How to Create a Small Business Health Check Plan

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

2 people standing over a computer talking

Your car needs an oil change every 3,000 miles, a wash every few weeks, and a new battery about every 5 years. Just as 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.

Like most business owners, you are probably extremely busy working on various parts of your operations. You can easily lose control and become susceptible to financial problems if you don’t regularly review your business health.

With that in mind, here’s how to create and maintain regular health checks in 3 key areas of your business.

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    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, how can you 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 one already, make a budget now. Budgets help businesses predict their earnings and ensure they have the financial means to cover fixed and variable expenses. If your accounting software offers budgeting and reporting 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 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.

    mastering cash flow

    Identify How Clients Affect Your Revenue

    Do you have any clients who drain your energy? Ones who constantly ask for discounts or pile on additional work and contribute to 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 certified public accountant (CPA) who’d grown his company from a desk in his rented condo’s spare bedroom into the state’s largest CPA firm. His No. 1 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 prevent you from paying the bills.

    Conversely, maybe you have 1 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 or took their business to one of your competitors tomorrow?

    What to Do About It

    Firing a client for the first time 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.

    If you find that your revenue is too concentrated with 1 or 2 clients, it may be time to diversify your client list.

    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 doing this with every satisfied customer. 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 health check reveals that you’re spending too much time on an inefficient revenue stream and spreading your resources too thin, you might want to drop 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.

    Business Health Check #2: Expenses

    Monitoring expenses gives business owners a good idea of how money is spent and helps them chart a future course of action with clarity and confidence. Take the time to track and review 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, food, and other costs of daily operations.

    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 watch receivables closely to make sure customers pay their bills and minimize losses.

    Do you have efficient processes in place to monitor receivables and follow 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 a strategy for following through on collections, even if you have to outsource it.

    What to Do About It

    Consider written agreements with all clients. 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 may also want to collect deposits from new clients or ones who are chronic late payers.

    What Else to Monitor for Business Health?

    Revenues, expenses, and receivables might be the lifeblood of your business, but there are several other areas to keep an eye on during a regular business health check.


    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 better systems and processes. 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 record expenses, prepare and send invoices, pay bills, and reconcile accounts.

    If you can’t commit to staying on top of bookkeeping, it might be a good time to consider outsourcing it. The great thing about outsourcing accounting tasks is it is totally scalable.

    Right now, you may be able to handle some bookkeeping yourself and employ an accounting professional for just a few hours per month. As your business grows, your outsourced bookkeeping can grow with you.

    accounting not your passion

    Business Classification

    Is your business structure still a good fit? You may have started out as a sole proprietor, but now you’ve grown enough that it makes sense to file as an LLC (limited liability company) or take advantage of tax savings by making an S corp election.

    What to Do About It

    Talk to your attorney and accountant 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 Small Business Health Check?

    Set a goal to perform your business health check 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 health check process may seem daunting at first, but it’s a necessary part of growth and success. If your checkup uncovers a lot of room for improvement, don’t try to fix everything at once. Try setting 3 objectives and 3 key activities to help you reach your goals and keep your business growing and thriving for years to come.

    This post was updated in May 2023.

    Janet Berry-Johnson

    Written by Janet Berry-Johnson, CPA and Freelance Contributor

    Posted on August 22, 2017