Assessing Financial Health of Your Business Eye to Eye

A Deep Dive with Dan Smits on Assessing Your Business’s Financial Health

In this episode of Partners in Growth, Dan Smits, founder and CEO of GrowthPoint, draws on his 25 years of entrepreneurial experience to explore the intricacies of developing a financial growth strategy. Discover the essential components that drive business success in today’s competitive market and gain valuable insights into maintaining a healthy bottom line. Get ready for a thought-provoking discussion that will empower you to assess and enhance the financial health of your business.

What You’ll Learn

Dan Smits:

GrowthPoint Partnership presents, Partners in Growth podcast. I’m Dan Smits, the founder and CEO of GrowthPoint and your host. With 25 years of owning and operating four businesses, being involved in two acquisitions within those businesses and successfully exiting two of those businesses, we know what drives growth and kills growth through the leadership process. Let’s dive into customizing your growth strategy, which will help you build enterprise value that puts you in the driver’s seat for whatever obstacles come your way. We are entrepreneurs with hands-on experience and we’ll provide insight into the challenges and the hard work involved in starting and growing a business. It’s all about determination and grit.

Today we’ll dive into developing a financial growth strategy and the needed mindset to take your business to the next level. We’ll be exploring the key components that help your business thrive and excel in today’s competitive market. So grab your notepad because we’ll give you some thought-provoking questions and criteria for you to consider through developing your financial health of your business. What are the best practices needed in order to succeed in the financial health? And typically when the financial health is strong, other parts of your business, of course, have been implemented and are strong as well, otherwise these things won’t work. So consistent.

Revenue generation is critical to your business. Sustained revenue growth, reoccurring revenue, as a part of your revenue streams is super important that you know every month when you wake up on the first, there are clients and processes already in place that are helping to reoccur or drive reoccurring revenue.

So I’m gonna go back to the financial health of your business. Okay. Financial health of your business, the best practices. Consistent revenue generation is critical to your business. Sustained revenue growth and reoccurring revenue streams is very important to have a nice balance of different revenues so when the new month starts out, you know that you have a certain amount of revenue and you’re not having to bring on new customers all the time in order to generate enough revenue to meet your goals. A responsive customer engagement process that really ensures accounts management and that real focus on where you’re at with the customers and what are those metrics. And then focus on the revenue increase in profitability through the productivity model of what are those things that you’re promising to your client and how do you deliver them so you’re not wasting money on extra hours of your team or extra problems with your manufacturing process, whatever it may be that gets in the way, be proactive. So direct expenses such as materials, labor, all those things need to be compared to best practices in the industry to ensure that you’re being competitive. Because if you have those expenses out of line in your business, it’s gonna force you to actually increase your price, where other competitors are not having to do that. A continuous efforts are made to reduce the cost while maintaining product or service quality and customer satisfaction is critical to this whole process of having the right mindset. It’s all about you as the leader, positioning yourself to make sure that these things are in place. And if they’re not, it’s on you to make sure that your team is aware of what’s happening and where you’re going as an organization. The cost of goods need to be really competitive based on the total revenue. That you should have these statistics and information of how much should the cost of goods be in my industry? How much should my general expenses be? How much should my payroll be?

So all of those things should be established through your accounting processes to make sure that you’re looking at them each and every month to ensure that you’re on track.  Non-operating expenses are carefully managed considering the impact of the company’s profitability and valuation goals. So where are you looking to end up in the long run needs to be considered through this process of how valuable do you want your company to be and predicting that out three years in advance? The company also has to have systematic and disciplined financial practices, including accurate financial records, regular audits, effective cashflow management, adherence to accounting standards, and financial controls to prevent fraud and mismanagement.

What are those things that your CPA or your consulting group are providing you to make sure that best practices are in place such as an audit periodically and financial reviews? You know, do you have the financials reviewed each and every month to ensure compliance or is that more quarterly within your organization? So the company has established financial goals, a detailed budget that aligns with the strategic objectives, involving the key stakeholders, and each key stakeholder has a responsibility for their different departments to ensure that they have all the right tools and the budgets and projections in place that there’s game on, right? They’re actually involved in that process and they’re responsible for the outcome. The company maintains a healthy debt to sales ratio, a positive credit score, pays the bills on time, all those things have to be baked into the culture in order for the financial health to really get to that point that everyone’s in the driver’s seat towards taking responsibility.

When you look at your business and you grade your business compared to other organizations or compared to maybe previous management structures you’ve had at your organization, make sure that you’re doing an assessment or working with a CPA firm or a consulting firm to really enhance that overall process to make sure that your grading, the financial health, and is it at risk, right? So putting a number on where’s your company one to 10, right, so we have an overall assessment that we work with our clients on that I’ll kind of walk you through at a high level of saying, hey, where is your company in these particular numbers? So zero to three, the financial risk is pretty high, right? So you’re not a mature company. You don’t have these things that we’ve talked about today mixed into the overall business. Your margins aren’t that great. Your ratios aren’t that great. You’re really high probably with employee expenses, meaning the actual payroll expenses. Your benefits may be high. Those things all need to be considered. So zero three is not that great. Four to five, you’re starting to climb up towards developing financial health and you’re at that mid-range for margins within your business and things are starting to take hold. You’re starting to develop plans within your business to get to that point of having some structure. And now you’re going from a six to eight, you’re really in that satisfactory financial health. You’re starting to get into an average, you know, for organizations, you’re starting to really hone in on where you’re going in the future, what this company is gonna be worth. You’re really starting to have that dashboard in place and really accountability within your team and your team that’s overseeing the financials is really getting to a point of being structured. And then, you know, nine and 10, you’re getting to the point that it’s outstanding, you know, financial health. You really have a structure in place. You’re on your way to your three-year average of what you want for an evaluation of this company to be able to establish that, hey, maybe you’re gonna exit the business in three years, five years, whatever that looks like. And keep in mind, everyone looks back three, five years. So you need to have that track record to ensure everyone’s on the same page and things are moving along. And when you get to that point, from my experience, the sale of your business goes extremely well because you have all of the due diligence data over the years, you have meeting notes, you have financials, your taxes have been done properly, all the things that are best practices now roll up into your success and your ability to sell the business. So if anyone needs help to be able to establish where they’re at and where they need to go and putting together a strategy around where you need to go as an organization. My name is Dan Smiths with GrowthPoint Partnership. We provide fractional COOs, accounting and marketing services to help you to really establish the strategy within your business and help you to execute.

So visit us at growthpointpartnership.com or reach out to me, fill out a form on our website and we’ll get back to you immediately and start the process towards helping you determine your financial health. This is Dan Smits, Partners in Growth podcast. Have a great day.