Unless you try, you can't succeed in business, no matter how musically Frank Loesser weighed in on the matter. However how do you know if you're really succeeding in business? Benchmarking against the competition is the key, writes Entrepreneur magazine. Small company owners have to know about net profit, liquidity and turnover ratios. These measurements point to where a business is headed.

How your small business is performing

Sometimes it is hard to get all the data a small business owner needs to determine how a business is performing. There are a lot of sources to do this though. Entrepreneur states that the sources aren't that costly. Here are three key ways a small business owner can find benchmarking data:

1. Get to know business owners and associations. You could share financial data if you know owners of other businesses comparable to yours but aren't competing with you. Financial polls are done by some industry groups. You are able to get the information by joining the group.

2. Watch for directories in the industry. They are not hard to discover. Revenue and growth figures are broken down by sector in directories like Chain Store Guide.

3. Put the money into industry research. It can be worth it. This can be quite costly dependent upon the industry. It could be cheap also. Sometimes you might be able to glean some free stats from a press release about a study. There are several companies like Sageworks. They have plenty of data for you to use.

What to try to find in market studies

According to Sageworks, accurate, up-to-date, relevant states give business owners the best deal for their money. A business owner needs to be able to determine what information is very important and necessary. Then the business owner can understand better what is going on and overcome problems.

CEO of Sageworks, Brian Hamilton, explained there are things to pay attention to in an industry study. They are:

The net profit should be reviewed

This is before-tax net profit divided by sales for a given period of time. This accounts for cents in profit for every dollar received in revenue. That is the basic way of putting it. This number should be higher. That is always better.

Liquidity ratios

Make sure you are looking at two ratios. This includes the quick ratio and current ratio. It is good for long-term to look at quick ratio. Cash plus accounts receivable divided by liabilities will give you the current ratio. This is more of a short-term gauge.

What the turnover rate is

The way a business manages is measured in turnover ratios. This is mostly in liquidity terms. Consider three turnover ratios probably the most. They're the inventory day's ratio, accounts payable days and accounts receivable turnover. The number of days a company takes to turn receivables into cash is the accounts receivable turnover. Accounts payable days ratios measure the number of days it takes companies to pay vendors. The number of days needed to sell inventory is shown in the inventory day's ratio. Do you need help calculating the ratios? About.com Business Finance and Sageworks' website can both help.

Citations

Business Finance

bizfinance.about.com/od/financialratios/f/Inventory_Turnover_Ratio.htm

Chain Store Guide

chainstoreguide.com/

Entrepreneur

entrepreneur.com/blog/219546

Sageworks

sageworksinc.com/datareleases.aspx?article=36

Stories are human glue for businesses

youtube.com/watch?v=FllC83wHN-g