Is Your Business Financially Fit? How to Perform an Annual Financial Health Check-Up

Authored by Eric Van Der Hyde, CFP®, CEPA®, RICP®

Just like you schedule an annual physical to stay healthy, your business should have at least a yearly financial check-up to ensure long-term success. For business owners, this review is more than a best practice—it’s a proactive way to identify risks, optimize cash flow, and plan for growth. Here is an 8-step blueprint for your business’s annual financial health check-up.

1. Review Your Financial Statements

Start with the basics: your balance sheet, income statement, and cash flow statement. These documents provide a snapshot of your company’s financial health.

• Balance Sheet: Check your assets, liabilities, and equity. Are your debt levels sustainable? Do you have enough liquidity to handle unexpected costs?
• Income Statement: Compare year-over-year revenue and expenses. Spot trends and identify areas where costs can be trimmed, or strategic investments can be made without sacrificing long-term growth.
• Cash Flow Statement: Ensure your inflows and outflows support day-to-day operations and future investments. Certain industries often face seasonal fluctuations. Understanding your cash flow cycles can help you prepare for slower periods.

Action Tip: Use these insights to set realistic goals for the coming year.

2. Evaluate Your Tax Strategy

Tax planning is critical, especially with state-specific rules and federal changes.

• Review Section 179 deductions for equipment purchases.
• Consider timing income and expenses to optimize tax brackets.
• Explore available credits such as:
• Research & Development (R&D) Tax Credit - available to businesses investing in innovation, product development, or process improvements.
• Work Opportunity Tax Credit - incentivizes hiring individuals from targeted groups (veterans, long-term unemployed, etc.).
• Available state tax credits. For example, Virginia offers state tax credits for various R&D, renewable energy investment, and worker retraining.

3. Assess Cash Flow Management

Cash flow issues sink businesses faster than poor profits.

• Tighten accounts receivable and consider incentives for early payments.
• Negotiate better terms with suppliers for accounts payable.
• Maintain access to at least 3–6 months of operating expenses in reserves and evaluate your access to credit if needed strategically throughout the year.
• Factor in seasonal demand and local economic cycles.

4. Update Your Budget and Forecast

• Compare actual vs. budgeted performance for the past year.
• Adjust for inflation and regional cost changes.
• Build scenario plans for varying levels of considered investment and varying economic conditions. This is especially relevant for cyclical or economically sensitive industries.

5. Revisit Debt and Financing

• Review interest rates and consider opportunities to refinance if rates are more attractive.
• Ensure debt aligns with growth goals, not just short-term fixes.
• Explore local financing programs offered by regional banks and economic development agencies.

6. Review Risk Management and Insurance

• Confirm adequate levels of coverage for property, liability, and key person insurance.
• Add cybersecurity coverage if you handle sensitive client data.
• Consider business interruption insurance—especially for businesses vulnerable to weather-related disruptions.
• Review your operating agreement and buy-sell agreements to ensure they are up to date and any buyout agreement valuations are updated and funded properly.

7. Employee and Retirement Plans

• Audit retirement plan compliance and contribution limits.
• Consider adding financial wellness programs to attract and retain talent in a competitive job market.
• Review health benefits for cost-effectiveness and employee satisfaction.

8. Plan for Growth

• Identify capital investment needs for expansion.
• Begin succession planning. It is never too early to start thinking about this. Don’t wait until retirement is near to start figuring this out.
• Explore continuity planning to protect your legacy.

Final Thoughts

An annual financial health check-up isn’t just about numbers—it’s about building resilience and positioning your business for success. By taking these steps, you’ll gain clarity, reduce risk, and create a solid foundation for growth.

Ready to get started?

Schedule a consultation with our team at Concentric Wealth Partners to ensure your business stays financially fit.

While we are familiar with the tax and legal provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional.

The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete, it is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation. Any opinions are those of Eric Van Der Hyde and not necessarily those of Raymond James.