Businesses can benefit from a regular financial health checkup. Even if your sales are flowing in and you’re generating more revenue, it doesn’t mean that there aren’t ways to improve your business and better position it for growth.
To do that, you need to look at the “whole picture” of your business to better understand your overall financial health.
Over 65% of small businesses report to the U.S. Chamber of Commerce that the overall health of their operations is “good,” and around the same percentage are happy with their cash flow. A full analysis of your financial health will help you know where your business stands and how to improve it going forward.
Looking Back to Better Understand Your Financial Health
Your past data will shed light on your business’s financial health. Analyze your:
- Past period: Review data from the last quarter/trimester, or the same timeframe last year, to better understand where your financials are and what they mean for your company.
- Financial plan: Did you reach your sales goal? Did you hit your gross profit margin? Did you keep your expenses within your spending plan?
- Primary goal: Did you meet your primary goal during the past period? If you reached success, did you celebrate it? If the goal was missed, did you take corrective action to fix the problems you faced?
- Sub-goals: Did you meet your sub-goals? For example, if you’re launching a new product as your primary goal, did you determine your price, marketing channels and value prop?
Your sub-goals are the small milestones that you must meet to hit your primary goal. If you’re not hitting these smaller goals, you often won’t be able to hit your primary goal.
Reviewing your business’s performance regularly can help you determine whether you’re on track to achieve your objectives.
Every business should look back to see how well they performed each quarter or trimester.
While looking back, you’ll want to consider:
- How did you do financially for the period? Did you have more or less sales?
- How did your products and/or services do? Did you experience fewer issues, returns or customer complaints?
If you did well in terms of sales, don’t forget to narrow it down further. Did you maintain profit margins? If not, what led to lower margins? Do you need to revisit your pricing?
This kind of review can help you spot internal operational issues that can negatively impact your business. Now that you’ve looked back at your business’s performance, it’s time to look forward to know where your company is going.
Looking Forward to Know Where You’re Going
You have goals for the coming period, and you should be setting them ahead of time. A few objectives here are:
- Identify your main, primary goal for the period ahead.
- Create sub-goals that will help you meet this primary objective.
Each main and sub-goal should have actions and strategies assigned to them that lead to fulfillment. Perhaps you want to release that new product, and while prototyping is complete, you’ll want to get the product to production in the quarter.
You may set goals to Q/A test the product, get approval, and maybe even certification for the product.
When it comes to setting your goals, consider the following questions:
What are your operational and financial goals? Be as detailed as possible when creating these goals.
What upcoming goals do you need to consider in the coming quarter or near quarters? Maybe you’re releasing a new product in the fourth quarter. What things do you need to do this quarter to prepare?
Are there any roadblocks that you might run into? How can you overcome them? Create an action plan now so that you can act quickly if you run into any one of these roadblocks.
Your goals and how you meet them will also need to be considered in your budgeting. If you don’t have the finances to fund the goal properly, you may need additional goals to help reach financing milestones.
Perhaps you need to secure outside investments for the product launch or you need to meet with lenders to secure a line of credit. Accounting teams will help you run forecasts to better understand if your current financial health will allow you to meet your goals with existing funds or not, or how much additional funding you need.
As part of this process, remember rarely is anything great achieved alone. You need a team to support you. Be sure to outline the roles and responsibilities of the primary person(s) who will be integral in the business meeting its goals and subgoals.
Once you’ve completed this step, it’s time to focus on your internal communication and accountability. You need everyone on board if you hope to reach your goals in the period ahead.
Communication and Accountability
Once you’ve conducted your review and set goals, now it’s important to shift your focus to communicating these goals and holding everyone accountable.
Make sure that your team understands your targets and objectives. Create and implement a plan to reinforce your goals and redirect efforts if things start to deviate from the plan.
To ensure accountability, check in with your team regularly. According to a survey from Gallup, 47% of workers received feedback from their managers a few times or less per year. If you want to hold your team accountable and achieve your objectives, you should hold weekly sessions to review goals and gather feedback.
Consider implementing a simple progress monitoring system. For example, you can use the traffic light system (green, yellow, red) to quickly identify and address issues.
Communication and accountability will play key roles in helping you reach your goals, so don’t overlook this important step.
Final Thoughts
Conducting regular financial health checks can help you stay on top of your business’s performance and ensure you’re on the right track to reaching your goals. Looking back will help you understand what you did right and what you can do to improve. Looking forward will allow you to set goals with your past performance in mind. The key to success here, however, is to ensure that you’re communicating your goals and holding your team accountable.
To learn more about growing your business or to schedule an appointment, click here.