Since I started my business in 2011, I’ve worked directly with hundreds of different small businesses, helping them with growth and profitability, and structuring them to align with their personal lives and all their goals. As time goes on, I’ve started thinking about businesses more and more in terms of their financial health.
Financially healthy businesses are able to thrive and grow successfully because all the financial pieces operate together in a coordinated, intentional way.
Over the years, I’ve developed a set of criteria that I use to evaluate and improve the financial side of the businesses I work with. These criteria form the different elements of business financial health, and when they are all functioning well, great things can happen for your business!
Elements of Business Financial Health™:
1. Lucrative Revenue Streams
Your revenue streams are the different, distinguishable ways that your business brings in money. Even with a single type of service or product, there are usually different ways that you can deliver or sell it à different streams of revenue. When you distinguish between your different streams of revenue, you might discover that one of them is significantly more profitable than the others!
2. Well-Managed Cash Flow
Cash Flow refers to all the movement of money (revenue, expenses, payments to liabilities, purchasing assets, etc.) within your business. Understanding your cash flow can give you a great window into the financial health of your business. And managing your cash flow can start moving your business finances in a positive direction.
3. Effective Pricing & Positioning
Pricing and positioning are very closely linked. Clear, descriptive positioning can make your business stand out from your competition, which allows you to price your products or services at a level that’s profitable for your business. On the other hand, your pricing is actually a part of your positioning (if a service or product is priced ridiculously low, for example, people will assume that it’s not worth much). Working on your pricing in conjunction with your positioning can help you significantly increase your business revenue.
4. High ROI for Staff Members
It’s important for you to understand the return you can expect from any investment you make in your business, and this is especially true for your investment in your staff members. Calculating ROI for you staff can help you determine compensation for different staff roles as well as what your expectations should be for different staff members.
5. Comprehensive Tax Strategy
Regardless of the size of your business or how much revenue you generate, it’s crucial for you to have a tax strategy that will inform your business decisions throughout the year. Addressing your tax strategy now can make a significant difference for your tax savings going forward.
6. Sustainable Owner Compensation
Compensating yourself well (and regularly) can have a major, positive effect on your performance as a business owner. Establishing a baseline compensation package for yourself can be an important first step in making your business financially healthy and sustainable.
Regardless of what type of business you run, when you work on these six elements you will improve your Business Financial Health.
And when your Business Financial Health increases…
- Your profitability will increase.
- You will able to grow your business more successfully.
- You will have more options for profitable ways to structure your business.
Over to You…
Are you ready to start improving your business financial health? I developed a Business Financial Health™ Quiz to evaluate the different financial areas of your business. Once you see how you score in each area, you will be in a better position to start improving the areas that need some love. Start making your business financially healthy today!