Physical Health vs. Financial Health
One of the things that I have learned in business over the years is that you also have to be intentional about your financial health as well as your physical health! Without a financial check-up, leadership may be unaware of how financially healthy (or unhealthy) their organization really is and this lack of attention can lead to devastating consequences.
Steps to Financial Health
It is recommended that the financial check-up be done on an annual basis with board members and advisors. The financial statements that the accounting department prepares should be analyzed to assess the firm’s strengths and weaknesses. Let me share with you the three key financial documents that point to either health or impending decline in your organization:
The Balance sheet: The lifeblood of an organization, the balance sheet is a statement of liabilities and assets at a certain point in time. It also details income and expense over the preceding period.
The Income statement: Detailing the financial performance of an organization over a specific accounting period, it is also vital to understanding the health of the business by showing net profit and loss.
The Statement of cash flows: To understand the ebb and flow of an organization’s resources, the statement of cash flows is just what it sounds like…the statement allows a window into how changes in balance sheet accounts impact cash and cash equivalents, i.e., cash generated and used during a certain time period.
Review and Strategize
These key financial documents all point to a check-up that will help determine what the organization is currently worth and facilitate the plan for increasing its value. By reviewing these statements, leadership can make any necessary adjustments along with providing a strategic look at the direction of the business, all of which ensure the organization’s long-term goals are being met. As a side note, during the financial health assessment, other key areas that should be evaluated are taxes, investments and insurance.
Just like a medical check-up, a financial check-up can be intimidating, but when it is completed you will be glad that you have gone through the process. At the end of the day, the business cannot move forward if the leadership is not fully aware of the current state of affairs.