What is a business financial health check and why is it important?
A financial health check looks at things like consistent income, a high return on investment, and a growing cash balance.
A financial health check looks at things like consistent income, a high return on investment, and a growing cash balance.
A business financial health check is checking into the status of your business’s financials. Checking on it regularly will help you visualise the financial standing of your business and if there are any improvements to be made.
It also checks on how prepared you are when unexpected financial emergencies occur.
A financial health check looks at things like consistent income, a high return on investment, and a growing cash balance.
The economy has constantly been changing and fluctuating. Since 2020, the global pandemic has shaken the world economically and systemically.
For the next few years, the economy has changed from what was expected, an uncertain future for small and medium businesses.
However, that does not mean you cannot prepare your business to face uncertainty.
Conducting a business health check will allow you to learn about your business’s financial standing, and past patterns will help you in the future.
The first step to assessing your business’s financial health is to examine your expenses. Keeping track of your business’s expenses is necessary for determining where your money is spent.
When you have collected all the expenses reports of the year, conduct an audit to determine what expenses can be reduced or removed.
Throughout the year, businesses acquire different expenses when operating. At times, we forget what did we spend on. Therefore, after having an audit, you will realise some costs that can be cut.
This is an essential step because your business incurs new expenses every new year, so taking note of what you have been spending in a year is crucial in deciding what is necessary.
Some software is necessary to run your business smoothly. Maybe you are at a point where you are incurring payroll costs or making payments to contractors to grow your business.
Looking at your business operation cost allows you to consider your next steps to accommodate all the necessary expenses.
When you are done analysing last year’s expenses, you should look at the revenue as well.
Looking for ways to reduce the business’s expenses is excellent. However, it would help if you considered diversifying your revenue source.
Is your business ready to take on a more significant project? More extensive projects often come with higher revenue, and your business should consider its marketing plan and goal for this year.
Taking on a more extensive and more challenging project may initially be difficult. Still, it can turn into something helpful in maintaining your business’s financial health for the next few years.
Create an a-la-carte service or a digital product that ensures steady cash flow in your business. The a-la-carte service can be chosen by small or medium businesses that do not have the necessary budget to afford the full scope service. While digitising can be a form of passive income for you.
Are you aware that your existing client process may be harming your company’s financial health? Another way of diagnosing the financial health of a business is through its cash flow.
Your cash flow is negatively affected by cancellations, refunds, or late payments.
Payments arriving later than intended can throw your monthly budget off, and cancellations and refunds can put you behind schedule when you expect more money.
The cash flow of a business is a crucial way of determining the financial health of your business, and it provides an understanding of how your money is spent on a daily basis.
Although the income statement and balance sheet are based on accrual accounting, they do not necessarily reflect the proper cash flow of a business.
Here is the information your cash flow illuminates about the financial health of your business:
Another way of checking whether your business is financially healthy is by examining your sales pipeline. By reviewing your sales pipeline, you will understand more about your financial standing and the impact of future sales.
If your potential client list is on a high level of conversion and will be able to bring in enough money for your business, your business will be in the clear for the next few months.
However, if the evidence you have collected from your examination says otherwise, you’ll need to update and improve your tactics to accomplish your company’s financial goal.
After having examined your business’s financial health, you should not base all your business decision making on your account books.
As a matter of fact, you should look at your business plan to determine how it impacts your business budget and ledger.
When you are writing up your new business plan for the new year, there are a few questions that you should take into consideration:
Now that you have understood the importance of a business financial health check and why it is important to business owners, employees, and entrepreneurs, it is time to take action.
You can learn about your company’s financial health and turn data insights into actions that will help your business and career by evaluating the information in the financial statements.
