How do you determine if your small business is financially healthy? Most people look at profitability as the obvious solution. However, many other factors come into play when determining if your business is genuinely financially healthy. Understanding your business's financial health is vital to its survival. A small business is financially healthy when finances are no longer a drain on your attention but a source of support for your business.
8 Factors to Consider When Reviewing Your Business' Financial Health
- Meeting your Financial Responsibilities: The first item to look at in determining the financial health of a business is are they making all of their payments for bills, employees, taxes, licensing, and any other specific obligations on time and in full.
- Emergency Funding: The next item to consider is having cash reserves available to cover unexpected expenses or fluctuations in income.
- Financial Systems in Place for Comprehensive Review: To make an informed decision about your business, you need to review things like profitability, cash flow, and investments readily. Having a system in place and keeping it up to date is vital when examining your business.
- Planning for Risks: Every business has risks; making a plan to mitigate your specific risks can help make your business more resilient.
- Planning for Unpredictable Cash Flow: Cash flow is always going to vary. Managing the variability by identifying your 'slow-time' and creating a solution before the crisis happens can be the difference between staying open or closing for good.
- Properly Insured: Having insurance does not imply that you are APPROPRIATELY insured. Being overinsured can waste valuable funds, and being underinsured can make your business fold should you need to use it.
- Have Access to Credit: A business needs to have access to credit from time to time, and ensuring that your business has access to affordable and rapidly available credit is essential.
- Maintainable Debt Load: Having significant debt payments can draw funds away from the business, preventing funding for new opportunities.
The bottom line is no single metric can determine if a business is financially healthy or not. Using a combination of planning techniques can help your business thrive.
If you would like help with reviewing your business, start by completing this survey. Once I have this information I will help you move forward.
Garrett is the president of Horizon Planning Group and a skilled financial advisor. Garrett takes on the role of teacher and aims to truly educate others on how to improve their lives through financial planning. He takes pride in helping his clients better understand their unique financial situations and providing them with the tools needed to reach their personal goals. Garrett specializes in small business planning and advising small business owners on their unique financial needs.
Schedule an appointment with Garrett here.
About Horizon Planning Group
Horizon Planning Group was founded in 2006 by Gary L. Holcombe. Based in Woodstock, Georgia, our firm is committed to being a part of our beautiful, small-town community while serving clients on a national scale. We offer full-spectrum financial planning services and a fiduciary commitment to always do what’s right by our clients.
It’s our goal to become a resource you can turn to when making any big decisions that affect your financial horizon. With our collective knowledge and experience, we can help you develop strategies to address almost any concern related to your finances.
Want to learn more about how we can help? Click here.