Kickstart 2026 with a Financial Health Check for Your Business

Monitoring your financial health matters. A routine financial health check is an important tool for measuring the performance of your business over the past 12 months, and the start of a new year is an ideal time to go over things with an accountant or adviser so you can set up your SME for success.

Analysing your finances provides valuable information to help you run the business more efficiently, understand its potential for growth, meet compliance obligations and make better-informed decisions backed by numbers. It’s also an effective way to spot potential issues and fix them before they become a problem.

How often you should do a financial health check

In short, regularly. Established, stable businesses should do a thorough review of their financial state – including balance sheet, profit and loss statement and budget – at least once a year. Those that are growing or changing quickly, including startups, are advised to examine cash flow, profit margins and debt quarterly or even monthly if there is a lot of flux.

While a financial health check can be done at any time, scheduling it in the new calendar year (or new financial year) is a good habit to get into. Evaluating your business’s performance during a period that’s typically associated with fresh starts and goal setting will ensure it is in a strong position for the year ahead – with no unexpected surprises. It’s the perfect time for a strategic reset.

Where to start

Review your finances

Identify threats and opportunities

Compare the business against benchmarks

Talk to an accountant or financial adviser

Step 1: Review your finances

Key financial documents and performance metrics to analyse over the past 12 months:

Balance sheet – what assets, liabilities and equity does the business currently have? A ‘clean’ balance sheet shows minimal or no debt, high liquidity (plenty of cash or assets) and accurate, reconciled financial records without hidden liabilities or inflated assets.

Profit and loss statement – how much is your business earning and spending? A P&L or income statement reports your sales and expenses, reflecting financial performance and profitability over time (look at the past three months closely). Profit margins show how effectively the business converts revenue into profit.

Cashflow statement – how much money is coming in and going out of the business? A strong, consistent flow of cash is vital for any healthy business, while sudden highs and lows can make it vulnerable. Using a cashflow statement to forecast future income will help you avoid cash shortfalls and debt.

Budget – how does actual spending stack up against estimates? A budget is your financial plan for what you want to earn and where to allocate your money in the year ahead. Review your budget midyear to see how you’re tracking.

Also consider these factors:

Financial metrics – do you know what the liquidity (current ratio), profitability (gross/net profit margin), leverage (debt to equity) and efficiency (return on assets/equity) ratios reveal about the health of your business?
Cash reserves – do you have a financial buffer? Build in a safety margin for unforeseen costs or lower-than-expected revenue.
Debt levels – are you relying too heavily on debt? Review outstanding loans and interest rates, and ensure debt is manageable.
Forecasts – are there any big expenses on the horizon? Predict future income and expenses to avoid cash shortages.
Receivables – are you managing your accounts efficiently? Send invoices promptly and follow up on late payments to maintain cash flow.

Step 2: Identify threats and opportunities

As a business owner, it’s common to get caught up in the day-to-day operations – working too much ‘in’ and not enough ‘on’ your business. When you zoom out and take a broader view of things, you can more clearly see opportunities for improvement or any potential risks. A financial health check will highlight trends, anomalies or areas that need closer scrutiny and, crucially, help you make strategic decisions around these.

Threats – red flags that your business may be in financial trouble

Declining cash flow and liquidity may affect your ability to pay suppliers, cover payroll or service short-term debt.
A rising debt-to-equity ratio means the business is becoming over-leveraged, escalating your risk of solvency.
An increase in accounts receivable days (DSO) indicates that customers are paying slower, causing cashflow bottlenecks.
Dependence on a single customer (more than 10% of revenue) or supplier leaves you exposed if they can’t meet their financial obligations.
External market factors – including interest-rate fluctuation, inflation, greater competition or regulatory changes – can negatively impact your bottom line.

Opportunities – signs that your business is financially sound

High inventory turnover indicates strong sales and efficient inventory management, creating opportunities to expand product lines.
Stable or improving cash flow signifies a healthy, self-sustaining business that can fund expansion or investments without external financing.
Low debt-to-equity ratio suggests the business has untapped borrowing power, providing an opportunity to leverage debt for growth.
Unused capacity/idle assets or a high return on assets (ROA) reveals potential for increased production or expansion.
Identifying new market segments or technological advancements could reduce costs or increase efficiency.

Step 3: Compare the business against industry benchmarks

Comparing your financial performance against similar businesses will reveal if you’re in the benchmark range for your industry. You can compare your company with the small business benchmarks published by the Australian Taxation Office (ATO), using either the ATO’s app or by manually calculating your performance.

Benchmarking is a useful tool for determining how your business is tracking and whether you need to make any changes to improve your financial position. Understanding industry standards means you can work towards attaining these.

Step 4: Talk to an accountant or financial adviser

You’re not expected to be an expert in all things. Take the pressure off and enlist a professional to review your business finances. As well as thoroughly analysing key financial statements, reports and metrics, an experienced accountant or adviser can turn these insights into actions, resolve financial issues before they get out of control and support you to build a thriving business.

Azure Group can help business owners with:

improving your financial reporting and analysis
accurate budgeting and forecasting
valuing your business to test its viability
strategic planning to help achieve your financial goals.

Have you Have you noticed our #FridayExpertTips... here's one that relates to Accounting

“Good cashflow forecasting gets more accurate over time: the most important things to do, like most things in life, is to start.”

This article is intended to provide general information only and is not to be regarded as legal or financial advice. The content is based on current facts, circumstances and assumptions, and its accuracy may be affected by changes in laws, regulations or market conditions. Accordingly, neither Azure Group Pty Ltd, nor any member or employee of Azure Group or associated entities, undertakes responsibility arising in any way whatsoever to any persons in respect of this alert or any error or omissions herein, arising through negligence or otherwise howsoever caused. Readers are advised to consult with qualified professionals for advice specific to their situation before taking any action.