Today, we are talking about how to know what you don’t know in your business. A business health check is a good place to start. So what is a business health check, where can you go to get one and what will you learn about your business in the process? We are talking about all of that in today’s episode!
What we cover in this episode:
- 1:34 – Who should get a business health check?
- 3:42 – Who is qualified to provide a business health check?
- 5:28 – What is involved in a business health check?
- 7:18 – When should you get one?
- 13:43 – What does a business advisor analyze during a business health check?
Who should get a business health check?
A business health check is perfect for an established business owner. If things have been running well for one year or longer, it’s important to take a look at your business and ensure things are running as they should be. The purpose of a business health check is to take a look at where things stand today, find potential issues early and solutions before they become larger problems.
If you’re just starting out, your priorities are much different and a business health check wouldn’t be appropriate.
A business health check is very similar to a physical in the health field. You’re making sure things are on track, running diagnostics, having a professional look at the numbers to assess how the business is running and that there aren’t any major issues that need to be addressed.
Who is qualified to provide a business health check?
Professionals on the financial side, such as a CPA or tax professional, have the necessary skills to perform this type of checkup on your business. If you’re already working with a CPA or tax preparer, start there and ask them if they offer this service. Any business advisor or mentor should be able to give you some direction in this area as well.
You want to find someone who is looking high level at your business operations and is able to perform industry benchmarking. It always helps when that person has a background in your industry because they may have more insight than someone who may not know your industry as well.
What is involved in a business health check?
You will be reviewing your financials, so access to those should be available. It is important to note that accurate, up-to-date financials are absolutely necessary in order to perform this type of exercise for your business. Without those, any professional will be unable to provide feedback.
You will also have to be open about discussing any issues, problems, and areas of improvement. As the owner, you know the most about your business, current financial status, cash flow situation, etc. The professional performing the health check will be asking questions and drawing from your knowledge to gather information and make any recommendations.
Again, this parallels a physical with a doctor when it comes to having open communication. This is not the time to withhold information because you may be uncomfortable or have issues you may be embarrassed about. There are many different ways to repair an issue, but you have to be honest with yourself and open to address it head on.
SCORE provides a free Business Health Check Tool that you may find helpful as a starting point.
When should you get one?
Similarly to physicals and routine healthcare, sometimes we put this type of meeting on the backburner, waiting until there’s an issue before addressing them. However, the best time to perform a business health check is before problems start arising.
When it comes to running your business, you want to know what needs to happen and be prepared for growth. Important steps can be overlooked if you’re just taking it day by day rather than strategically planning ahead with a slow and steady pace.
The knowledge you gain from exercises like this give you the peace of mind and tools you need to make changes as needed rather than waiting for things to unfold before responding. One of the biggest challenges is to stop working IN the business and work ON the business. If you have a problem, don’t let it grow because it may pass the point of no return.
This would be done in tandem with your strategic plan. If you haven’t completed your strategic plan, this would be done first to give you a good starting point. Or alternatively, maybe you established a strategic plan and the situation has changed. You may want to get a business health check to get your bearings and reassess before continuing to move forward.
What does a business advisor analyze during a business health check?
Start with the financials. The balance sheet is an important report and provides quite a bit of insight into the health of your business. For example, you can look at your assets versus liabilities. If this ratio is out of balance and you have a ton of liabilities that outweigh your assets, that can be cause for concern. Potential solutions could be that some debt needs to be paid off or we need to find out why you are burning through cash quickly.
Cash flow problems. Cash flow is one of the main issues we see in many small to medium size businesses. There are safeguards you can put in place to protect yourself during cash flow issues. Do you have a line of credit in case you have cash flow crunch? There may be issues that are timing or seasonal in nature. It may not really be a problem, but you have to have money in the bank to make payroll.
Look at benchmarking. Many CPAs and business advisors have access to industry standards and this should be leveraged to make sure your business is performing as it should. Are you getting the same net income percentage or could we improve that? We can look at the expense side of things and consider labor costs, for example.
We can discover many things through this exercise and if you are already reviewing your financials on a regular basis, those shouldn’t be new discoveries. In some cases, business owners aren’t sure where to look in financials, so they may not know there is an area to improve upon. Or you may not know industry benchmarks, so there could be an additional 5% that could be added to the bottom line.
The whole point of a business health check is to take a more proactive approach to your business. By taking time to analyze these things, it gives you an opportunity to make more money, bring in more money sooner, discuss challenges you’re facing, and see what’s coming ahead. Save yourself stress by being involved, asking questions and getting the information you need to make the best decisions moving forward.
A business health check is great for any business that has been operating for one year or longer. It’s an opportunity to check the status of business operations, address any issues, compare against your industry and make any necessary changes.
Professionals in the financial field like CPAs, business advisors, and tax professionals are generally the individuals you would want to work with in performing this type of exercise for your business. This type of business health check analyzes your financials, cash flow situation, and industry standards. It is a high level look at your business and overall performance.
The best time to get a business health check is before problems arise. Much like going to the doctor, many people wait until there is an issue before addressing any kind of maintenance, but we always suggest getting a health check before major growth or any issues as it is much easier to foresee issues at that point and address them early.
The reason for a business health check is to take a proactive approach to running your business. You are able to discuss any issues or challenges before they create major havoc and save stress by discovering potential challenges and creating solutions proactively.