Business Health Check Tools

Table of Contents

A business health check is a look into the financial status of your business. It’s an easy way to find any potential issues, and gives you ways to fix those issues too. A health check will make sure you’re on the right track to success.

Your financial health is important, just like your physical health. Doing a financial wellness check, can help you determine what adjustments you need to make in your life.

How to use our Financial Health Check Tool

  1. Knowing your break-even point
  2. Cash flow forecasts
  3. Cash reserves
  4. Managing debt
  5. Your own debt
  6. Is there anything big coming up?
  7. Are you making a profit?
  8. Early warning signs
  9. Sales performance
  10. Good advice

Key steps that should be in your Financial Health

1. Work out your Financial Ratios

First things first, you need to have a point of comparison to determine whether your business is in good financial health. You can do this with the help of financial ratios. Also referred to as accounting ratios, these are a set of calculations that use the financial data to determine the commercial performance of a business.

2. Review your Cash Flow

Start-ups and SMEs are especially vulnerable to cash flow problems, so you must pay extra attention to this part of your business. Regularly review your monthly financial records, especially your cash flow statement.

3. Improve your Debt Collection Process

If you take the steps to improve the debt management of your business, then your business is in the clear. One way to improve your debt management system is to prioritize debt payments. Another step is to invest in debt management software to efficiently follow up on unpaid debts,

But if you have too many unpaid invoices and difficult clients, then you have a potential financial disaster on your hands. It is always a best practice to act immediately when your list of difficult debtors starts to build up. When this happens, it’s best to outsource your debt collection to a professional debt collection agency so they can create a debt collection strategy that fits your business needs.

It is also worth noting that some debt collectors are knowledgeable on the latest government regulations. They can help you craft out-of-the-box solutions to your debt recovery problems. By engaging a debt collection agency, you can save time and increase the chances of successful debt recovery.

4. Evaluate your Sales Pipeline

Regularly reviewing your sales pipeline will give you a good idea of which direction your future sales are likely to go. You can use this information to adjust and improve your strategies so you can achieve your goals. It is also a best practice to review your sales and customer service, such as your ability to meet the demands of your customers.

5. Conduct a Strategic Review

Taking the financial temperature of your SME does not only mean looking at the account books. It also means reviewing and updating your business plan, including your hiring and human resource strategy. This will allow you to pinpoint any issues or oversights that have negatively affected your company’s financial health.

5 Simple Steps to Evaluate your Financial Health

Determine your net worth, and see which way it’s trending

The first step in assessing your financial health is finding out what your net worth is. Net worth is a common way to see how you stand financially quickly. It’s calculated by simply taking the value of your assets and subtracting your liabilities.

Calculate your Debt-To-Income Ratio

After you’ve figured out your net worth, it’s time to take a closer look at your income (which isn’t considered in net worth, remember). Your debt-to-income ratio is calculated by taking the total amount you pay in debt payments and dividing it by your monthly gross income.

Evaluate your Housing Situation

Data from 2017 shows that Americans spent almost 40% of their budget on housing. That’s $24,000 per year on a $60,000 annual salary, for example. If that doesn’t strike a chord with you think again.

Find out where your Money is going

For a long time, I didn’t budget my money. I just made sure that my checking account didn’t overdraw and I threw as much as I could into savings every month which sometimes wasn’t much. Bad financial move on my part.

You should be intimately aware of where every dollar is coming from and going to. This might sound crazy and time-intensive. Trust me, it is. But if you ever want to get ahead financially, you need to become very connected with your money.

Make sure your Investment Strategy is aligned with your situation

Don’t get me wrong; you should have money stashed in an emergency fund first. If you don’t, focus on building up at least six months’ worth of expenses in an emergency fund and stick that in a savings account. After that, though, focus on investing. And make sure your strategy is aligned with your situation.

How does a Financial Health Checklist improve your Business?

Now that you are equipped with the financial health checklist, how can you turn the insights that you’ve gained into measurable actions? For business owners, knowing your company’s financial situation will help you when you aim to seek financings such as bank loans or alternative financing through crowd sourcing. Your role as a business owner is to steer your company in a direction that will maintain cash flow and see profits in the near term.

How to Determine the Financial Health of a Company?

1. Analyze the Balance Sheet

The balance sheet is a statement that shows a company’s financial position at a specific point in time. It provides a snapshot of its assets, liabilities, and owners’ equity.

Assets are what a company uses to operate its business. Liabilities refer to money that’s borrowed from other sources and needs to be repaid by the company. Owners’ equity represents the financing that owners, whether private or public, put into the business. It’s important to note that assets should always be equal to the sum of liabilities and owners’ equity. This relationship is the basis of the accounting equation: Assets = Liabilities + Owners’ Equity

2. Analyze the Income Statement

The income statement shows a company’s financial position and performance over a period by looking at revenue, expenses, and profits earned. It can be created for any period using a trial balance of transactions from any two points in time.

The income statement generally starts with the revenue earned for the period minus the cost of production for goods sold to determine the gross profit. It then subtracts all other expenses, including staff salaries, rent, electricity, and non-cash expenses, such as depreciation, to determine the earnings before interest and tax (EBIT). Finally, it deducts money paid for interest and tax to determine the net profit that remains for owners. This money can be paid out as dividends or reinvested back into the company.

3. Analyze the Cash Flow Statement

The cash flow statement provides detailed insights into how a company used its cash during an accounting period. It shows the sources of cash flow and different areas where money was spent, categorized into operations, investing, and financing activities. Finally, it reconciles the beginning and ending cash balance over the period.

The cash flow statement is one of the most important documents used to analyze a company’s finances, as it provides key insights into the generation and use of cash. The income statement and balance sheet are based around accrual accounting, which doesn’t necessarily match the actual cash movements of the business. That’s why the cash flow statement exists—to remove the impacts of non-cash transactions and provide a clearer financial picture to managers, owners, and investors.

4. Financial Ratio Analysis

Financial ratios help you make sense of the numbers presented in financial statements, and are powerful tools for determining the overall financial health of your company. Ratios fall under a variety of categories, including profitability, liquidity, solvency, efficiency, and valuation.

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