Businesses need a health check

If businesses were people, business deaths would be the second leading cause of death in the United States. Every year, about 600,000 businesses in the U.S. cease to exist. About the same number, depending on whether the economy is contracting or expanding, are born every year as well.

Business health is a lot like human health. Many of the "diseases" that afflict businesses are sometimes not detected until they become terminal. Other diseases can be sudden and deadly but can also be avoided if proper precautions are taken.

For example, it could be terminal for your business if the point at which you discover that you have run out of cash is when your bank notified you that your business check was returned NSF (insufficient funds). Banks don't like to lend businesses money when they need it the most, so this is the worst time to try to raise additional funds. A major earthquake can be deadly as well if insurance coverage is not adequate.

People are encouraged to have routine checkups and physicals- so, too, should businesses. Just as there are many viruses, bacteria and other threats to human health, there are a number of different threats to the health of businesses. Some threats are more obvious than others.

Some of the threats to the life of your business include: customer concentration (what would happen if you lost your biggest customer?), supplier concentration (what would have if you lost a key supplier?), key employees leaving at a critical time, natural disasters, fraud and theft, new competitors, obsolescence of your products or services, new government regulations and laws, new technologies, a change of elected officials, serious quality issues and many more. Entire companies have been killed by just one event.

No one can completely eliminate the threat of many of these risks, and they will always be looming as a possibility. The trick is to plan to minimize the likelihood of an event from occurring and, if one does occur, to have a plan for surviving it. A big part of this process is preventative maintenance. Your business needs a routine health checkup.

Every business owner should conduct a complete business health checkup on a regular basis. I recommend an annual checkup with each of your key advisers to review the area of your business on which each adviser is an expert.

Critical areas to review include strategic planning and strategic plan implementation effectiveness including a SWOT (Strengths, Weaknesses, Opportunities and Threats) analysis; taxes and tax planning; internal controls that prevent fraud, theft and quality problems; risk management programs (insurance coverage); and cash flow projections (should be monthly looking out at least six months).

Your SWOT analysis should include a review of potential key employee issues, new and emerging technologies and competitors that may affect your business, and new government regulations and laws that will have an impact on your business.

A lot of business owners know that reviewing these areas of the business are important but actually doing it doesn't always seem very urgent- at least not until something bad happens. Unfortunately, there are a lot of former business owners of now bankrupt companies that were driven to bankruptcy because one or more bad things happened and the planning had not been done.

Have a business health checkup on a regular basis. You owe it to yourself and to your employees. You will be glad you did.

Randy Wheeler, CMA, is the president/CEO of Pathfinder Metrics, a certified management accounting firm in Moorpark. The website is www.PathfinderMetrics.com.