As a small business owner, you already recognise the importance of staying as competitive and as efficient as possible. A financial health check can help you to ensure you’re in the best possible financial position to strive for future growth and retain your position as a leading business in your niche.
What is a Financial Health Check?
Running an SME is no easy task, particularly as many businesses have been experiencing rising costs. In March 2024, for example, almost 25% of businesses in the UK reported that the costs of services and goods had increased when compared to the previous month, however just 9% reported increasing their own prices to mitigate the financial impact.
The changeability of business costs can put a huge strain on SMEs, which is why ensuring you have a comprehensive understanding of your financial wellbeing is so important. A financial health check can help you to identify areas within your business that would benefit from some extra attention, continue operating as effectively and efficiently as possible, guarantee you’re in compliance with all laws and regulations, and ensure you’re in a secure financial position to respond quickly to new growth and investment opportunities.
The Benefits of Understanding Your Financial Health
Without a comprehensive understanding of the fiscal wellbeing of your business, you’re going to find it difficult to put together a viable roadmap that will help you drive growth and achieve your business goals. Putting together a carefully structured financial plan can provide you with an array of benefits including:
The Power to Make Fully Informed Financial Decisions
When you know exactly where you are financially, you will be better placed to make key strategic decisions surrounding risk management, opportunities for growth, and viable investment opportunities.
Managing Your Cash Flow
Fluctuations in cash flow are to be expected, however, without a proper financial plan, you’re going to struggle to consistently meet your financial obligations during periods when your cash flow is lower. But with a solid plan in place, you won’t need to scramble to deal with unexpected expenses, leaving you free to focus on driving profitability and seizing key opportunities when they arise.
Attracting Lenders and Investors
In 2023, there was a significant increase in the number of SMEs that were eager to improve their lending profile and demonstrate to lenders that they were in a healthy financial position. There are a number of reasons why SMEs want to do this but it’s largely due to the uncertainty we’re seeing across the board and lender’s unwillingness to provide funding to SMEs.
Remember, lenders want to mitigate risk. So, in order to access funding that will enable you to develop your business and reach your full potential at the most opportune times, you need to present yourself as an attractive investment opportunity.
Key Financial Indicators
There are a number of key financial indicators that can provide you with valuable insights into the fiscal well-being of your business. These include:
Profit Margins
Understanding your profit margins will provide you with a wealth of valuable information regarding how successfully you are driving tangible profits from sales. A healthy profit margin is essential for long-term investment and growth.
Liquidity Ratios
Liquidity ratios are one of the key financial metrics that you should be keeping a close eye on, as they measure your SME’s ability to meet all your short-term financial obligations without the need to look externally to raise capital. In addition to ensuring you’re able to continue operating smoothly, maintaining healthy liquidity ratios will also help you to build trust with suppliers, creditors and investors.
Utilising Financial Services and Tools
There are a variety of tools and services that can help you to improve your SME’s lending profile, drive innovation and secure future growth.
Open Banking
Open banking is just one example of a valuable tool that can enable SMEs to access a much more diverse range of financial services and products with better interest rates and lower fees. Open banking can also support SMEs with efficient financial management via real-time data that supports more informed decision-making.
Working with financial experts, such as AK Tax & Accountancy can help you to conduct a comprehensive financial health check, which will highlight key insights that you can use to plan future financial decisions. They are also best placed to help you leverage technology to streamline your financial management processes and ensure you’re in the best possible position to drive growth into the future.
