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Connecting business owners with financial expertise to grow their businesses.
Sarah Petty (00:01)
Hello and welcome to this very last episode of Olive Insights for 2025. It is just me today. I'm not with any guests. I thought I would do the last episode of the year all on my lonesome. But I'm going to talk to you today about how to do a bit of a financial check, financial health check of your business as you come towards the end of the year.
⁓ Before we jump into all of that details, I was doing a bit of reflecting on how far Olive Business Partners has come over the last year. And I think when it was this time last year, it was pretty much just me managing most aspects of the business all on my own. ⁓ And now we have a team of four CFOs, business manager, business support, social media support, ⁓
and yeah, a range of other people supporting the business, which has been a huge turning point for Olive and allowed us to grow because I guess there becomes a point where the business owner can't wear all the hats anymore and do all the roles. And to be able to grow, we need to make sure that we are getting that right support around us. Now with that level of rapid growth,
obviously come some challenges and adding people to the business adds new challenges as well. I mean, they're all amazing, really talented, great at what they do. ⁓ But to ensure that there's a cohesive team and structure and process and a way of working together, it does require me to change the way that I do things and make sure I'm communicating.
And also think about where I'm investing in the business, not just from a people perspective, but in the right systems and processes and other things to make sure the business is running smoothly. So I do a regular health check on my own business, checking in on these key areas just to make sure the business is running smoothly, that there's nothing I'm missing, there's no gaps, there's risks, and if there are risks, I need to address them.
but it just helps me to do a sense check of where I'm at and what are the things that I need to be focusing on. So today I'm going to run you through the process to do a very quick financial health check on your own business. So I have eight different areas of your business that I want to talk to and for each of those I have three questions. You just need to answer yes or no and you can do this on the spot if you're driving, if you're walking, if you're...
listening to this while you're cooking dinner, that's totally fine. You don't have to write anything down. Just answer yes or no and I'll talk you through what these key areas of your business are and some next steps to have a think about. So let's dive into our financial health check. The first area I want to talk about is cash flow because as a small business, without access to cash, we won't get very far.
So here's my three questions for cashflow. One, do you prepare a cashflow forecast regularly? Depending on your business, this could be weekly, monthly, quarterly, but do you prepare a regular cashflow forecast? Number two, are your cash reserves sufficient to cover at least three months of operating expenses?
Now we use a rule of thumb of around three months, again, depends on the business, but if you have three months worth of expenses in your bank account, you know that if something happened in your business where you lost a huge client or you had to shut your doors for a brief period of time, you have enough to cover three months of expenses and you could keep going for three months. So that's sort of our check.
is whether you have around three months. So have a look at what you've been spending on average over the last couple of months and do you have three months worth in your bank accounts? And the last question is, do you actively monitor and negotiate payment terms with your customers and suppliers? This can make a huge difference to your cash cycle. So if you think about if you have suppliers and you're paying them immediately,
but your customers are not paying you for several weeks, sometimes 30 days, 60 days, you have a really big gap in your cash cycle and you're having to pay expenses upfront before you've actually received your income. That can often cause a lot of issues in business cashflow. So with those three questions, if you answered mostly no,
The first thing is to start with a basic cashflow forecasting tool. This can be just something you put together in an Excel spreadsheet, Google Sheet. Start with what income you think you're going to be receiving over the next few months. And then what are the expenses that you need to be paying out over the next few months. And remember, if you're listening to this at a time where you have a BAZ payment due soon,
Also include that in your cash flow forecast. It's the one area often people miss is around taxes and BAZ payments. If you answered yes to those questions, then you're doing a pretty good job, but it's time to start thinking about how you could better utilize that cash. So think about some scenarios and is there other times of the year where you have excess cash and you could look at investing that cash elsewhere?
We see it all the time where businesses say, we don't have any cashflow issues. You we're always cash positive, which is a really great position to be in. But also ideal cash isn't working for your business. So if you've just got cash sitting there that you're not using, there's also other things you can think about to either reinvest that back into growth in your business or ⁓ other investments or just better utilizing that cash.
Let's move on to the next area of your business, is revenue. And we all know that without revenue coming in, we don't really have a business. So first question, do you track revenue trends across your different products or services? Often businesses will look at revenue as a whole, but are you looking at it? How much each product or service is bringing in?
Question two, is your pricing strategy reviewed regularly to ensure that it's competitive and that you're profitable? There are so many businesses that set and forget pricing ⁓ and don't revisit it for years and years. We've seen where it's been five, six years since someone had actually looked at their pricing strategy. So are you looking at this regularly? And the last question.
Are you monitoring your customer acquisition costs and your customer lifetime value? So your customer acquisition cost is the cost to you to get a new customer in. So all of those marketing efforts, the sales calls, sales funnels, activity, ⁓ know, the cost of actually getting a customer to buy from you. What does the average cost? What is the average cost for you? And a customer lifetime value is how much
a customer will generally spend with your business over their lifetime of working with you. So if you've answered mostly no, the first thing it's time to review your pricing strategy and look for any underperforming revenue streams. Sometimes when we haven't looked at it for a long time, there are products and services sitting there that are actually not contributing much revenue and not making much profit. So
Is it time to put in a price increase? Is it time to scrap them all together? ⁓ Have a think about where your products and services are performing and where they're not. If you said mostly yes to these questions, then that's great. You have a good handle on revenue, but you could be looking at now optimizing your acquisition costs. So how can you lower that cost to acquire a customer? And then also looking at the lifetime value of your customers. How can you increase
that lifetime value and be able to provide more value, a bigger impact to your customers and clients.
The next area is profitability. And the first question I have for you, do you regularly review your profit and loss statements? Number two, are your profit margins aligned with industry standards? Do you even know what your industry standards are? And last question, do you have strategies in place to improve your profitability? This might be things like cost control, pricing adjustments,
the mix of your products and services. Do you have any strategy in place where you address profit improvement? So if you answered no, the first place to start is to be looking at your profit and loss statement. And you can pull this from your accounting system quite easily, but have a look over the last few months and potentially into last year. Have you been profitable? Are there peaks and troughs in your year?
Do you know if you've been making a profit at all? And start looking at that regularly just to see if you're making a profit and what times of the year that you're more profitable. If you answered yes to these, then you have a good handle on profit, but it's time to start thinking a bit more long-term. So do you know what your long-term profitability will look like? How will you reinvest that profit back into the business to grow?
or what will you do with those profits as they accumulate? So start thinking beyond just the next couple of months or this financial year, what does your long term profitability look
The fourth area is around financial reports. So first question, are your financial statements, that's your profit and loss statement, your balance sheet and your cash flow, are they updated monthly? Question two, do you have a process for tracking and reviewing key financial metrics in your business? Do you even have key financial metrics? And the last question, are your reports accurate and reliable for decision making?
If you answered no to this, firstly, you want to think about making sure that you have a routine for checking the data that's in your accounting system and updating your financial statements or at least reviewing them regularly, ideally on a monthly basis, if not more. If you have a bookkeeper or accountant that's helping you with this, definitely talk to them about it and see where they can support. ⁓ But you want to, as the business owner, be looking at this.
regularly, even if you have finance support in your business. If you answer mostly yes to this, it's great. You have some basic reporting and sounds like your reports may be pretty accurate and reliable. It might be time to start looking at some more advanced analytics. So reviewing your statements is one thing, but sometimes it can mask some of the underlying issues if you're not sort of digging into what the drivers are behind it. It's also time to start thinking about those
key financial metrics and are you tracking the right ones? Are these the metrics that are really going to make a difference in your business?
The fifth area is the balance sheet. So do you regularly check your balance sheet to see what your business owns? That's your assets and what you owe? That's your liabilities. Are you keeping track of things like unpaid invoices or slow moving stock?
And lastly, is your debt to equity ratio aligned to your business goals? This is how much you have borrowed or how much debt you have in your business versus how much equity you have in your business. If you've answered mostly no to these questions, it's time to be focusing on a regular balance sheet review. So it's one thing to be looking at your profit and loss and understanding if you're making a profit. And of course, that's important.
but you do want to be understanding what assets you have on the balance sheet. This could be things, if you're a product business, you might have inventory that you own. You might have equipment that you own. Your receivables, that's the money that your clients or customers owe you. That's an asset because it's something that will generate money for you. But you want to be making sure that things like your receivables aren't extremely high and starting to age over time, meaning that you might have a collection issue.
with customers not paying you. So do you have value in your business from your assets? The other way is to look at what your liabilities are. That's the things that you owe. So if you have a high level of debt in your business, do you have enough revenue coming in to be able to pay that debt over time? Do you have outstanding payments due to suppliers? Are they overdue? These are the types of problems that you want to look for in a business because sometimes even though a business is profitable,
When you look at the balance sheet, this looks at the health of the business and it can really show you some underlying issues. If you answered mostly yes to the balance sheet questions, then you might have a good understanding of what's on your balance sheet. It's important to continue to review this over time and start to look at trends in your balance sheet. You might want to look at some key ratios to things like the return that you're getting on your assets or your debt to equity ratio.
because this will tell you if you can support your long-term growth plans or not.
The sixth area is then risk management. So you want to be thinking about risks in your business and how you manage them on a regular basis. So number one, do you have a risk register to track and address potential financial risks? Number two, are you monitoring overdue receivables and payables consistently? And number three, are you managing your business debt effectively?
Do you know what the terms are, the interest rates when repayments are due? These are really important things to be across to make sure that you don't have any surprises. So if you've answered no, it might be time just to start listing out the potential risks in your business. Focus on things like tracking any overdue receivables. Again, that's money that your customers owe to you and overdue payables, which is money that you owe to your suppliers.
look at things like your current debts, including your interest rates, what are the terms, repayment schedules, and make sure you have a really good understanding of that because business owners too often get tripped up by contracts that they haven't reviewed properly. If you answered mostly yes to these, then you have a good handle on risk management, but it's important to be reviewing that risk register regularly and thinking about
more of risk management strategies. So what's happening in terms of broader market risk or operational risk or reputational risk. So financial risk is one area, but you want to start planning for any bigger risks in other parts of your business as well. And you don't have to overdo this with paperwork and maintaining spreadsheets, but more what are the big things that could potentially go wrong in your business?
and have you got some way to mitigate them?
Area number seven is tax and compliance. So are your tax filings and payments always up to date? This is your income tax return, your BAZ statements, ⁓ if you pay monthly installments, is everything up to date with the ATO? Second question, do you actively talk to your tax accountant about deductions or incentives applicable to your business?
A good tax accountant will proactively bring this up with you, but it's important that you understand what you can and can't claim as deductions and what you're entitled to in terms of incentives. ⁓ There might be something that you're just not claiming. You might also be doing the wrong thing and you don't want to have to retrospectively repay that. So ask the questions yourself.
⁓ And do it regularly. Don't just wait to that one time a year. Make sure that you're thinking about it actively during the year. And the last question is your bookkeeping system tax ready and well organized. So if you use an accounting system like Zero, Myob, QuickBooks, generally they will do a good job of keeping your records up to date. But someone needs to be checking over it and regularly reconciling it and
ensuring that it's tax ready when it comes to tax time. A bookkeeper obviously will be a great person to do this. If you're doing it yourself, just make sure you're across the key things that you need to know. Talk to your accountant if they have any tips or tricks for you. If you answered mostly no to these things, definitely it's time to check in with your accountant or engage a tax accountant if you don't have someone you already work with.
You want to build a good relationship with them to help optimize your tax position and make sure that your records are all organized for better compliance. If you answered yes to these things, then most likely you've got an accountant that you work with, but start to talk to them about ⁓ proactive tax strategies and making sure you really have a good understanding of any decisions that you make in your business, what it means from a tax perspective.
Alright, and the last part in the financial health check is your growth plans. So question one, do you have a clear financial plan aligned with your growth goals for the next three to five years? Number two, are you tracking the return on investment for major expenses and investments? And number three, do you have a plan to grow your business and a clear idea of what your business model needs to look like as you grow?
If you've answered no to these questions, it's time to start thinking about longer term financial goals. So what are the growth opportunities in your business, in your industry, and does your current business model, that means the revenue streams that you have, the team structure, the systems and processes, does that support growth for you or will you need to make a change in the next few years? If you've answered yes to these things, that is amazing that you've got
an idea of where you want to go and what your plans are for the future. But it might be time to start thinking those larger scale opportunities or what sort of the end game for your business. Do you have a plan to exit at some stage? And if that's the case, you want to be building up value in your business over time to ensure you get the best valuation. And that might be five, 10 years away. But if you don't start thinking about it now, ⁓ it's very hard to quickly create value in the business when you're ready to sell.
You may also want to review any prior financial plans, just make sure they're aligned with where you're at. And as each stage, as your business grows and scales, you'll want to revisit these plans because you'll have more experience, but also that next phase of growth will need a different plan, potentially a different business model, ⁓ and sometimes further investment.
So hopefully that gives you an idea of some areas to focus on. And as we come towards the end of the calendar year, this is a really great time to start thinking about where your business is at and where you wanna take it for 2026. Would love to hear your thoughts if you wanna send us an email or reach out via the website to know where your business is heading for 2026.
But otherwise, we are going to be taking a short break from the Olive Insights podcast during January, while we rest and recover from what has been a really busy year of rapid growth. But we'll be back with whatever the new format looks like in February. Some great content plans and some great ideas in the pipeline. So look out for some more support for small businesses as we get into 2026.
Thank you so much for listening to the podcast over the last year and to all of the guests who've been a part of the conversation. I have really enjoyed doing this and creating some resources for business owners to help them not just survive, but thrive. So wishing you a very happy holiday season and a successful 2026. And I look forward to seeing you on the other side of the new year.