Business Performance Health Check

The key objective of a Business Performance Health Check is to determine, from existing business performance information, exactly how the business operation has been tracking over a defined period, and more importantly, what performance outcomes can be expected or predicted in the future from the current management activity and philosophy.

The reasons for checking current and historical performance and preparing future projections for the business are:

To ensure the business will grow and deliver increased profit performance
To develop a systematic method of setting realistic performance objectives
To build a knowledge base that improves the process and outcome of business decisions
To build an actual performance history of the business for the day it will change hands
To ensure that the value of the business at all times reflects the owner’s desire to create that value
To effectively complete a Business Performance Health Check, the process begins with analysis of the business’ financial records. The two key financial records are the profit and loss statements and the balance sheet.
To develop a set of Key Performance Indicators that regularly determine exactly how the business is performing against the set objectives

The Profit & Loss statement

The P & L statement shows how your business generates it’s profit, both on a monthly basis and over successive periods. The P & L report records the movement of all the individual items of cost and income in your business and collates each item into Income and Expenses, thus generating a profit position.

A lack of understanding of how all the items in your P & L affect the business operation and the bottom-line can ultimately lead to an underperforming profit outcome.

The real value to be gained from using and understanding P & L statement information is when it is possible to keep track of the key indicators every month and compare results (for example) to the following:

The previous month
The trend over the previous 3/6 months
The same period last year
The budget for the month
Your financial year-end for the last three years



		Click here to access our Profit & Loss Tutor

To gain the greatest financial benefit from the company’s P & L information, results should be kept and accurately charted each month – WHY - simply because nothing goes fundamentally wrong in a business in one month – it has usually been happening for quite some time.

The P & L record also allows a comparison of how the business has performed during different activity periods in different business cycles – e.g. Xmas and immediately after, Easter, the same month pre-GST, during and after that promotion held last year. The figures will tell the story.

The Balance Sheet

Traditionally, companies review, adjust and record changes to their balance sheets on a annual basis during the preparation of year-end financial accounts. This important task is done in order to show where and how the money (funds) generated during the previous financial year have been spent. That is, how have the funds generated been used to build assets or decrease liabilities for the company, and how has the movement in both assets and liabilities affected overall wealth (net assets or owner's equity) of the company.

In order to review current business wealth and health, the balance sheet should be updated quarterly in order to check such issues as liquidity, debt servicing, accounts receivable and payable ratios and inventory values in relation to sales performance.

Many SME operators fail to check the balance sheet status more than annually, without realising that the underlying financial health position of a company can change for the worse in a three month period.

The Business Health Check should cover (see Glossary of Terms and Definitions for the P & L and Balance Sheet): -

Key number financial review
Trend analysis
Key ratio analysis
Break-even point analysis
Benchmarking
Capacity analysis (if relevant)

For a working example of a simple Profit and Loss report analysis, click here. When you arrive there, simply click the button "Show Example". You will also be able to insert your own ACCURATE figures and see the performance ratios for your business.

Output reports (tables, graphs and commentary) for individual businesses can be tailored to suit individual business operations and business types (Click here for examples).