How to Conduct a Financial Health Check for Your Business

A financial health check gives you a clear picture of how your business is really performing. It shows you where money comes from, where it goes, and what needs attention now. When you run this check often, you catch problems early, protect cash, and grow with less stress. This guide walks you through a practical process you can follow each quarter or even each month. We keep the steps simple and action-focused so you can apply them in a few hours and make decisions right away.

Before you start: prepare the right data

• Close the month in your accounting system and reconcile all bank accounts.
• Download your Profit & Loss, Balance Sheet, and Cash Flow reports.
• Export aged receivables (AR), aged payables (AP), and inventory/WIP (if relevant).
• Collect loan statements, lease schedules, and credit card statements.
• Open your current budget and your rolling forecast (if you have one).

Accuracy matters. If you do not reconcile and code transactions correctly, your ratios will mislead you. Do the tidy-up first. It saves time later.

Step 1: sanity check your numbers

• Scan revenue for odd spikes or drops. Confirm one-off items and timing.
• Review cost of goods sold (COGS). Make sure purchases and freight sit in COGS, not overheads.
• Check payroll totals and super. Fix any duplicate journals.
• Match GST on sales and purchases to the BAS period you expect.
• Review suspense/uncoded accounts. Clear them now, not at year-end.

Step 2: measure profitability

Start with your gross margin and net margin. These tell you how well your pricing and cost control work.

• Gross margin (%) = (Sales − COGS) ÷ Sales × 100
• Net margin (%) = Net profit ÷ Sales × 100

If gross margin falls, look at purchase prices, wastage, discounts, overtime, freight, and rework. If net margin falls, check rent, utilities, software creep, marketing ROI, and admin headcount.

Do a break-even check: Break-even sales = Fixed costs ÷ Gross margin %. If you know this number, you can set weekly sales targets with confidence.

Step 3: assess cash flow

Profit means little if cash arrives late. Build a rolling 13-week cash forecast. Map all inflows (customer receipts, grants, refunds) and all outflows (wages, rent, suppliers, tax, loans). Update it each week. Use it to time payments and avoid surprises.

• Operating cash flow (from your cash flow report) should be positive over the quarter.
• Set a minimum cash buffer (e.g., 6–8 weeks of fixed costs) and track it monthly.
• Stage large payments (ATO, insurance, annual software) so they match strong cash weeks.

Step 4: check liquidity and solvency

• Current ratio = Current assets ÷ Current liabilities (aim ≥ 1.2).
• Quick ratio = (Cash + Receivables) ÷ Current liabilities (aim ≥ 1.0 if you hold inventory).
• Debt-to-equity = Total interest-bearing debt ÷ Equity (lower is safer; track trend).
• Interest coverage = EBIT ÷ Interest expense (aim > 3.0 for comfort).

If ratios look weak, create a plan: reduce stock, collect AR faster, refinance expensive debt, or push non-essential capex to a later quarter.

Step 5: manage receivables (get paid faster)

Slow collections choke cash. Review your aged receivables report and take action.

• Debtor days = (Average AR ÷ Sales) × 365. Aim to beat your payment terms.
• Send invoices immediately. Use clear terms and multiple payment options.
• Automate reminders at 3, 7, and 14 days overdue. Follow with a phone call.
• Offer small discounts for early payment on large invoices if margin allows.
• Place poor payers on deposits or progress billing.

Step 6: manage payables (pay on time, not early)

Good supplier terms are a free source of working capital. Use them wisely and keep your reputation strong.

• Creditor days = (Average AP ÷ Purchases/COGS) × 365.
• Match payment runs to cash inflows. Avoid random, daily payments.
• Negotiate volume or early-payment discounts where helpful.
• Log every supplier contract renewal date to negotiate ahead of time.

Step 7: review inventory and WIP

Excess stock ties up cash and hides problems. Run a simple stock health check.

• Inventory days = (Average inventory ÷ COGS) × 365.
• Mark slow or obsolete lines. Discount, bundle, or discontinue them.
• Check receiving accuracy, shrinkage, and rework. Fix root causes.
• In service businesses, review WIP ageing and move jobs to completion faster.

Step 8: trim waste without hurting growth

Look for expenses that do not drive revenue or protect quality. Keep what supports sales or saves time.

• Cancel unused software seats and overlapping tools.
• Review freight and packaging costs with suppliers.
• Measure marketing ROI by channel. Double down on winners, pause low performers.
• Shift from fixed commitments to flexible contracts where possible.

Step 9: test pricing and margins

If costs rise and prices stay flat, margins shrink. Review price points, bundles, and minimum order sizes. Explain value, not just cost. A small, well-planned rise can protect service levels and fund growth.

Step 10: update your budget and forecast

A living budget guides your next moves. Roll forward your forecast each month using real results. Align hiring, marketing, and stock plans to your updated figures. Share a short one-page summary with your team so everyone rows in the same direction.

Step 11: check compliance and tax settings

• Match BAS to general ledger GST totals and fix variances.
• Confirm STP submissions, super payments, and payroll tax (where applicable).
• Review director obligations and due dates for ASIC and ATO.
• Discuss tax planning opportunities ahead of year-end, not after.

Step 12: strengthen controls and reduce risk

• Separate duties: the person who approves bills should not release payments alone.
• Use role-based access in your accounting system and remove old users.
• Back up key documents and keep a clean audit trail.
• Document two or three key processes (payroll, AP, month-end) so work continues if someone is away.

Step 13: choose tools that save hours

Cloud accounting (Xero, MYOB, QuickBooks Online) plus add-ons for e-invoicing, expense capture, and payments reduce manual work. Connect bank feeds, set coding rules, and automate reminders. Use dashboards for KPIs so you see issues early.

Step 14: build a simple action plan

A health check only helps if you act. Pick the top five actions for the next 30–90 days. Assign an owner and a due date for each. Review progress every two weeks. Keep the plan short and visible.

• Collect top five overdue invoices this week.
• Reduce obsolete stock by 20% within a month.
• Negotiate supplier terms before renewal dates.
• Lift average sale value by 5% with bundles or add-ons.
• Create a 13-week cash forecast and update every Friday.

Red flags to watch

• Current ratio below 1.0 for two straight months.
• Debtor days rising while sales are flat.
• Inventory days increasing with no matching sales growth.
• Interest coverage below 2.0 or frequent ATO payment plans.
• Large suspense or “uncoded” balances at month-end.

A sample 90-day review rhythm

1. Days 1–7: Reconcile, tidy coding, clear suspense, run core reports.
2. Days 8–14: Review margins, cash flow, AR/AP, and inventory metrics.
3. Days 15–21: Update budget and 13-week cash, choose top five actions.
4. Days 22–45: Execute actions, hold a 30-minute numbers huddle weekly.
5. Days 46–90: Lock improvements, document processes, and prepare next quarter plan.

When to call in an accountant

Bring in a professional if you feel behind on BAS or payroll, if lenders ask for forecasts, if stock and cash feel out of sync, or if you want to grow but need clearer numbers first. A good accountant helps you build clean books, create a calm close process, and turn data into decisions.

Conclusion

A regular financial health check turns scattered data into a clear action plan. You measure margins, protect cash, control debt, and guide growth with confidence. You do not need complex models to start. You need accurate reports, a small set of ratios, and a steady review rhythm. If you want help to set up this cadence or to run a deeper review, the TASC team is ready to support you with practical tools and plain-English advice. Get in touch to book your financial health check and move forward with confidence.