A business assessment establishes what needs to start, stop, and continue. Its purpose is to diagnose what’s working well in the business, where the business is getting stuck, and what needs to be done differently. Business assessments are like physical exams where a healthcare provider studies your body to identify any physical problems that need medical attention.
The results of a physical examination establish if all is well, continue doing what you’re doing or if immediate corrective actions need to be taken, and any necessary lifestyle changes to keep you healthy. For those that are healthy, their physical is confirmation that they are taking care of themselves as they should. Those that have hereditary, or lifestyle risks get confirmation on whether intervention is needed to improve their well-being. Those that choose not to get at least an annual check-up lose out on establishing their health status robbing them of early intervention and prevention insights they are currently at risk for.
A well-designed business assessment serves the same purpose as a physical examination. Vital signs are checked, physical appearance is evaluated, medications are reviewed, and lab work is performed. All of this is done to assess for any issues that may become medical concerns in the future.
The business vital signs assessed start with changes in Net Sales, Gross Profit, Operating, and Net Income to measure the quality of business operations. A balance sheet review is performed to establish the effectiveness of ownership decision-making. Here we are looking at the sales, profit, and cash reserve health of a business that is shaped by the cash quality and speed of collection the business generates each time it completes a transaction. The faster and higher the return on the cash invested to get paid for a sale, the healthier the business. Failure to earn a profit on a sale means the cash invested in assets and expenses are not generating a return. Worse yet the failure to collect the money owed from a sale means you never get paid for the cash invested in assets and expenses.
Just as an unhealthy heart puts you at increased risk of flatlining if immediate changes to your lifestyle aren’t made as a result of cardiovascular disease, the same can be true for your business. The health of your operating cash flow is shaped by improving your understanding of how your management actions shape the quality of your profits as reported through your financial statements.
Positive cash flow and profitability never just happen in any business. Both are achieved through disciplined planning, accountable follow-through, and accurate plus timely reporting of the results of your hard work and sacrifice.
Businesses with predictable cash flow, strong profits, and accurate reports timely delivered never face the question, “is this a good business to buy?” People buy these businesses at a premium because they can easily understand how cash is generated, and profits are achieved through the financial reports produced. These businesses have owners who are disciplined in assessing the quality of their decisions and actions as verified through their financial results.
Are you ready to identify where your business needs you most?
Click the link below to take the no-obligation business fitness test to learn how healthy your business is. Upon completing the business fitness test, you will receive a risk profile showing how at risk your business is to suffer cash flow and profit problems, the primary cause of business cardiac arrest over the next three years. Your assessment results will confirm where you are on the following assessment scale:
Low (Green) — congratulations, your risk of failing from business cardiac arrest is unlikely. Your use of financial reporting to manage cashflow and grow profits means you are faster at recognizing issues you need to address through each year to protect cash and grow profits. You have a highly attractive business that many would likely consider buying at a premium.
Moderate (Blue) — you are avoiding the consequences of business cardiovascular disease. The challenge is you are likely experiencing some cash flow problems despite your best efforts. You have a good idea of when and how long your business is going to run tight on cash, so you do adjust your rate of spending, yet you can’t seem to build your cash reserves as high as you would like them. You have profits, yet you know you they should be higher. Improved use of a management dashboard and better understanding of your financial statements will help you cut out waste that is limiting your cash reserves and costing you profits.
High (Yellow) — your business is showing elevated risks of business cardiovascular disease caused by reoccurring cash flow problems and unacceptable profit levels. Expenses are higher than they should be and too much of your variable costs are more fixed than variable, such as labor and materials that is difficult to control under slow or reduced sales conditions. Control through the direct attack of waste will be difficult, yet needed. You are not using weekly leading metrics and monthly variance reports to see where the immediate corrective action is required as you should. You likely don’t have a monthly profit plan and need help building one with defined metrics, and easy to use variance reporting.
Very High (Orange) — your business has increasing levels of business cardiovascular disease because cash flow is tight to negative from too much spending across too many fronts than sales can sustain. Continued cash flow issues will be long with periods of increasing stress, making control over profits very difficult until you reduce expenses. Both increased sales and rapid cost reduction will require an extended and very thorough effort. Eliminating and slowing down your cash outflows is recommended immediately. Consider outside expertise to help you see what you are missing before it’s too late.
Extreme (Red) — your business is worse than flat lined, you are in full-blown cardiac arrest caused by prolonged operating losses. Every additional month of loss is leading to a larger cash calamity. Expect extreme, erratic cash and lack of profits until ownership behavior changes. STOP wasting time and money. Seek immediate help before you completely kill your business.
For those who feel they are too busy to participate in a business assessment and are tired of not making the money you wish you were making, click the second link below to have a certified Business Scientist at no charge identify how your business model is costing you money.
Within forty-eight hours of receipt of your P&L Statement by month, you will receive back by email your free identification of where your business model is draining profits and, ultimately, cash from your business. The no-obligation insights provided here are designed for those who have the goal of learning where they can improve their business, so they make more money with less stress