How confident are you in the state of your business’ financial health? That your books are in order and up-to-date, that you have enough solid data to back up your financial decisions and a sufficient cash runway to fund those decisions?
These are the three things that business owners constantly need to keep check of themselves because they play a vital role in running any operation, planning taxes and determining a company’s direction of growth.
The only way to do this? A regular financial health checkpoint, in the form of monthly or quarterly accounts.
What is a Financial Health Check?
Financial health is a term used to describe the state of an individual or business’ finances. Checking on it regularly allows a business owner visibility to make sure the company is stable and helps them figure out how it can be further improved.
A steady influx of income, a strong ROI and a growing cash balance are some of the factors measured in a financial health check.
What should You Include in a Financial Health Check?
Financial Ratios
Before anything else, you’ll have to establish your business financial baseline, your financial or accounting ratios, which can be broken down into four main categories: Profitability/ROI, Liquidity, Leverage and Operating/Efficiency.
The four categories will help you when you compare how well your business performed commercially in the past couple of months or years. Additionally, it’ll allow you to gauge with a certain level of certainty how your business fared compared to industry competitors.
Cash Flow Review
When you’re running a start-up or SME, investors and capital availability may fluctuate. It’ll pay to stay on top of your daily cash flows so you can ensure your business’ smooth day-to-day operations. Be especially vigilant about reviewing your financial records to determine if your cash flow is positive and that you are caught up with your bills payments.
Two things to consider when you want to be proactive about spending efficiently: Implement smart strategies that optimise your budget and conduct a cash flow forecast so you know where and how to allocate your funds early.
Debt Collection and Invoicing
The financial health of your business also is reflected in your debt collection and invoicing systems. With an efficient system in place, you’ll be able to follow up on these payments and collect them on time. Doing so will help ensure that your business has cash on hand.
Sales Pipeline Evaluation
One of the easiest ways to tell if your business is doing alright and financially healthy is to evaluate your sales pipeline. Got any leads lined up? What you discover will give you a good idea of your financial state and how sales will affect it in the near future.
If the potential clients currently on your list are are on varying levels of conversion and can provide enough income to sustain your business for the next couple of months, then you can be reasonably sure that you’re still in the clear.
If the data you gather from the evaluation says otherwise, then you’ll have to update and make improvements to your strategies to meet your business’ financial goal.
Strategic Review
Your conclusions about your business’ financial health shouldn’t be based only on an examination of your account books. As a business owner you’ll also have to take a look at an aspect of your operation that significantly affects your budget and ledgers: your business plan.
Make a point to review your business plan regularly. Ask yourself:
- Are my revenue, profitability and growth goals feasible?
- Is the company still on point with the needs of the consumer and satisfying them?
- Have any new growth opportunities come about and how can the business maximise its gains on the development?
Doing so gives you a better picture of how your business is doing and lets you see if there are any issues, concerns or oversights that can be addressed before it negatively impacts the state of your company’s finances.
Get Help for Your Business Financial Health Check
Are you keeping an eye on your financial affairs? If you haven’t yet put anything into place, or think that it could still be improved by the input and services of a bookkeeping, accounting and tax planning firm in Brisbane, then don’t look further than Your Finance Department.
As your partner in handling your business’ financial health, you can expect clear and unbiased advice from our team, as well as helpful tips and solutions that improve the state of your finances. Book our team today.
