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Check your clients' business health

It often pays to be prepared and this is no truer than in the current economic climate where it is important to be aware of how your customers are coping under the pressure.

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It often pays to be prepared and this is no truer than in the current economic climate where it is important to be aware of how your customers are coping under the pressure. Late/non-payment is the number one cause of cash flow difficulties, so problems for your clients can impact on your own cash flow. Fill out this 22-point health check with the information you have about your client. Or, if you are going into a new financial relationship, you could ask them to fill it out as a matter of course. The checklist covers five main areas: management information, management control, key relationship management, systems and processes and financial wellbeing. Management information Yes/No 1. Monthly management accounts produced within 20 days 2. Updated financial forecast monthly 3. Cashflow and headroom monitored 4. KPIs in place Management control 5. Monthly board meetings 6. Minutes and actions produced 7. Business strategy written and monitored Key relationship management 8. Supplier relationships monitored 9. Customer relationships managed <TD style="BORDER-BOTTOM: #cccccc 1px solid; BORDER-LEFT: #cccccc 1px solid; PADDING-BOTTOM: 4px; PADDING-LEFT: 4px; PADDING-RIGHT: 4px; BORDER-TOP: #cccccc 1px solid; BORDER-RIGHT: #cccccc 1px solid; PADDING-TOP: 4px"> 10. Employees performance appraisals completed 11. Know and met bank managers in last 4 months Systems and processes 12. Credit control and reports available regularly 13. Stock and WIP control monitored monthly Financial wellbeing 14. Profitable in past 3 years 15. Interest covered > 1.5 times 16. Net current assets 17. Equity > 100% of debt 18. Debtors days not increased in last 12 months 19. Stock/WIP days not increased in last 12 months 20. Growing GP therefore growing sales <TD style="BORDER-BOTTOM: #cccccc 1px solid; BORDER-LEFT: #cccccc 1px solid; PAD DING-BOTTOM: 4px; PADDING-LEFT: 4px; PADDING-RIGHT: 4px; BORDER-TOP: #cccccc 1px solid; BORDER-RIGHT: #cccccc 1px solid; PADDING-TOP: 4px">21. Cash headroom > 25% of monthly sales inc VAT 22. Non risk sector Number of yes answers: 14-22 - Business is doing fine but keep monitoring 9-13 - Involve advisers to improve on key areas 5-13 - Seek immediate help to ensure survival 0-5 - Be wary, they could face difficulties in the next 6 months About the author The business health checklist was produced by Tenon Group, a UK-based firm of accountants and business advisers specialising in accountancy advice entrepreneurs. Members of the Forum can take advantage of our business monitoring and credit reporting services, which allow you to stay up to date with the status of your clients, suppliers and competition. Join the Forum today.

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