One of the most basic truths about running a successful business is that you must be taking more money in than you are spending. In other words, your revenue needs to be exceeding your expenses, or you're going to be in trouble*.
Confining this discussion to the world of small (or
micro) businesses, this probably sounds like the most obvious thing ever; if you are spending more than you are making, you are not going to last very long. Yet, even though this seems so obvious, how many of us actually know what to do with this most basic rule? At a
small business seminar I attended a few months back, most of the attendees admitted that they often only step back to look at the financial well-being of their business every few months or so.
At this point, alarm bells should be going off.
I strongly beleive that a good general rule for running a business is to consider the ratio of revenue to expenses, and the lower that ratio; the further back you need to pull from the business and the bigger a picture you need to examine. I also think it is important to set a realistic threshold for your revenue, and if your revenue does drop below that threshold, it's time to take a serious look at your business plan. Oh, and yes, sorry to burst your bubble, but you really do need a business plan (and no, I'm not just going to leave it at that, I very much intend to talk about business plans at length in the future).
* Yes, I know this rule is not always true for startups, and businesses whose business plan includes a (realistic) loss of revenue for a (reasonable) period of time.