Financial Health Checks

What is a financial health check?

Control of the finances of a business is critical to a company's survival, growth and profitability. Key factors are setting out trading and cash flow budgets for the business over the twelve month cycle and regular monitoring of performance and updating of budgets. However, many businesses are too busy with day-to-day activities and administration to do this thoroughly, if at all.

In order to take good management decisions, the Directors of a company need to have accurate, up to date and realistic forecasts of their sales, purchases, overheads, gross margins, net margins and cash flow. Critical decisions about the future of the company, such as levels of employment, investment, salaries, sales, stock levels, debtors and creditors, overdraft requirements etc. should be made with up to date financial information, not just based mainly on gut feel and instinct. Without enough cash in the system, poor performing companies can go under while businesses performing profitably can see their growth restricted.

Trading forecasts should be updated and reassessed continually in line with actual performance so that the company knows where it is heading as the year goes by, not getting a shock several months afterwards when the auditor or accountant puts the figures together. Ideally, budget monitoring should be on a monthly or quarterly basis, but companies unable to commit to this should consider having their financial forecasting externally and objectively updated and analysed AT THE VERY MINIMUM once a year in order to retain a degree of control on the business.

Financial Health-Check Stages Include: