The difference between your business being financially healthy and just doing a few financial exercises is probably a nasty shock when you least expect it.
Good personal health is defined as a state of complete physical, mental, and social well-being and not merely the absence of disease or infirmity.
In many ways, the financial health of your business is very similar to good personal health, and almost as complex.
Business financial health is defined as the ability of a business to manage its financial assets and liabilities to meet its financial goals and the expectations of its stakeholders such as lenders, investors and customers. It is usually judged by a company’s financial performance which typically includes its financial position (assets, liabilities, and equity/ownership structure), liquidity, solvency, profitability, and efficiency.
Clearly, there are many measures of the financial health of our business, but how do we deliver those measures?
The Financial Health Of Your Business Starts With Your Most Basic Business Needs.
Achieving good personal health is a blend of many components.
At a very basic level, our bodies have very specific needs, namely food, water, oxygen, exercise, and sleep.
Our business also has very specific needs. The right customers, the right income, the right customer value proposition, the right team working efficiently and the right amount of cash. They are our lifeblood. Nothing is more important to the survival and growth of our business.
Without this base level of specific needs, we have no energy and can create no impact.
So, if these specific needs are so important, we need to invest the right time and focus to;
- Create, build, and develop a product or service that really connects and engages with your customer’s needs or desires. It needs to stir a specific desire or it’s just not important.
- Create a performance plan to target, connect, and build relationships with the right customers in an efficient way.
- Improve certainty and timing of income from customers, as well as create customer retention strategies.
- Actively measure, manage, and secure income daily.
- Manage bad debt actively and protect our business against the impact of bad debt.
Assuming that our basic personal needs for survival and growth are met, our mental and social well-being requires us to know what we are going to do, when and why. Without it, we are lost. Completely.
Financial Health Doesn’t Happen By Accident. It Needs Passion and A Plan
Our business is no different. It needs a clear plan of activity, with allocated resources and expected outcomes. Without a business strategy and plan, without controls and without measures to manage progress our business and our people are lost.
So, if this is so important, we need to invest time to;
- Develop and communicate a clear business and financial plan with financial goals.
- Allocate and control the business resources in line with the business and financial plan.
- Measure progress, understand the challenges and take actions to lead and enable continual progress versus the plan.
- Ensure our people are comfortable and aligned with the plan and not lost
Assuming we have met the positive health needs so far, the next challenges for our body, and also our business, are the day-to-day activities, skills, and processes required to survive and strive.
Two Critical Components Of The Financial Health Of A Business Are Effective Processes Plus Engaged, Productive And Supportive People
Our body has the critical processes of digestion, motion, recovery, and growth. These processes have been perfected over time and usually run smoothly without interference. Our mental health has the greater challenges of the much more complex processes of the nervous system, our need for love and our natural ability to instinctively think, like the primates we evolved from (@The Chimp Paradox. Professor Steve Peters).
Our business is no different. It has many vital processes as well. Marketing, sales, operations, finance, leadership development, and customer service to name but a few. In most cases, these have not been perfected and are often subject to continual interference. As our businesses are functions of people, they too are subject to the challenges of the complex mental processes that impact us as individuals and teams.
So, if processes and people are so important, we need to invest time to;
- Understand, design, and build the right processes for our business.
- Invest time and develop our key business processes to work effectively.
- Understand the challenges our people face and enable them to achieve better outcomes for themselves and the business.
- Build and enable our business environments to foster personal and business growth.
We have discussed the key strategies to establish the first three pillars of business financial health namely;
- customers and income,
- a business and financial plan with targets`
- effective processes plus engaged, productive and supportive people.
The fourth pillar is the application of learning and prudence.
Good Business Financial Health Means Limiting Your Business Exposure To Financial l Waste, Risks, And Common Financial Mistakes
We apply learning and prudence to our personal health. We do what the doctor says, we don’t eat to excess, we take exercise, we listen to what our bodies are telling us and we seek specialist advice when advised to or when we feel it’s appropriate.
The same approach is needed for your business health. Invest time to;
- Research your products with customers to avoid launching unsuccessfully.
- Test your marketing strategy with a small budget before you overspend.
- Protect your cash with cost controls plus income and debt protection where appropriate.
- Invest with caution having understood the benefits and process forensically.
- Understand and manage your key assets (people) with care and attention.
- Clarify your shareholder expectations and timescales early and regularly.
Finally, however, well we manage our personal health there are times when we try too hard, things get too much, or we just overdo it. That’s life.
It is no different with our business. We lose a major customer; a supplier goes bust or key people leave. It just happens.
Good Business Financial Health Means Preparing Your Defences To Manage When You Do Get Ill
When our personal health is challenged, we have doctors, friends, holidays, savings, or good old energy stores in our bodies for those moments of extreme fatigue.
What fallback resources do you have when your business health is challenged? Plan ahead and make sure you are prepared with;
- Expertise and advice are available to help and support in a crisis or at a time of need.
- Identified sources of key skills and resources to call on if needed.
- Established additional credit or set aside cash reserves to call on if required.
- Alternative products to deal with changing market conditions. (e.g., COVID)
- Tried and tested escape mechanisms to clear your head.
- A mature mindset and acceptance that things will go wrong and how you deal with them counts.
- Financial health is not about managing a few numbers here and there. It’s understanding what actions you are taking to impact which specific measure of financial health.
- Treat the financial health of your business with the same care and attention your pay to your personal health.
- Focus on your basic needs, your goals and plan, your core processes and people, learn from the mistakes of the past and make plans for when it doesn’t quite work out. Which it won’t (always).
- Use these 24 strategies to ensure your business is in great financial health.
- Financial health is enabled by continuous good habits and care. (@Atomic Habits. James Clear)
I hope you found this article interesting and useful.
Wishing you and your business good personal health and financial health.