Anyone who longs for the “good old days” probably doesn’t own a small business. Given the variety of powerful, easy-to-use accounting software products available today, it is difficult to imagine wanting to keep records and prepare financial statements by hand.

But Central Maine SCORE mentor Peter Sassano strongly cautions that, “While technology has eliminated the need for stubby pencils and green eye shades, it’s still up to the small business owners to analyze and understand the meaning of their financials in order to make wise decisions.”

And while there’s no hard-and-fast rule for reviewing financial data, “most experts recommend a minimum of monthly or quarterly evaluations, otherwise you risk spotting serious problems too late to take corrective action.”

Cash flow is a key indicator to watch. This is the revenue coming into your business balanced against expenses (rent, payroll, supplies, etc.). Projecting cash flow into the future will help alert you to potential bottlenecks in meeting payment obligations, and whether changes in your collection strategy or operating budget are warranted.

Liquidity ratios measure ability to meet short-term commitments from your liquid assets. The current ratio (current assets/current liabilities) is a simple measure of your ability to meet your immediate obligations.

Leverage ratios show your ability to meet both long- and short-term obligations, information particularly important to bankers and investors.

Profitability ratios measure how well your business earns a net return on sales or investments. Gross profit measures the overall effectiveness of your business, and net profitability reveals the effectiveness of your management in controlling costs.

Other activities, such as inventory turnover and collection periods, should be monitored regularly. You can find plenty of guidance at SCORE, a nonprofit association of volunteer mentors providing advice and counseling on all small business issues at no charge. Contact Central Maine SCORE at 782-3708 or at lewistonauburnscore@gmail.com, or contact the Auburn Public Library for an appointment with a volunteer mentor. In Oxford Hills call 743-0499; in Rumford-Mexico call 364-3123. Or contact SCORE at www.SCOREmaine.org.

This column is provided by the Central Maine SCORE chapter.