While you can analyze your small business in many different ways such as financial analysis, sales analysis, operational analysis, etc., you should develop some simple business analysis approach that will help you scan your business anytime you need.

Here are five very important factors which will help you understand your small business performance at anytime:

1. Cash Flow 

Use a simple Cash Flow Statement template and track your cash flows. You need to analyze the cash you spent (pay your vendors, suppliers, etc.) and the cash you receive for selling your products and services. You should do this at least monthly. Compare your cash flows from month to month so you can identify any positive and negative trends in your cash flows.   

2. Income Statement 

Use a simple Income Statement template. Your Income Statement should show your revenue, cost of goods sold, operating expenses and profit. You should do this monthly. In your income statement show your dollar numbers as well as percentage of revenue for each entry. This will help you analyze what are your major expenses.  

3. Customer Retention 

Customer Retention Rate is simply percent of customers who stay with you over some period of time. This is very important information because the higher the retention number the higher your revenue will be. Keep in mind that retaining or keeping your customers is easier and less expensive than looking for new customers. Try to maximize your customer retention rate. 

4. Pricing 

You should also analyze and evaluate your pricing decisions. Pricing is very important because if you price too high or too low your revenue will suffer. You need to identify and reevaluate your prices based on your revenue, quality of your products and services and competitors. The pricing goal is to identify your optimum prices which will maximize your revenue.  

5. Advertising Effectiveness

Every small business advertises and promotes aggressively in order to grow its sales and profitability. When you think about advertising and promotion do not think only about your advertising cost but also the time you spend on advertising. For example, even if you do not pay any advertising you spend time advertising your business and there is a cost associated with doing that. Try to identify all advertising cost and time you invest on different promotional activities and measure how much revenue or profit you generate from each of them. This will help you see what advertising is effective and [profitable and what is not and you will be able to improve your approach and tactics.