With a whopping 78 per cent of insolvencies in Australia being small businesses that have less than 20 employees, it is obviously very important to keep a finger on the pulse of the financial health of your start-up if you want to survive in these murky waters.
But, before we delve into that, how in the first place do so many businesses end up insolvent?
The top four factors leading to small business insolvency are poor strategic management of business, inadequate cash flow, high cash flow use and poor financial control including lack of records.
Learn how to manage your business at your own pace
Most small business owners have neither the time nor the money to keep up with the latest business knowledge to help manage their businesses. Many are therefore turning to flexible and free online learning to up-skill and manage their businesses better.
Open2Study’s new online courses for example suit the requirements of most small business owners. These courses offer flexibility and industry-leading knowledge to keep business owners up to date on the finances of their business.
Open2Study’s new Diagnosing the Financial Health of your Business subject in particular teaches business owners to assess the strength of their business and identify early warning signs of potential future problems. You know what they say, prevention is better than cure!
Do your own check up right away
A profitable business may not necessarily be performing well or taking the right steps to build for its future. Just as a doctor conducts a diagnosis of a patient and recommends a course of treatment, businesses can use simple and yet powerful tools to analyse a business and identify where and how things can be improved.
In fact, here is a small business financial health checklist Open2Study shared with Anthill that you can take a look at right away and reflect upon where you stand.
- Analyse your finances to make sure that your balance sheets, income statements and cash flow statements add up.
- Identify early warning signs of potential financial difficulties by keeping up to date with your balance sheets and maintaining a realistic budget.
- Assess risks by reference to financial reports.
- Identify the assumptions and estimates in constructing the financial reports.
- Measure and interpret the sustainable growth rate of your business.
- Distinguish between the income statement and the statement of comprehensive income.
- Measure the operating cash cycle and assess the implications for the funding needs of your business.
- Is the business generating appropriate returns on its assets and for its owners?
So there you have it people, do you now have a better idea of where your business stands? Is it doing back flips and splits or is it limping and breathing its last?