Category Archives: Business Health Checks

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Company Pulse business health check

What is a business health check?

Probably the question we are most frequently asked at Company Pulse is “So what exactly is a business health check?” followed by “and how does it differ from an audit or financial review / due diligence / a strategic review?”

Put simply, a business health check is an all-round review of an organisation’s business health. The review should encompass all the key elements that contribute towards business health, including people, processes, infrastructure, strategy, financial results, governance and customer relationships.

A good business health check will also benchmark your organisation against those of comparable size and operating in a similar sector. Performance benchmarks are one of the best ways to see how you compare with best practice and therefore understand your relative strengths and weaknesses.

Since a business health check is so wide-ranging, the output needs to be in some form of balanced scorecard or dashboard. How else can you assess the relative importance of, say, business process quality against customer satisfaction levels or returns on investment? And, because of the breadth of the review, the results really need to be in an intuitive, graphical format.

For a business health check to be really worthwhile, it should also provide you with an action plan or road map on how to improve the business. This should contain practical measures for minimising weaknesses, building on strengths, mitigating risks and exploiting any opportunities identified. It should also propose priorities for implementation, not just be a ‘shopping list’.

Moving on to the supplementary question, there are many similarities between a business health check and other types of review. One with perhaps the greatest overlap is due diligence. However due diligence tends to be of a different nature and intent: it tends to be quite technical and detailed and relating to a specific transaction, for example a proposed acquisition of financing. Due diligence usually aims to uncover hidden negative factors – reasons not to do the deal – and not finding any problems is the ideal result. A business health check, by contrast, is looking for both positives and negatives, and seeking to understand and learn from them.

That perspective invokes similarities with a strategic review. But a strategic review often looks at potential new directions for the business: Should we enter new export markets or launch a new product line? What about mergers or acquisitions? What would be the benefits of rationalising our supply chain? In order to answer these sorts of questions a strategic review will spend a lot of time focusing on the external environment, whereas a business health check places most importance on current capabilities and how to improve them in the light of market prospects.

By contrast, an audit or financial review (which may or may not include a controls review) is almost exclusively internally focused. It also tends to focus on historical results and recent trends. Of the three other types of review considered, an audit is least like a business health check, its main concern being with finance and governance and with little or no emphasis on people, operations or other areas of critical importance.

Business health checks, therefore, stand in a class of their own. Done well, they provide an assessment of a business across all key areas; benchmark against comparable organisations; present finding in a balanced scorecard or dashboard format; and deliver a practical set of recommendations and an action plan for improvement.

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Company Pulse business health check

There’s more to business health than financial results

Ask a manager or owner how business is going and the chances are that you’ll get an answer about sales, profits or growth. But there’s a lot more to being a healthy business than financial results.

Healthy businesses should naturally post healthy results. But the characteristics of healthy businesses mean that they will post consistently good results and be better able to cope with adverse changes than less healthy competitors.

So what characterises a healthy business?

  • Strong sales growth
  • High levels of profitability and returns to equity
  • Solid balance sheet
  • Satisfied customers
  • Top quality employees
  • Best-practice management
  • Effective use of the latest technology
  • Adaptable organisation and strategy
  • Resilient infrastructure

Of course, the correct answer is all of the above.

Nowadays there is an increasing emphasis on a holistic approach to business health. Research by McKinsey (see the link below) indicates that the best performing businesses “don’t merely learn to adjust themselves to their current context or to challenges that lie just ahead; they create a
capacity to learn and keep changing over time.” The healthiest companies actively manage all key aspects of their business including some areas that may seem “fluffy” – but this attention to detail across the board allows them to reap sustained and long-term rewards.

And just because a business is small doesn’t mean it can’t have the attributes of successful larger businesses – you don’t need an HR department to have good staff recruitment practices. SMEs may have insufficient resources to put into formal processes, risk management and the like, but well-run SMEs can adopt a mind-set of quality in everything they do without adding unnecessary costs. This sort of enlightened approach leads to better long-term results even in the smallest of companies.

So how should you start the journey to improving your business health? The obvious first step is to measure your current business health by taking a business health check. This should give you a balanced scorecard type assessment of your business across all key dimensions: people, processes, infrastructure, strategy, customer relationships and, yes, financial results. A good business health check will also provide you with an action plan for how to improve, focused on minimising any business weaknesses and exploiting your strengths.

A business health check is just the start to improving your business health. You then need to prioritise, develop and execute your business health improvement plan. And keeping your business healthy won’t just happen, it needs constant attention, monitoring and review – but the rewards are worth it.

McKinsey link:

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