BUSINESS HEALTH CHECKS
KNOWING YOUR NUMBERS
When I say “business health”, what pops into your mind first?
Cash in the bank?
Profit?
Good turnover?
All of these three are important and valid points to discuss when thinking about business health, but it is never as simple as ‘having cash’ or ‘making profit’. For example, having plenty of cash in the bank is only ‘healthy’ if it is not accompanied by big loans or many unpaid supplier invoices.
Just like human beings, our businesses are complex creatures and a thorough health check is not a simple task!
In this blog, I will share a number of areas that I discuss with my clients to assess their business’ health. These cover areas that we consider together as part of my comprehensive business health checklist.
To help you do your own little health check, I’ve broken this post into three key sections, that will help you assess how well you ‘know your numbers’ and the health of your business.
SECTION 1 - RECORDED NUMBERS
The best place to start with any health check is your ‘stats’ or, more appropriately in business,…your numbers…your figures.
Firstly, assess if you have easy access to all of the numbers you need. Ask yourself:
- Where are they kept?
- Are they easy to navigate and understand?
- Are they up to date?
A great way to test the answers to the above is by imagining that your accountant asks you “By exactly how much have your business overheads gone up in the last 6 months?”
Now, be honest. How long will it take you to answer?
If you can answer straight away that’s perfect – a sign of good health! If it will take you an hour, then you are doing well. If it takes you a day, then that’s ok, but perhaps it’s the first sign of concern…! Any time longer than that…then we know that your numbers are not being recorded where they should be.
To help improve access to this kind of information, it is important that bookkeeping is kept up-to-date. As a quick check, consider the following:
- Are all of your sales recorded and up to date?
- Are all of your expenses recorded?
- Are you using personal money or your business bank account for personal expenditure, and if so, are these being recorded?
- Are you sure no ‘numbers’ from your business are missing?
If you are answering ‘no’ to any of these, then it may be that you are not using the best systems or accounting software for your bookkeeping. A lot of these elements can be helped with good accounting software, apps on your phone and your desktop that make life a lot easier. Speak to me if you want to know more.
SECTION 2 - RELIABLE NUMBERS
The next element of a business health checklist is reliability of these numbers. Just like taking blood pressure over a 24 hour period, you need to trust in the numbers you are assessing.
So, how do you keep your business healthy and your numbers reliable and trustworthy?
Firstly, ensure that you are regularly completing your bank reconciliations – reconciling is the process of identifying all of the transactions (in and out) on your bank (as shown on your bank statement) and ensuring they are recorded in your accounting software or records.
Secondly, check your supplier statements every month. This is to ensure that you don’t owe any money that you are unaware of or have not accounted for.
Thirdly, double check any automations you have set up – are they connected and pulling through ok?
Fourthly, are you confident in the systems you are using to record all transactions? You don’t want any number to be missed. It can be as simple as ensuring you are only using your business account for business transactions and business purposes and supplying sales invoices in number order. You may want to ensure you have a separate business email for purchases and suppliers. If you deal with cash, then ensure you have strict procedures for dealing with it, including your end of day cashing up processes.
SECTION 3 - REVEALING NUMBERS
The last part of a business health check is the best part to me! It’s about understanding what your numbers are revealing…what they mean. It’s like visiting the doctor or consultant to explain the test results!
By ensuring you are regularly recording your numbers and feeling confident that they are reliable, you can be more confident that the prognosis will be good!
You can start understanding your numbers by identifying:
- Is your business making money?
- What is the turnover – the total amount of sales?
- What is profit?
- What are your profit margins?
It’s important to understand the difference between numbers that indicate money in the bank and actual profit. As mentioned above, if you have lots of cash but owe lots of money, that may not indicate a profitable business.
Equally, if you earn lots of money (turnover) but have a lot of overheads, bills to pay, etc, then there may not be much profit left …this is true of so many of the social media posts where business owners claim they are making six figure sums!!!
If your turnover and/or profit is not as high as you wish, then you can also use your numbers to assess how you can improve this.
Look at where your money is going. As above, you should now easily be able to answer the question – have your overheads increased in the last 6 months? Are wages going up?
Look at your accounts payable and receivable days. This is the number of days it takes for your customers to pay you and the number of days it takes you to pay your suppliers. These two numbers are very important when we talk about actual cash in the bank. There is no perfect number, it depends on the industry your business is in, and who you deal with. However, it’s the ‘knowing’ that is important.
Look at your sales streams. How many do you have? Which one is most profitable? Which one is not performing as well as you hoped? Remember to account for all associated outgoings to ensure accurate profit margins.
Finally, look at trends in your numbers. Some trends may be good – like increasing sales – and you will want to know why this is happening when you identify it. For example, it could be a marketing campaign is really working.
As another example, increasing wages could be a bad thing if sales are not increasing and you have not changed your business operations. However, if your business is growing and you are serving more customers and opening longer, then this is to be expected.
There are so many scenarios and combinations of things to consider – but when you have all of your numbers recorded and they are reliable, then you can explore so many options to help with revealing ways to grow, save money, prepare for loss and increase profit.
HELP WITH YOUR NUMBERS AND HEALTH CHECKS
Good accounting software and a bank account solely for business is definitely a good place to start when it comes to recording reliable numbers. However, these things are just tools. They rely on you to do the recording regularly and accurately. If you need support with this, especially if you know you have a back log of paperwork, receipts and other recordings to be made, get in touch.
While this blog aims to provide helpful information, it’s important to remember that every business and person is unique. So, before making any decisions, we highly recommend seeking professional advice. We want to ensure that you have all the support you need to make the best choices for your situation!
