Why should I get a business health check?

As a business owner you’re used to throwing all you’ve got into running your business, but do you make time to look into – and understand - the financial health of your business?

After the year we’ve had, we’ve seen four types of businesses emerge: those who’ve grown by adapting to new demands; those who’ve managed to tick over; those who’ve started in lockdown and those who’ve really struggled.

No matter which type you are, getting a business health check is crucial.

As a business owner you’re used to throwing all you’ve got into running your business, but do you make time to look into – and understand- the financial health of your business?

Can you confidently answer yes to the following questions?

 

Do you know which products/services make you the most money?

A lot of early-stage businesses, and even established ones, chase sales volume but don’t know the profit levels attributed to each product.

Don’t always assume high sales volume equals profits.

Does the information you collect identify your true cost of production?

 

Do you regularly monitor all business operations to identify potential issues?

By just focussing on the day-to-day running of your business you could miss crucial indicators that something is about to go wrong.

Reviewing regular information on key parts of your business will enable you to solve potential issues before they happen.

Do you have access to this information and know what it is telling you?

 

Do you know how much revenue you need to generate to break even?

Knowing your break-even point allows you to make informed business decisions.

So many business owners don’t know their true break-even point due to inaccurate or out-dated information being used to calculate it.

Knowing your break-even point is crucial. It allows you to understand the consequences of the ever changing market conditions, so you can make adjustments to avoid operating at a loss.

How long ago is it since you calculated your break-even point? Are you confident it includes your most recent figures?

 

Do you use cashflow forecasts for your business?

Understanding how much income is due in and out in any given period is essential, and it must be constantly monitored and reviewed.

It will tell you if you have enough cash available to meet day to day operations or the finance available to expand. So many businesses fail due cashflow mismanagement.

Have you access to this information? A good cashflow forecast should look at the next six to nine months.

 

How often do you chase debtors for late payment?

Are you aware of how much you’re owed at any one time and who are your good and bad paying customers?

Your creditors expect their bills to be paid on time, so should you.

Managing debtors is crucial to ensure cashflow isn’t impacted. By not doing could even affect your reputation if you can’t pay your own bills due to late payment.

Are you on top of managing your debtors?

 

Do you monitor your own debts on a monthly basis?

Just like monitoring debtors you should also monitor your own debts (creditors) to ensure you always have enough cashflow to afford to pay them.

When was the last time you asked for better terms from your suppliers?

Particularly in this climate, you need to be aware of when any Coronavirus loans and support ends, and plan it into your cashflow forecasting and ensure you can afford to start paying things back.

 

If you answered no to any of these questions, we can help ensure your business is future proofed and you’re fully aware of any potential problems before they cause an issue. Being able to answer these depends on the quality of information you have available to you.

Get in touch for an informal chat about how we can help with our outsourced services.

 

Article by Darren Trice FCMA CGMA

CEO – Kaizen Consulting

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Kaizen Consulting
@ The Business Hub
Active+
Harpings Road
Hull
HU5 4JF
t: 01482 772261
w: kaizenconsulting.co.uk
e: dawn@kaizenconsulting.co.uk

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