Summer is here, which is the perfect time do a Financial Checkup for your business. This article suggests tackling the “6 P’s” of a financial checkup. In the Spring you have tax season and fiscal year-end reporting, so who has time? In the Fall companies are making a push to finish strong to meet year-end quotas before new business shuts down for the holidays. Winter is too late to effect change for the year, and it is hard to advance work when so many people are out on vacation (or sick!). This makes the Summer a great time for a financial checkup.
What is a financial checkup exactly? It could be a lot of things, but here are six ideas. Pick three of them (one per category) to accomplish. Show that you are committed to the financial health of your business, and your business will definitely thank you in return.
Business Model Review (do at least one)
- Plan – re-visit your business plan. The prior year financials (the key benchmark) should be final, so use it as the foundation for a refresh of your business plan. Do it for current year and next year. Add another year, and you have the coveted 3-year financial plan.
A Plan is great for:
- businesses involved in a significant financial transaction.
- businesses that consider great planning a key to their success.
- Projections – prepare quarterly forecasts to see what you think the business will look like in terms of revenue growth, operating profits (EBIDTA), working capital, and the capacity to service debt and distribute capital. These are all critical financial measures regarding the health of your business.
Projections are great for:
- giving to banks and lenders so they become more comfortable and confident in your business.
- owners and stakeholders, so they can see how today’s business will look tomorrow.
- leaders and managers, who can use projections to set goals and measure results.
Profits and Cash Flow Review (do at least one)
- Performance Reports – this could include monthly or quarterly income statements or Profit & Loss (P&L) reports. Sales trends can be analyzed to see if new business is healthy or anemic. P&Ls can calculate profit margins and expense ratios, to show how effective you are in managing costs relative to sales generated. Many business leaders have little time to study detailed reports, so create one-sheet scorecards with infographs and bullet point summaries. Reports are of no use if they are not read. Create a monthly production report package, to keep an ongoing pulse on the state of your business.
Performance Reports are great for:
- managers and leaders that want accountability for business results.
- sharing with stakeholders, banks, and lenders, to prove that you can articulate your business from a financial perspective.
- Profit Conversions – profits stuck in receivables are bad for cash flow and bad for your bank account. The longer the receivable is outstanding the less likely you will be able to collect.
Summer is great for getting your cash receipts in order. Get backlogged invoices sent out promptly. Review credit terms for down payment and installment billings, and revisit your financing and late fee policies. Collect all open receivables.
Reviewing cash payments is equally important. Set up a sensible weekly check run process. Review credit terms of key suppliers, and negotiate them. Examine vendor due dates to see who might accept a more favorable payment schedule.
You can never have too much cash on hand, and here you can boost cash without having to sell more or spend less. You are simply managing your cash better.
Profit conversions are great for:
- companies running a thin line with cash and working capital.
- companies that are interested in building that emergency “cushion” for the unexpected.
- companies that want to go from good to great in their cash management practices.
- People – you count on people to make your company perform. Is everyone on the team signed up for at least one educational or development class? Are people allowed to work on a pet project that supports the company? People are what make the difference, and investing in people is great for:
- building morale and team spirit.
- developing talent and skills inside the business, so you can outperform the competition.
- Platforms – along with people, your company systems make up the key resources to run your business. Use the Summer to identify all key systems the business relies on to operate. It can vary by industry, but computer and data networks, accounting and payroll systems, customer and CRM systems, and online systems and tools are universally important to businesses large and small. Are you able to make a case that all your systems are working seamlessly and smoothly? Can your systems today support your future growth? If you can’t answer confidently to these questions, a system review may be your key Summer project.
Platform reviews are great for:
- companies wanting to run leaner to increase profits and optimize enterprise value.
- companies managing change.
- companies that plan to grow significantly.
360 degrees of Small Business Solutions
Arima Business Solutions (ABS) is a business management consulting firm located in the heart of the San Fernando Valley. We specialize in solving the most top-of-mind problems for small business owners. We offer a deep skill set and know how on running the finances, operations, and marketing areas of a small business. This makes ABS uniquely equipped to provide 360-degrees of client service. Finance consultants often do strictly finance while marketing firms focus mainly on sales and branding. The best solutions are balanced solutions, that examine not just one, but all of the key areas that are important to your business.