5 Signs Your Business Is Healthy (Pulled From Your Accounting System)

Agnes Lee
Oct 6
2 min read

Skip the guesswork. Your accounting software already tells you if things are on track. Here are five quick signs—with simple definitions and what “good” looks like.

1) Cash Flow From Operations is Positive

What it means: Your core business generates cash (not just profit on paper).

Healthy signal: Mostly positive each month/quarter.

Nudge: Speed up collections and right‑size stock to keep this green.

2) Gross Profit Margin is Stable (or Rising)

What it means: You’re keeping enough after direct costs.

Formula: (Sales − COGS) ÷ Sales × 100%

Healthy signal: Stable or trending up vs. last quarter/year.

Nudge: Review pricing, push higher‑margin items, negotiate supplier costs.

3) Days Sales Outstanding (Receivable Days) is Under Control

What it means: Customers pay on time.

Formula: (Average Trade Receivables ÷ Credit Sales) × 365

Healthy signal: Typically ≤ 35–45 days (industry varies).

Nudge: Auto reminders, deposits for large orders, clear stop‑supply policy.

4) Inventory Isn’t Sitting Too Long (If You Carry Stock)

What it means: Cash isn’t trapped in shelves.

Metric: DIO (Days Inventory Outstanding aka inventory days or days on hand)

= (Average Inventory ÷ COGS) × 365

Healthy signal: DIO falling or steady at your target; slow‑movers shrinking.

Nudge: ABC analysis, reorder points, bundle or discount slow lines.

5) Overheads Aren’t Eating Growth

What it means: Expenses scale sensibly with revenue.

Metric: Opex Ratio = Operating Expenses ÷ Revenue × 100%

Healthy signal: Flat or falling as sales grow.

Nudge: Trim low‑value spend, automate manual tasks, review subscriptions.

Quick Recap

Cash flow ops positive • Margin steady/up • DSO (Days Sales Outstanding) ≤ 35–45 days
DIO falling (if you hold stock) • Opex ratio stable/down