There’s no doubt that running a business can be a challenge, especially in the current climate of uncertainty and unpredictability. Now, more than ever, it’s important to take stock, reassess your business goals and realign your strategies for success.
A comprehensive business health check enables leaders and business owners to assess their processes, financial position, talent, operations and assets. These proactive measures enable organisations to identify their strengths and weaknesses and recalibrate plans to ensure longevity and sustainable growth.
In this article, you’ll discover the benefits of conducting a business health check, plus strategies to make it happen. These lessons can provide the foundation for informed decision-making and business sustainability, no matter your industry. So, as you head into 2024, let’s get your business in shape to tackle the challenges, and opportunities of the years ahead.
Business readiness checklist: 9 key considerations
1. Finances and cash flow
Where should you begin when conducting your business health check? We suggest you start with your finances. Ask yourself these questions:
- How do our finances currently align with our overall business goals?
- What is the health and efficiency of our financial procedures such as bookkeeping?
- When did we last do a thorough assessment of our P&L?
- Do we need to re-evaluate our cost structures?
- What factors could impact sales in the short to mid-term?
- What is our net cash flow position?
There’s a lot to consider. Tim Bowring, Octet’s Head of Sales, Health, has this advice on where to start. “It’s important for businesses to have a three-way forecast. That includes profit and loss, a balance sheet and a cash flow statement,” he says.
“Take time to track your performance against those forecasts at least quarterly, but ideally every month.”
Tim says it’s important to check if your revenue aligns with targets and profit margins meet expectations. If your margins are diminishing, investigate the reasons why. Keep an eye on your costs — ensure you’re not discounting products excessively to drive sales and manage fixed expenses effectively. Seek opportunities for savings in different areas as well.
“The cash flow forecast will show any peak cash shortfalls throughout the year,” Tim adds. “It’s key to ensure you’ve got either cash reserves or working capital facilities that will cover that shortfall.”
How much cash should a business have in reserve? In an ideal world, Tim says six months’ worth of fixed costs or operating expenses should be held in cash. “That’s not always feasible and can be a lot of money. So that’s where working capital facilities from flexible non-bank lenders can help.”
Tim also advises businesses to meet their tax obligations. “Recently, the ATO has started naming and shaming businesses with tax arrears and reporting them to the credit agencies. That information is then displayed on credit reports and affects the businesses’ credit scores.
“We’ve seen lots of businesses use the ATO basically for funding post-COVID, so they’re not paying their tax, or they’re entering into a payment arrangement. That’s clearly not sustainable.”
2. Business operations
How are your general business operations currently structured? Laws and regulations change, and as your business grows, the processes and structures in place to run your business may need to be revised to support it into the future. Here are some operational areas you may need to improve:
- Measure your business milestones, achievements and the performance of your people if you don’t already. Implementing actionable ways to measure performance will allow you to start setting goals for the future.
- Consider new software that streamlines processes or new equipment that could improve your business or help you cut costs.
- Proactively request feedback from customers, and start exploring the realistic changes you can implement to make customer service better.
- Changes in legislation can affect operations and add to your compliance workload, so as part of your health check, take time to understand the laws affecting your business.
- Investigate ways to build more resilience into your supply chains.
It’s easy to get caught up in running your business, but exploring what’s happening in your industry and how your competitors are positioned can help you improve your own business operations.
3. Managing change and crises
If the past few years have shown us anything, it’s that businesses of all sizes across every industry need to have crisis and risk management plans in place. A crisis can reduce income, affect sales, increase costs and lead to reputational damage.
Implementing a crisis management plan can assist a business in reacting and recovering confidently and swiftly from a crisis, whether it’s a natural disaster, fire, theft, loss of power, tech failure, product recall, or even another pandemic. Crisis management steps can include:
- Assessing potential risks, based on factors such as your industry and location, and the crises that could occur as a result of those risks.
- Preparing a list of responses in terms of suppliers, staff and resources. For example, a product recall will involve the product team identifying the defect, the marketing and customer service team communicating the response to customers, and perhaps the social media team ensuring up-to-date information is available to the wider community.
- Engaging with management and leadership and providing training if necessary. Discuss succession plans and how the business will continue to run if key employees or managers are suddenly unable to perform their duties.
- Ensuring all employees can review plans and, most importantly, understand their roles in the crisis management process.
- Electing representatives to communicate with internal and external stakeholders and the media in the case of a crisis.
It’s also worth considering having multiple crisis management plans in place. One might cover IT security, another health concerns and another, natural disasters.
Not sure where to start? There are many free tools and templates to help with crisis management planning available online.
4. People and culture
How is your workplace culture? Are your employees engaged? When conducting a business health check, it’s important to check in on your people.
Forbes has identified several HR trends that businesses will need to understand and embrace as we head into 2024. They include:
- An understanding that employee satisfaction extends beyond pay and includes intellectual stimulation, personal growth, wellbeing and work-life balance.
- The role that demographics (such as an ageing population), diversity and inclusion will have on the workforce.
- The need to support staff to be lifelong learners by providing them with opportunities to upskill or reskill.
- The a need for all employees to have an awareness and understanding of tech transformations such as AI.
- An acceptance that the workplace is now far more decentralised and remote; a hybrid workforce is now a permanent feature of modern workplaces.
Is your people and culture department using AI and automation? If not, it’s worth exploring. Digital assistants can answer employee questions, efficiently offering the information employees seek in real time. This allows HR to focus on business-critical responsibilities.
AI is also being used to streamline onboarding processes and automate paperwork delivery and receipt. Digital assistants can direct recruits through the induction process, suggest learning resources and provide information to get them up to speed.
While AI is creating efficiencies, it’s important not to lose that human touch. According to McKinsey, organisations and managers are being challenged to reimagine workplaces to be more creative, adaptable and resilient. Employees are seeking workplaces that provide meaningful and enjoyable work with value and purpose.
Is your business ready for the change?
5. Partnerships with suppliers and stakeholders
As part of your business health check, it’s important to touch base with external stakeholders to assess the health of those relationships and identify opportunities for improvement.
For many businesses, the most critical external relationship is with their suppliers. Here are some tips for reassessing and improving supplier relationships:
- Are your local and international supplier relationships still aligned with your business goals? If not, it might be time to renegotiate or explore new relationships.
- Keep communication lines open and ask suppliers to outline their strategies for managing disruptions and risk. For example, what are their contingency plans if they can’t supply key products or services?
- Take a look at your internal procedures to ensure your supply management processes are efficient and everyone involved in the business understands their roles. Identify areas of improvement and act on those by introducing new techniques or procedures to better manage supply.
- Explore procurement tools to streamline processes and plug communication gaps.
- Implement structures to monitor supplier performance and provide regular feedback if you don’t already.
6. Intellectual property
Intellectual property (IP) is a fundamental business asset. A business health check should involve checking all assets to understand their value, who owns the IP and how vital these assets are for your business. Consider your key products and services, your business name, brands and logos, and identify your legal right to them. Remember, as your business grows in value, so too does your IP.
While copyright does not need to be registered, other rights such as trademarks, designs and patents involve a formal application process and scrutiny for ownership.
“I see situations where a business will register their business name and their domain name, but they won’t actually go to the extent of lodging a trademark,” Tim explains. “A trademark is critically important because it gives you legal protection to deter other businesses from copying what you’ve trademarked. It’s also an asset for your business — as the value of your business (and brand) grows, so does that trademark, which can be sold or licensed out to be used by other businesses.”
If your business trades in other countries, you must also check your IP there. Trademark issues can cost a lot of money via legal fees and take a great deal of time to resolve.
While doing a health check on your IP, it’s equally important to check that you’re not infringing on another business’ IP rights. Using another business’ trademark or copyright without their permission can be incredibly damaging to your business.
7. Cybersecurity
Australia’s fraud and scam statistics are concerning, and it’s both consumers and businesses that find themselves the victims. Results from the Cybercrime in Australia survey show 47 per cent of those surveyed had been the victim of at least one cybercrime in the 12 months prior, 20 per cent had experienced identity theft and eight per cent reported being a victim of fraud. Australians lost a record $3.1 billion to scams in 2022, up from $2 billion in 2021.
The ACCC reports that payment redirection scams cost Australian businesses more than $128 million in 2020 and $227 million in 2021. In 2022, the loss was $224 million.
In a payment redirection scam, also called invoice fraud, a scammer will intercept an invoice (often sent via email), change the bank details and then send it on without the sender or recipient having any idea.
Tim says it’s a critical issue for business. “This type of fraud is very common and I’ve seen big losses arise from it. If you’ve initiated the transfer and made the mistake, the banks won’t cover you for that loss. I would say nine times out of 10, once that money leaves your account, it’s gone.”
Smaller businesses are particularly vulnerable to email compromise and invoice fraud. “My top tip with this type of fraud is if someone either gives you a new bank account number to pay or if you haven’t paid a bank account before, ring that business and check that bank account number is correct.”
There are many other ways a business can protect itself and its staff. The Australian Cyber Security Centre recommends businesses follow several tips to keep themselves and their customer data safe, including:
- regularly updating software
- turning on multi-factor authentication
- ensuring passwords are strong
- backing up data regularly
- developing cyber security policies and educating employees on secure practices
- securely storing customer data across various platforms
- developing a risk assessment and management plan in the case of a break or incident.
8. New technologies
New technology can be daunting, but it can also open up avenues for growth.
AI and automation are being used in various industries, including finance, to analyse large data sets and detect fraud with incredible accuracy. Data analytics is being used to manage stock in sectors such as healthcare, while robotic automation can be used in logistics and warehouse management to increase efficiencies.
AI can automate and enhance a range of other business processes.
- By analysing customer transaction data, companies can learn what products customers buy together to better help them recommend bundled products for future purchases.
- AI can be used to analyse job applications.
- Data analytics can identify limitations in business operations and recommend efficiencies.
- Tools such as ChatGPT are already being widely used to assist marketers and content creators produce social media posts, blogs and ad copy.
Many businesses may be wary about using AI and automation. These tools do have their limitations, but businesses cannot ignore or avoid them. Utilising AI and automation tools, and training staff on their use, can lead to significant improvements in customer service, business processes and enhanced staff knowledge.
When conducting a business health check, it’s a good idea to explore ways your business might benefit from these technological advancements.
9. Growth goals
Most business owners want to see their businesses grow, but meaningful and sustainable growth takes planning. Here are some ways to identify and create growth opportunities as part of your business health check:
- It might sound obvious, but start by exploring ways to increase sales based on the products and services that actually sell well. Are there ways to further enhance these offerings and capitalise on opportunities?
- Discover what your competitors are doing to grow their businesses. Use statistics or information about your industry that reveal growth opportunities.
- Having appropriate funding in place is vital to ensure sustainable development so look into how you will finance growth. Do you have the resources to scale up but still deliver excellent customer service? Identify potential issues before scaling up so you can overcome bottlenecks quickly.
- Empower your workforce to manage growth by giving staff an opportunity to upskill or use previously underutilised talents. Introduce appropriate new talent if necessary.
- Be open to partnerships with external stakeholders to capitalise on growth opportunities.
- Consider acquiring other businesses or moving into new territories. If you’re a bricks-and-mortar business, are there greater online opportunities that you are yet to explore? Do you have the eCommerce technology in place to support growth in these channels?
Regularly assessing your marketing strategy is also important when checking your business pulse. Consistently evaluate your marketing efforts to discover how they have delivered results to date and where you might need to invest more resources if you were to scale up. How well do you understand your existing and target customers based on research? If these audiences have changed over time, then you’ll need to realign your marketing plans, including core channels, messaging and potentially your overall brand positioning.
How strong is your brand? Is it time to reassess or rebrand to reflect your business offering and goals better? Perhaps you’ve added new services that aren’t reflected in your current branding. When it comes to marketing, there’s a lot to consider, so it’s important to ensure that you’re well equipped in terms of in-house resources and partner with agencies where this aligns with your business and marketing goals.
A healthy business starts with the right finance
Running a business is an incredibly complex endeavour. So, how do you successfully navigate your industry now and in the future? It helps to have an experienced finance partner who’s as committed to your business success as you are.
Conventional forms of funding don’t provide the kind of flexibility and responsiveness modern businesses need to thrive. Bank loans and generic lines of credit that require physical security are too restrictive.
“Traditional funding has generally required bricks-and-mortar security,” says Tim. “That could be your family home, investment properties or commercial property, putting the personal assets of business owners at risk and limiting the amount of finance you can access to the available equity in those assets.
“Octet provides support outside the traditional banking relationship. We partner with businesses to ensure they have appropriate working capital structures that enable peak performance, allowing a business to seize opportunities and build a healthy balance sheet.”
Businesses in various industries have turned to Octet when traditional finance sources such as banks have proven too restrictive for their plans. Steel manufacturer Builders Steel Direct sought out Octet for a tailored supply chain finance solution that allowed the business to achieve its ambitious growth goals. And Octet delivered.
Health retailer Go Vita was expanding its supplier list, product lines and stores. It needed the finance to make that happen and Octet put in place a long-term working capital solution that allowed Go Vita to grow while maintaining cash flow.
When Vinmofo needed finance to fund its expansion plans, Octet delivered a flexible trade finance facility that gave the online wine retailer the fast finance solution it needed.
Begin your business health check with Octet
Ready to do a business health check? Reassessing your financial position is a great place to start.
Octet is the finance partner of choice for ambitious businesses of all sizes across a range of industries. Our customised working capital solutions, including trade finance, debtor finance and supply chain finance, have unlocked countless opportunities for our clients.
So, what’s next for your business? Discover what’s possible when you partner with us.
Disclaimer: The following comments are only our views and should not be construed as advice. You should act using your own information and judgement. Although information has been obtained from and is based upon multiple sources the author believes to be reliable, we do not guarantee its accuracy and it may be incomplete or condensed. All opinions and estimates constitute the author’s own judgement as at the date of publication and are subject to change without notice.
