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How to assess the health of your business

Published on 18th October 2018

After every step you take in your journey, reviewing how well your business is performing and assessing what improvements can be made is of the utmost importance. Yet all too often it’s easy to get distracted by your aspirations and overlook the health of your business. But without stable foundations, growing your business before it’s ready could result in your venture collapsing under its own weight. That’s why, before going forward with your growth plans and expanding operations into new areas, a period of self-reflection is required. So if you’re eager to take the next in your journey, here are 6 factors you need to consider when assessing the health your business.

How reliable is your cash flow?

For any business to continue trading and perform successful day-to-day operations, generating a reliable cash flow from the sale of goods and services each month is essential. As such, you need to keep track of your sales figures and never let your guard down. Having money coming into your business is all well and good, but you need to read between lines and assess where it’s coming from. Is it on account of your sales volume? Or, is it due to the prices you’re charging?

If it’s your sales volume that’s great news since it may mean that you have a loyal customer base and should decide how to build on that. However, if it’s based on how much you’re charging you need to tread carefully. Charging a premium rate could work out if the goods and services you’re providing are unique to your area but you risk giving competitors the opportunity to undercut you and make off with your share of the market. If you do insist on charging a premium rate, you must ensure that you’re offering customers value for money.

Need help supporting the health of your business? Require access to additional capital? Apply for Alternative Business Finance or learn more about how your business could benefit.

Are you owed money by your customers?

Another aspect to consider is whether your customers are paying for the goods and/or services they’re receiving on time. If not, your business is being left out of pocket until they pay up, disrupting your cash flow and placing additional pressure upon your finances. Left unchallenged, your ability to resume trade and maintain day-to-day operations will diminish, eventually leading to insolvency. Fortunately, there is a variety of business finance solutions that can help resolve any issues affecting your cash flow.

How strong is your Net Income?

Monitoring your business’ Net Income is vital in determining your bottom line and whether your business is performing as well as expected. With the help of your accountant, there are 3 methods of calculation that can help you assess the health of your business. These are:

  1. Gross Profit : Net Sales - enabling you to work out your business’ profit margins and determine where you stand compared to similar establishments in your sector.
  2. Net Income : Net Worth - allows you to assess whether your business can expect to earn a return after paying any relevant expenses (e.g. interest and purchases).
  3. Net Income : Total Assets - Indicates whether or not your business is generating a sufficient return from the total amount of assets in your possession.

Are you able to manage your working capital expenses?

In addition, another key aspect to consider when assessing the health of your business is Working Capital, which is directly affected by calculating your Total Current Assets and deducting your Total Current Liabilities.

  • Current Assets: are the unencumbered assets that are logged inside your business’ balance sheet which can be converted into capital within the space of 12 months (e.g: cash, short-term investments, accounts receivable, stock, supplies, prepaid expenses, etc.).
  • Current Liabilities: are your business’ expenses that need to be resolved within 12 months (e.g: corporation tax, utility bills, supply costs, staff wages, insurance premiums, etc.).

Naturally, you’re aiming for Positive Working Capital which, in essence, means that you’re generating more than what you’re paying out. But if the opposite is true, then you need either raise your bottom line (increase cash flow), convert assets into capital or review how much your business is spending.

Are you in control of your spending?

As a business owner, the key responsibility that you should always undertake is to review how much you’re spending and whether it’s necessary. Whilst pursuing your goals and figuring out how to reach the next stage in your development, it’s easy to overlook your expenses. But over time, if you’re not careful, they can soon mount up and become unwieldy. As a result, you may be paying out more than you can afford or reducing the size of your profit margins, adversely affecting your ability to invest. If so, some of the ways in which you could regain control of your business’ spending include:

  • Lowering running costs and reviewing staff behaviour (e.g: turning off lights, switching off equipment not in use or switching to another energy supplier)
  • Renegotiating supplies costs or switching to another supplier
  • Cancelling unnecessary subscriptions
  • Review staffing levels or increase productivity
  • Assess advertising expenses
  • Renegotiate insurance premiums or switch to another provider
  • Explore the potential of cloud computing.

Do you possess any fixed assets?

Finally, another great way to assess the health of your business is by taking a look at your long-term fixed assets, which could be anything from unencumbered equipment, machinery and/or vehicles. What you need to determine is how much use your business is getting from them. If you have any assets that aren’t being used, it could be a sign that you’ve invested in equipment too early or customer demand is falling. As such, selling the asset(s) could be a useful way of regaining a portion of your capital. However, if the asset(s) does have potential but is suffering from a lack of customer awareness, designing a marketing campaign may help you to earn a return on your investment.

Need help supporting your business?

Driving your business forward can be a demanding endeavour, even at the best of times. The main obstacle that many business owners run into is a lack of sufficient capital, which directly affects your ability to further invest in your company and maintain its day-to-day operations. Should this issue persist, the health of your business will surely decline as a result. Naturally, it can be tempting to make use of your saving in order to support your business’ develop, but another way of achieving this is by exploring what the Alternative Finance Industry has to offer.

Providing access to a new generation of business finance products, more and more business owners are receiving the support they need to move forward, including Cashflow Finance, Working Capital, Invoice Finance, Tax Finance, Growth Finance, Asset Finance and much, much, more. All you need to do is source a suitable finance agreement from a lender you can trust, which is where speaking with a qualified business finance professional could prove absolutely invaluable.

At Rangewell, we’re an Access to Finance specialist and have mapped over 400 lenders to offer you an overview of more than 23,000 business finance products - we search so you don’t have to. Our services are free to use, quick, hassle-free and we’ll also guide you through the application process. So if you’re looking to support the health of your business, apply for Alternative Business Finance today or find out more with Rangewell.


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David Harrison

David Harrison

Content writer