Just as people need annual check-ups to maintain their physical health, businesses also need check-ups to help maintain their financial health.
Businesses that are dedicated to creating solid business plans with both short- and long-term goals, and that habitually refer to those written documents and measure their success against those goals are better positioned than their competitors to access capital for growth and go after market opportunities, says Stewart Beach, executive vice president, Old Second National Bank, Aurora, Ill.
“With the economic climate in recent years, it’s critical for business owners to constantly evaluate their position in the market, to review goals and objectives, and to determine what action items are necessary to carry out their business plans,” says Beach. “A business’s bank wants to make sure that management is actively leading the business toward success and future growth, making performing regular financial checkups so vital.”
Smart Business spoke with Beach about how to perform a regular review of your business and its performance, and what to consider during these financial checkups.
What metrics should a business focus on when performing financial checkups?
A business plan is a roadmap for an organization’s goals, both short term and long term, and all businesses should have this document in place and on paper. But the plan doesn’t do any good if you simply create it and put it on a shelf; instead, the plan should evolve over time, be edited frequently and revisited regularly so a business can determine whether it is hitting key goals and objectives.
In particular, the budget is a primary checkpoint that should be carefully analyzed on a regular basis. Is the business meeting its projections? If not, why? What factors are causing the business to derail from the plan? While a business plan seems like an inevitable foundation for any business, the fact is that many organizations do not have a formal plan in place.
But every business needs to dedicate the time and resources necessary to assemble those goals, lofty ideas, strategic opportunities and, most important, those numbers into a sturdy, well-crafted business plan, creating a document that will serve as the basis for regular checkups.
What value do these regular checkups have for a business’s relationship with its bank?
While access to capital is better today than it was a couple of years ago, banks still approach business opportunities with cautious optimism, much like any business would consider a deal in these more fragile economic times. Banks want to know that their business clients have a solid plan in place and that they regularly review financials. This is evidence of a strong management team that is actively leading the business and meeting financial targets.
Management that is on top of the budget and on task with achieving business objectives is likely open to growth opportunities, and this is a win-win for banks and the businesses that partner with them.
How does the economy impact the way businesses should evaluate their organizations?
In the current economy, the markets change more rapidly and business cycles move faster than ever before. Businesses might need to go back to the drawing board and review their business plans to ensure that there is enough flexibility to meet changing demands, whether from the customer base, vendors or delivery sources.
The key word is flexibility. Flexibility should be a way of business life today. But an organization can only be flexible when it has a solid anchor, a business plan or similar document that serves as a benchmarking tool. From there, a company can measure and celebrate its successes.
By regularly taking the pulse of the business, management is in a better position to act on market opportunities. For instance, one of the fastest growing segments today is exports. Businesses that produce all products in the United States and have not considered international business might want to investigate how to gain a presence in the export market. Perhaps a company wants to develop an export business to grow its existing domestic revenue. Or a retail organization might begin to explore online sales opportunities to add muscle to its current in-store sales.
The key is to constantly be looking for what’s next, and the businesses that continue to check in with their plan and ensure that the budget is in line, that goals are being met and that key people are in place to help the business grow have a better chance of succeeding when they venture into some of these market opportunities.
A business that is not on top of the budget, receivables, personnel and sales will not be in a position to capture new market opportunities. The economy today demands that businesses run lean, and that means understanding where every dollar is spent. This is why regular financial checkups are crucial to the future of any business.
Stewart Beach is executive vice president of Old Second National Bank in Aurora, Ill. Reach him at [email protected] or (630) 906-5478.