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How to give your start-up a financial health check

A healthy business is a successful business, and if you want to build a strong foundation for your start-up, it could be a good idea to regularly review its financial well-being.

A financial health check helps you identify trends and make long-term strategic decisions.

This guide explains how to get started and provides tips to improve your start-up’s financial health.


How to assess your start-up’s financial health

A financial health assessment is a way of measuring your organisation’s cash reserves opens in new window, revenue, and performance.

There are several key performance indicators you can use to perform these checks.

Here are six financial areas to keep tabs on as you grow your start-up.


1. Working capital

Working capital refers to an organisation’s available funds to cover its day-to-day operational expenses.

Start-ups can calculate their working capital opens in new window by subtracting their current liabilities from their assets.

Working capital can be either a positive figure (the business is making more money than it’s spending) or negative (it’s spending more than it’s making).

By calculating your working capital, you will know how much money you have on hand to meet your immediate operational costs.

A healthy working capital means you can sustain tricky financial periods opens in new window without worrying about upcoming bills.


2. Revenue

Revenue refers to the money a business makes from selling its products or services opens in new window.

By assessing your revenue, you’re asking whether customers are buying your goods or services.

You might need to rethink your approach opens in new window if certain products or services are not performing well.

Lowering your price might make people more inclined to use your business, but you’ll make less money from each transaction – and the opposite can be true of increasing your prices opens in new window.

Revenue can be measured daily, weekly, or monthly.

It can also be assessed in terms of units sold or money made from those sales.


3. Burn rate

Burn rate refers to the speed at which a business spends its available capital, usually calculated in monthly expenditure opens in new window.

Start-ups can use burn rates to forecast their long-term viability.

This allows you to see how quickly your start-up is spending cash and determine how long your available capital will last.

By keeping track of your burn rate, start-ups can better plan for the future opens in new window, such as when to think about seeking more funding or if you need to cut costs.


4. Cash flow

Cash flow is the amount of money coming into and out of your business.

These flows will rarely be consistent because almost all start-ups have wages, rent, or inventory expenses that can fluctuate.

Although you will always want a positive cash flow opens in new window – with more money coming in than going out – this isn’t always possible.

But, by monitoring this data, you will be in a better position to navigate periods of fluctuating cash flows and ensure that you have a healthy balance of incomings and outgoings.

Read our guide on how to manage and protect cash flow during difficult times opens in new window.


5. Profit margins

Your profit margin opens in new window is the percentage of money you earn for each sale after other costs have been accounted for.

This figure helps ensure that your goods and services are profitable.

If the production or delivery costs exceed the amount you charge, you’ll lose money on each transaction.

The profit margin also needs to be large enough that you have enough money to cover operational expenses and generate a profit that will allow your start-up to grow.

You could improve your profit margin by spending less on production or delivery costs or, alternatively, you could charge more for your goods or services.

Learn more about profit margins opens in new window.


6. Customer satisfaction

Customer satisfaction measurements opens in new window help you understand how consumers interact with your business.

One way to measure customer satisfaction is by checking online reviews and social media posts.

You might also ask them for feedback directly, using the NPS (Net Promoter Score) to turn their thoughts into quantifiable data.

These assessments are a great way to predict your start-up’s long-term success.

Satisfied customers are likely to bring repeat business and might even recommend you to their friends, co-workers, or online followers.

Start-ups could also use feedback to identify problems with their products or services.

Read our guide on how to measure customer satisfaction opens in new window.


Steps to take to improve your start-up’s financial health

Now that you have some ideas about how to begin assessing your start-up’s finances, you might want to look at ways to improve its health.

Here are a few things you might consider.

  • build an emergency fund – it can be reassuring to have some cash reserves to cover essential costs, including payroll and supplies, in case of emergencies. This reserve acts as a financial safety net, providing peace of mind and stability during unexpected situations.
  • use tax benefits – your start-up might be eligible for tax deductions opens in new window related to your business expenses, such as equipment. Taking advantage of these deductions could reduce your overall tax liability, giving you more resources to invest in your start-up.
  • streamline expenditure – a diligent approach to cost management could enhance financial stability, allowing resources to flow where they are most needed. You might start by negotiating supplier contracts or reviewing your purchasing habits, but there are plenty of other ways your start-up can cut costs opens in new window.
  • diversify your income – by discovering additional channels to earn revenue, you can become more flexible and improve financial stability. Some start-ups might be able to white-label their products opens in new window or provide coaching and consulting services opens in new window, but there are plenty of other ways to generate additional income sources opens in new window.

Incorporating these financial strategies into your start-up’s approach could significantly bolster its fiscal well-being.


Learn with Start Up Loans and help get your business off the ground

Thinking of starting a business? Check out our free online courses in partnership with the Open University on being an entrepreneur.

Our free Learn with Start Up Loans courses opens in new window include:

Plus free courses on finance and accounting, project management, and leadership.


Reference to any organisation, business and event on this page does not constitute an endorsement or recommendation from the British Business Bank or the UK Government. Whilst we make reasonable efforts to keep the information on this page up to date, we do not guarantee or warrant (implied or otherwise) that it is current, accurate or complete. The information is intended for general information purposes only and does not take into account your personal situation, nor does it constitute legal, financial, tax or other professional advice. You should always consider whether the information is applicable to your particular circumstances and, where appropriate, seek professional or specialist advice or support.

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