Is My Business Healthy? Key Indicators for Assessing Business Health

Note From Larissa For Donna… What is a healthy company? How do I know if it is? Can my business fail in the next 6 months? Next year? Next 5 years? How do I uncover if my business is at risk of sinking or if I’m ready to grow? In our last two articles we discussed topics centered on guaging the health of our team and our profits. But there are still some questions and tools left to be asked, and some strategies to fix those issues that we must discuss.

If I were to ask a five year old what they wanted to be when they grew up, they would probably tell me they wanted to be a professional YouTuber. Effectively, a celebrity who posts videos online for ad-revenue and brand sponsorships. In general, there are two kinds of YouTubers: those who want it to be a career, and those who are using it to get into a major media project. Either way, being a professional YouTuber isn’t an easy job on account of difficult negotiations and temperamental public perception. I asked three professional Youtubers if they liked their careers, and I got a resounding: No. When pressed, they confessed that they loved the video-making side of their businesses, but ended up having to manage a small company with nearly no business skills. In fact, most of them believed that their businesses weren’t healthy on account of their steadily declining viewership. I believe that all of us have felt a similar way when we struggle to retain clients and team members for an extended period of time. I know several business owners who are confused as to why their business doesn’t feel successful or healthy. To answer that, we need to know what constitutes a healthy business.

Before we can answer this question, we need some additional context. Are you managing your team? Or, is your team self sufficient? If you are the former, then you are probably in a better position to understand the health of your business. This does not mean that the person in the later example is wrong; you worked hard to develop your business to the point that it is self-sufficient and deserve to enjoy the fruits of your labor. The CEO of a self-sufficient business must have someone managing their business to inform them of the health of their business. Anyone who manages a business should be trained to recognize if the business is failing in some way. As a rule of thumb, if you or your manager notice that ‘small’ procedures are being ignored, that is a sign of a larger failure within the business. Specifically, there is a failure in how the team operates, and steps should be taken to rectify that failure.

However, our team isn’t the only indicator of our businesses’ health. Another large part of determining the health of a business is the client list. If we don’t know if our clients are profitable or not, then we can’t truly be certain of the health of our business. It’s generally suggested to run reports to determine the standard amount of time our team spends on each client monthly and compare that to how much we charge that client. Usually, running those numbers is a big reality check! Sometimes we have clients that are exceptionally healthy, returning nearly 500% of the profit for the time spent working on them. Other times, we have large clients that are important for cash flow, but aren’t actually profitable. However, I would suggest that profitability isn’t the sole determinant of how healthy our business is when it comes to our clients. All of us have had that client that lowers team morale and causes our team members to resign from their posts. It’s important to remember that the profit we make from our clients usually pales in comparison to the investments we make in our team. I know several business owners whose businesses came to a halt because of a particularly nasty client.

However, the best indicator we have to determine the health of our businesses is our peers. Anyone from coaches, to friends, to the CEOs in your preferred networking association is capable of giving us feedback on how healthy our businesses are. Coaches in particular are invaluable to understanding our businesses. While coaching can be emotionally intense, most coaches are well educated and more than ready to provide us with the necessary reality checks. Not only that, professional coaches have the tools to help us create procedures to ensure our businesses never become unhealthy. I know that for Donna, coaching, education, and consistently improving her own skills as a CEO are vital for the long-term health of her business.

Finally, we need to take into account the loyalty of our team members. Monolithic corporations may get away with human rights violations, but small businesses can’t exactly follow that model. Team members of small businesses are more likely to leave if certain personal requirements aren’t met. Anecdotally, I once resigned from a job because the small business I was working for refused to let me reduce my hours. The CEO didn’t understand why, and when I told him later that I was resigning to ensure I had the time to go to college, he was infuriated. There are dozens of strange requests that our team members might have, and sometimes, as small business owners, we ought to accommodate those strange requests. These personal factors aren’t a flaw in how small businesses operate, and I would say they're generally positive qualities. Larger corporations are forced to negotiate with their employees strictly in terms of benefits and compensation. It’s a boon as a small business owner to have increased freedom in employment negotiations. Oftentimes, meeting the odd requirements an employee may have ensures that they will stay on the team for much longer. As a general rule of thumb, a company with a high turnover rate is less likely to be healthy.

For everything else, a more personal inspection of our companies is required. Some small business owners may have different standards for determining the health of their business based on industry standards or a ‘gut feeling’. However, the more we adhere to the fundamentals laid out before us, the quicker we can gauge the health of our business. It’s important to be able to go through this process quickly so as to allow us to fix problems in a timely manner. Our small businesses are our obsessions, and a way to express what we are passionate about. Oftentimes, entrepreneurship takes a piece of our souls, and to let that obsession fall to pieces would be tragic. So, if you are worried about the health of your business, I encourage you to make a thorough inspection! It can only result in security and growth.