your profit. Yellow Belt
Cashflow and Liquidity are indicators of your ability to pay your bills when they fall due. If any of these indicators deteriorate, you need to review e.g. billing and similar policies ASAP.
Accounts Receivable Collection Efficiency
Your Accounts Receivable is the money owed to you by customers. If the speed at which you collect these debts falls, you will have less money to pay your own bills (Accounts Payable). This ratio tracks your efficiency of debt collection Blue Belt
Current Ratio Indicates your Borrowing Capacity
The Current Ratio is your liquidity lifeline—your ability to pay the bills due in the next 12 months using the assets you can quickly convert to cash (like your bank balance and inventory). Banks rely on this ratio when considering loans. A Current Ratio below 1.0 is a red alert that your business cannot cover its short-term debts, putting you at risk of insolvency even if you are profitable. Green Belt
Leverage or Gearing Ratios measure the proportion on your business that is back and other debt. The more debt you have, the more risk of problems with any sort of downrturn in the economy or a rise in terest rates.
Debt - Equity Ratio
The Debt-to-Equity (D/E) Ratio reveals how your business is financed: by borrowing (debt) or by owner/investor capital (equity). This is a critical measure of long-term financial risk. A high D/E means you are relying heavily on lenders and interest payments, making your business fragile during economic downturns. This routine monitors your financial leverage to ensure you don’t expose yourself to excessive risk. Green Belt
Accurately Estimating Additional Revenue to Fund New Hire
Rather than just guessing how much your revenue has to grow to pay for the cost of a new staff member, you can use our Prefab Routine to more accurately estimate how much you have to grow. It also suggests how to stage your new hire to reduce the cashflow shock. Blue Belt
Financial Ratio Spreadsheet and Dashboard Template
You can use this template in your spreadsheet app of choice. It shows the setup to calculate the financial ratio prefab Routines. It also shows how to colour spreadsheet cells to show their condition (bad, warning, good). Then the generated information can be displayed in graphs so trends are immediately visible