Is Your Business Financially Fit? A 10-Point Health Check for Peace of Mind

As a business owner, you're constantly busy. You’re managing staff, serving customers, and planning your next move. It’s easy to fall into the habit of judging your business's health by a single metric: the number in your bank account.

But just like a personal health check-up, a regular financial fitness test can reveal the true condition of your business. It helps you spot small issues before they become big problems and gives you the confidence to pursue growth opportunities.

So, how financially fit is your business? Grab a pen and let's run through this simple 10-point check-up.

The Financial Fitness Test

Answer "Yes" or "No" to the following questions:

1. The Cash Buffer Test: Do you have enough cash in the bank right now to cover at least three months of fixed operating expenses (rent, wages, utilities) without any new income? (Yes/No)
   
   • Why it matters: This is your business’s emergency fund. A healthy buffer provides resilience against unexpected downturns.
2. The Profitability Test: Looking at your last Profit & Loss statement, is your Gross Profit Margin (Revenue - Cost of Goods Sold) stable or increasing? (Yes/No)
   
   • Why it matters: This shows if the core of your business-selling goods or services-is profitable before overheads are considered.
3. The Debtor Days Test: On average, are your customers paying you in under 45 days? (Yes/No)
   
   • Why it matters: Unpaid invoices are your money in someone else's pocket. Getting paid faster is the quickest way to improve cash flow.
4. The Creditor Days Test: Are you consistently able to pay your own suppliers within their agreed terms? (Yes/No)
   
   • Why it matters: Maintaining good relationships with suppliers is crucial. Paying on time protects your reputation and supply chain.
5. The Inventory Test: If you hold stock, is the majority of it less than six months old? (Yes/No)
   
   • Why it matters: Old inventory is dead money. It ties up cash and costs you money in storage.
6. The Debt Service Test: Can you comfortably meet all your monthly loan repayments without putting stress on your day-to-day cash flow? (Yes/No)
   
   • Why it matters: This shows whether your current debt level is sustainable.
7. The Balance Sheet Test: Do your business assets (what you own) comfortably outweigh your liabilities (what you owe)? (Yes/No)
   
   • Why it matters: This is a snapshot of your business's net worth and long-term stability.
8. The Client Concentration Test: Does any single client account for more than 30% of your total revenue? (Yes/No)
   
   • Why it matters: While big clients are great, over-reliance on one is a major risk. Diversification creates security.
9. The Reporting Test: Do you receive and review accurate financial reports (P&L, Balance Sheet, Cash Flow) at least every quarter? (Yes/No)
   
   • Why it matters: You can't manage what you don't measure. Regular reporting is essential for making informed decisions.
10. The Future-Ready Test: Do you have a clear financial forecast or budget for the next 12 months? (Yes/No)
    
    • Why it matters: A forecast is your roadmap. It helps you plan for growth, manage seasonal lulls, and set clear targets.

How Did You Score?

• 8-10 Yeses: Your business is in fantastic financial shape. You have a strong foundation for sustainable growth.
• 5-7 Yeses: Things are generally solid, but there are a few areas you could strengthen to improve resilience and profitability.
• 0-4 Yeses: This is a red flag. It’s a sign that you need to take a closer look at your financial management now to avoid serious problems down the track.

Understanding your financial fitness is the first step to building a stronger, more successful business.

Want to improve your score?‍

Contact the Geared Finance team for a strategic review of your business finances and let's build a plan for a healthier future.