Checklist: How Financially Healthy Is Your Business?

Posted by Emma Robison on Aug 2, 2019 9:12:00 AM
Emma Robison
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How Financially Healthy Is Your Business

In the business world, it pays to know the financial health of your business. Like any health check, it is important to analyse the crucial elements rather than focusing on minor issues. Here are the five most important questions that you can ask to find out how financially healthy your business is.

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1) Is Your Business Consistently Generating Net Profit?

Whether the answer is yes or no, the information should always be at your fingertips. Financial health means having the correct review systems and tools in place to understand the condition of the business, 24/7.

‘Net profit’ is also called ‘the bottom line’. It refers to the profit that remains after total business expenses have been paid. It is therefore a better indicator of financial health than calculations based upon sales turnover alone, or on Gross profits. The equation is:

total revenue – total business expenses - tax = net profit

Net profit consistency is important as it demonstrates the combination of a solid business model and manageable costs.


2) Can Your Company Meet Its Short-Term & Long-Term Financial Obligations?

Problems with short-term financial obligations are often the easiest to spot, and warning lights should start flashing if covering payroll and invoices is difficult. However, long-term financial obligations can present quietly looming problems. If net profit is declining, next year’s corporation tax or loan repayments might cause a financial melting point. Careful monitoring of all financial obligations compared to the trajectory of the bottom line is important for strategic planning.


3) Does Your Business Have A Safety Net For Nasty Surprises?

Are you ready for the next period of financial turbulence? If you are already operating out of an overdraft, you could be vulnerable if trouble appears. Investment is crucial for growth and productivity, but you should avoid wherever possible dipping into safety nets. There are wiser ways to manage expansion and investment, such as a steadily-revolving credit facility that regulates cashflow.


4) Has Your Business Made Strategic Growth Investments?

If you want to improve your net profit, investing in growth is often the way forwards. Whether the investment involves productivity-enhancing software, business consultancy, additional employees, or new equipment, investment invites scalable growth.

Financially healthy organisations consider strategic investments based upon sound planning and research. Monitoring competitor behaviour and external and internal threats means that investments are likely to add value rather than drain finance.


5) Could Debt Financing Increase Organisational Growth?

Organisations can find themselves in a Catch-22 situation, where the only way to increase profits is by investment, but the only way to raise the capital to invest is by the increase of profit.

This is a familiar situation. Many companies turn to financing solutions where a range of options is available to release investment capital. These include asset refinance, inventory finance and other options to unlock liquidity tied up in assets and property.


Speak To Us

At Business Finance Solutions Ltd, we have extensive experience providing financial services to businesses in all sectors. If you would like advice about improving the financial health of your organisation, call us today on 0345 50 50 888 for a free initial consultation.

Image source: Pixabay

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Topics: Business Finance

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