Business Financial Health Checkup – How Do You Measure Up?

We take care of things that we value. You take your car to the mechanic to keep it running smoothly. You have your furnace serviced every year to insure heat during the winter. You exercise and watch what you eat to keep in top performance. You also need to perform regular checkups on your business financial health. It’s not just about performance, it’s about safety.

Most business owners are extremely busy. Without regular check-ups on financial health, you can easily lose control and become susceptible to financial problems. With that in mind, here’s a rundown of how to create and maintain a regular health check-up plan for your small business.

Do you have financial information? There are 3 key areas to consider when reviewing your financial statements.

  • Are they timely? You review them at a minimum once a month. Sales, collections and production activity every week.
  • Are they reasonably accurate? The numbers agree to what you think is happening.
  • Usable? The format organizes the information so you can have a reading on where the business stands. It confirms profitability, cash flow and expenses that are changing.

Is cash flow adequate? Cash is the life blood of a business.

  • Be sure you are collecting enough to cover your expenses, debt payments and a return on your investment.
  • Verify that proper debt is in place. Credit cards are paid timely. Short term debt fluctuates based on short term needs. Long term debt is set up to pay for equipment that will provide a benefit on a long-term basis.
  • Are your prices adequate and generate a profit that covers your overhead?

Are customer sales strong? The business is only as strong as the customers they serve.

  • Your customers are financially strong.
  • No one customer accounts for more than 10% of your gross margin
  • The market that you serve is growing and strong.
  • Your pricing generates profit on all sales to clients/customers.

Business overhead is flexible and allows a profit. Overhead grows easily. Are you comparing it each month looking for trends?

Owners’ compensation is adequate. Does the business provide a fair market wage and a business profit compared to the risk you are taking?

Leadership and systems are in place to maintain business value. There is a management team in place, so that the business is not solely dependent on the owner. An emergency succession plan is in place to hold the business value in case of health issues.

Reduce your risk. Verify that the business is in compliance with all government regulations. Insurance is in place as needed.

The end of the year is a great time to evaluate where you are at. Take the health checklist, identify a key area to work on that will improve your situation. Then take action to improve that situation.

If you would like to review your financials together, please contact our office. As part of our tax return preparation, we create tax financials and compare it to the prior year. This is a great tool to identify trends.

Mary Guldan-Lindstrom, CPA

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