How to Create a Small Business Health Check Plan

Periodic business health checks are an easy way to spot problems before they happen.

business health

Your car needs an oil change every 3,000 miles, a wash every few weeks, and a new battery about every five years. Just like you take your car to the mechanic to keep it running smoothly, you need to perform regular checkups on your business health. It’s not just about performance, it’s about safety.

Most business owners are extremely busy working on various parts of their operations, so without regular check-ups on financial health, they can easily lose control and become susceptible to financial problems. With that in mind, here’s a rundown of how to create and maintain a regular health check-up plan for your small business.

table of contentsTable of Contents


    Business Health Check #1: Revenues

    Revenue (or sales) is the amount of money your business earns before any expenses are taken out. Without revenues, your company cannot earn a profit and stay viable in the long run.

    What Are Your Goals? Budget to Actual

    Every business should have revenue goals, both annually and monthly. How are you doing on making progress toward those goals? If you missed your goal, what can you do to adjust going forward? If you hit (or exceeded) goals, what did you do right and how can you do more of that in the future?

    What to Do About It

    If you don’t have a budget, make one now. Budgets help businesses predict the amount they’ll earn and ensure they have the financial means to cover fixed and variable expenses. If your accounting software offers budgeting tools, use them. Otherwise, keep a spreadsheet handy, so you can continue to check in and tweak your budget.

    As you compare your budget to actual results, look at shortfalls and consider what went wrong. You may need to adjust your spending down to make up for revenue shortfalls. If revenues exceeded predictions, you might have an opportunity to start building your business emergency fund for slower months.

    Identify How Clients Affect Your Revenue

    Do you have any customers who drain you of energy? The ones who constantly ask for discounts or scope creep? Maybe it’s time to cut them loose. When it comes to your revenue, they may be costing you more in lost time and motivation than they’re worth. I once interviewed a CPA who’d grown his company from a desk in the spare bedroom of his rented condo into the largest CPA firm in the state. His number one piece of advice was not to take every client who walks through the door. When you’re starting a business, it seems like a good idea to keep every paying client, no matter how much of a headache they may cause. But keeping bad clients around can actually hold you back and keep you from paying the bills.

    Conversely, maybe you have one great client who accounts for the bulk of your revenue. This is great (for now) but what would happen if that client went out of business tomorrow? In that case, you may need to diversify your client list.

    What to Do About It

    Firing your first client can be an emotionally-charged experience, but it is a skill every successful business owner should have in their back pocket. Politely explain the situation, offer a referral to a competitor and be professional.

    Next, don’t be afraid to ask for referrals from your quality clients. Some people find asking for referrals uncomfortable, but you should get in the habit of asking every satisfied customer for one. Simply ask if they know anyone else who might have a need for your product or service. Most people are happy to help, you just need to let them know how.

    Review Your Best Revenue Sources

    What is your greatest potential revenue source? Having multiple revenue streams is a good thing, but it’s important to dig deeper and determine which source of revenue is most crucial, makes the most efficient use of your resources and represents the greatest potential for growth. Next, ask yourself what you can do to ensure that you focus the majority of your time and attention there.

    What to Do About It

    If your checkup reveals that you’re spending too much time on an inefficient revenue stream and spreading your resources too thin, you may consider dropping that stream to focus on growth in other areas. If too much of your time is spent on non-revenue generating tasks such as bookkeeping, website maintenance, or answering non-essential emails, you might consider outsourcing those tasks so you can focus on growth.

    mastering cash flow

    Business Health Check #2: Expenses

    Tracking expenses give businesses a good idea of how money is spent and helps them chart a future course of action with clarity and confidence. Take a look at your expenses. Which ones take up the bulk of your cash flow?

    If you’ve been in business for a while, some increases in expenses may be due to healthy growth, but some may have gotten out of hand when you weren’t paying attention. Regular checkups of expenses let you look for ways to save money.

    What to Do About It

    Make sure you’re always on the lookout for the best deals on expenses like office supplies, travel, and food.

    However, if you have employees or hire independent contractors, be wary of cutting staff to reduce costs. You may find that your products or services suffer, and losing help costs more than it saves.

    Business Health Check #3: Receivables

    Accounts receivable is the money that your business has a right to receive because it has provided customers with goods and services. It is important for companies to closely monitor receivables to make sure customers pay their bills and minimize losses.

    Do you do a good job of monitoring receivables and following up on past-due invoices? If not, this could be negatively affecting cash flow and putting your business in jeopardy. Remember, your business is not a bank. Have a clear policy on overdue accounts and follow through on collections, even if you have to outsource it.

    What to Do About It

    You should consider written agreements with all customers. That agreement should establish clear expectations for when payments are due and what happens when payments are past due, such as charging interest or referral to collections. You could also consider collecting deposits from new clients or ones who are chronic late payers.

    Additional Areas to Monitor


    Do you have good bookkeeping and accounting systems? Was it easy to gather your financial data to do this review? If not, you may need to work on a better system. When you can’t access accurate financial data quickly, you run the risk of letting problems spiral out of control before you are aware of them.

    What to Do About It

    If you want to continue doing the books yourself, try setting aside a little bit of time each week. Block out time on your calendar to devote to recording expenses, preparing and sending invoices, paying bills, and reconciling accounts.

    If bookkeeping is something you just can’t commit to staying on top of, it might be a good time to consider outsourcing. The great thing about outsourcing accounting tasks is it is totally scalable. Right now, you may just need someone for a few hours per month, but as your business grows, outsourced bookkeeping can grow with you.

    Business Classification

    Is your business classification still a good fit? You may have started out as a sole-proprietor, but you’ve grown enough that it makes sense to file as an LLC or take advantage of tax savings by making an S-Corp election.

    accounting not your passion

    What to Do About It

    Talk to your attorney and CPA about whether it makes sense to change your business entity. There are costs involved, so you’ll need professional advice to perform a cost-benefit analysis based on your unique situation.

    How Often Do You Need a Checkup?

    Set a goal to perform your small business checkup every quarter. Block out a few hours on your calendar and don’t let yourself skip it. If you need extra motivation, seek out another small business owner or mastermind group to provide accountability.

    This process may seem off-putting at first, but it’s a necessary part of growth and success. If your check-up uncovers a lot of room for improvement, don’t try to fix everything at once. Try setting three goals and three key activities to help you reach your goals and keep your business growing and thriving for years to come.

    Janet Berry-Johnson

    Written by Janet Berry-Johnson, Freelance Contributor

    Posted on August 22, 2017 | Author Bio