Is your business healthy? Here's how you can tell.
EPISODE 33
Notes
An entrepreneur recently asked me whether I thought their business was healthy. This was an interesting question for me - didn’t they know? They work in their business everyday and they know about their cash flow, profits, losses and loans. But it turns out that despite knowing the parts of their business, they didn’t understand the sum total of these parts.
In the episode today we run through the indicators that help me understand the health of the business, including the reports that help me piece together the sum total of business’ health.
First of all - is the business profitable? This information resides on the profit and loss (P&L) statement. If a business isn’t profitable, I try to work out why. Is it a systemic issue, or a one off thing? There are some common culprits that we explore.
The balance sheet is also important. Most business owners without a background in finance will totally ignore this report but it’s a really important one to consider as it provides key metrics that help diagnose the health of a business.
Another factor I consider is equity, or more specifically, retained earnings. I explain how this line of the report helps in understanding the history of a business, which can provide perspective on overall health.
Another tool for high level assessment of health is cash flow forecasting. This one is absolutely essential. I explain the reasons why.
How does your business stack up? I’d love to know. Even if you think your business isn’t super healthy having stepped through the checks I’ve run through, then be glad that at least you have the knowledge to change things. Knowledge is power.
RESOURCES:
Budgeting and cash flow forecasting mini course
Previous episode mentioned:
Ep 6 - Let's talk cash flow
About the
Author
Bec is a chartered accountant who worked at Australia’s big firms and banks for 15-years. Faced at a crossroads in her career, she backed herself, left her corporate job and launched Straight Up Bookkeeping. 3 years and 5 staff later, Straight Up Bookkeeping is one of Australia’s leading virtual bookkeeping businesses for creatives, with a mission to free business owners from financial stress so they can grow their empires.
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