When was the last time that you assessed the health of your business? When did you last take its pulse and check the vital signs? Recently? Six to 12 months ago? Never? If you fall into the last category then it may be some consolation to know that you’re not the only one.

 

According to some print finance experts an alarmingly large number of printers have never subjected their businesses to a health check, while those that do regularly perform some kind of health assessment often look at the wrong things and produce information that’s next to useless at helping to diagnose when a company is ailing.

Yet when a health check is undertaken correctly it works a bit like “preventative medicine,” says Paul Holohan, chief executive at Richmond Capital. “You can actually fend off illness in financial health terms if you follow some fairly basic and simple rules,” he adds. So how do you go about performing a health check and what do you need to do if you detect an ailment? What follows is a step-by-step guide to performing a basic health check on your business.

 

“I know it’s not easy when you’re busy running your day-to-day activities, but some things become quite obvious if you do this and you can uncover issues to prevent your business experiencing ill health,”

Paul Holohan

chief executive at Richmond Capital

When should you perform a health check and how often?

Even financial experts can’t agree on this question. Holohan recommends annual health assessments. “I would try to do it at the start or end of the financial year because at that point you’ve probably got some accurate figures from your accountant that you can use as a basis and compare with previous years.”

Matthew Peacock, director at Active PPP, who has conducted over a hundred ‘operations assessments’ in printing companies since 2003, believes they should be held at the “start of the business planning cycle each year so as to identify profit improvement and customer service improvement plans in the financial budget for the next year”.

Meanwhile, Chris Springford, chief executive at IBCD and associate consultant at BPIF Business and Vision in Print, thinks: “A health check should take place to inform the board, so it should be done before a board meeting at any time of year.”

The timing of the health check might be dictated by what you’re trying to achieve with it. Is it being used as a review of the business strategy, is it being rolled out to assess how profitable you are and whether or not there’s room for improvement to be made or is it being undertaken because you’re thinking about borrowing money?

Whatever the rationale for the health check, Mark Bailey, finance specialist at Asset Finance Solutions, says that all businesses would benefit from regular performance assessments – even if it’s something as simplistic as running regular management accounts.

“It still amazes me in the current climate how many people don’t really produce meaningful management information,” says Bailey. “If you wait until your accountant has got your draft accounts together, which can be as much as seven to eight months after your year-end, it’s far too late to make any adjustments. You can’t run your business without knowing where you are, so quarterly management accounts have got to be the absolute minimum. Ideally they would be monthly.”  

Who should perform the health check?

Again the experts are divided on this issue. Holohan believes that even if companies have their own internal financial advisor they should appoint an external expert to perform the assessment.

“If you use an internal advisor the chances are that they’re so close to the action that they sometimes miss the obvious,” says Holohan. “I’m not saying that an external advisor is necessarily cleverer than the member of staff. It’s just that sometimes if you get someone to come in and look at a situation with a fresh pair of eyes they can see something straight away that someone close to the situation might miss.”

It’s a view shared by Peacock, who says that an independent external advisor can give an impartial view and provide a benchmark against wider industry standards. “An external advisor should also provide guidance and tools so that managers continue their progress on KPIs throughout the year,” he adds.

However, Springford argues that a two-pronged attack can sometimes be more effective than just relying on an external expert to come up with an accurate diagnosis. “It should be carried out by a suitably qualified executive, but it’s always better mentored by an external practitioner to challenge the internal perceptions of their progress,” he says.

If you do decide to call on a member of staff to perform the health check on their own, the obvious first port of call is the company accountant, but this isn’t necessarily the best strategy, warns Bailey.

“In my experience, not all company accountants are by any means the same. Some are pure number crunchers, whereas others will proactively give advice and get involved in the business.” 

 

What areas of your business should the health check cover?

This will differ from company to company depending on scale and the market served. It also differs from financial advisor to financial advisor. 

For instance, Springford uses a yardstick based on the EFQM Business Excellence model, which are intended to generate sustainable improvements.

Nick Devine founder of The Print Coach, has devised his own strategic review guide that helps businesses to assess where they are failing and then suggests a number of ‘profit accelerator’ measures that they can put in place to address these issues (see box-out overleaf). 

As part of the ops assessments that Peacock regularly undertakes, he uses the tried and trusted KPI approach. These indicators are developed specifically to reflect an individual company’s business model and objectives. There are a number of other areas that business owners could examine to assess whether or not their company is in rude health. For instance, you could perform an analysis of your sales to weigh up who your biggest clients are and then do a stress test to see what the impact on your business would be if you lost them.

You should also consider doing an analysis of gross margin, according to Holohan. “Anyone who has seen The Apprentice on TV can see that a lot of them don’t know what gross margin is, but it’s a fundamental measure of a business’s performance so you should do an analysis of it and benchmark it against some of your rivals,” he says. “A 2% improvement in gross margin adds 2% to the bottom line, so it’s very simple mathematics and most companies could improve their gross margin by 2% if they were really dedicated to it, so it’s certainly worth a review.”

Equally as deserving of a review are overheads. Based on anecdotal evidence most printers are good at keeping on top of overheads already, but it’s worth carrying out a review all the same because circumstances frequently change and as a result minor improvements can always be made.

As part of this process businesses should take a fresh look at their own purchasing policy and they shouldn’t be afraid to try and negotiate better terms with their suppliers – it’s not a particularly nice thing to do, but these are the terms of engagement.

At the same time assess who owes your business money and do regular credit checks on them as if you were looking at a new customer – just because they’ve paid in the past doesn’t mean their own financial position hasn’t worsened over time.

The funding and financial structure of your own business – for example loans, overdrafts, invoice discounting agreements – should also be constantly reviewed to ensure that the company is using the right form of financing.

“For example, overdrafts are payable on demand, so if you have a couple of bad months the bank can pull the overdraft; whereas if you’ve taken out a loan, as long as you continue to make payments under the terms of the loan, they can’t ask you to repay the money,” says Holohan. “These are simple things, but I’ve seen people fall down because they haven’t looked at these kinds of issues.”

And finally it’s vitally important that you regularly reappraise at your cashflow forecasts and working capital management as these are key to any business.

“That’s why forecasting is important: the banks hate it when you hit them with a nasty surprise, but with proper planning and forecasting and you can show them there might be a problem for your business coming up a few months down the line, you will probably get their support.”

 

Once you’ve undertaken a health check what should you do with the findings?

It might sound obvious, but you need to act on the findings – particularly if the process has identified a part of your business showing signs of some kind of ailment. “If you’ve identified an area where you have a problem you should bring in an expert in that area and give them a measurable project with clear financial deliverables and allocate a budget against it,” says Devine. “This means that you can focus on the output as opposed to the consultant’s engagement.” 

“The best companies I have worked with are never satisfied with their own performance, no matter how good they compare to their competitors and so they regularly use operations assessments to drive their continuous improvement,” says Peacock. So what are you waiting for? Carry out a health check today to ensure your business doesn’t have a terminal condition. 

Nick Devine, founder of The Print Coach, has devised his own 11-step strategic business review programme consisting of ‘profit activators’ that will help companies to overhaul their performance.

He advises companies do an annual version of it in two separate runs. One session should be held two to three months before the end of the financial year, in which you discuss what the business might focus on in the coming year. Then, four weeks before the end of the financial year “pick the things you want to focus on and start creating milestones and action plans against these things so that by the beginning of the year you have a plan that’s ready to roll,” says Devine.