It’s Time for Your Checkup: The Importance of Assessing the Health of Your Family BusinessDecember 14, 2012
As we start off the new year with personal resolutions, it makes sense to also make some professional ones. For instance are advised to visit our doctors for wellness checkups on a regular basis. The start of the New Year is the most popular time to commit to a healthy lifestyle and committing to being proactive about our own health. Why wouldn’t you want to do the same for your family business?
A wellness checkup helps businesses identify potential problems, as well as opportunities for growth. Following is a checklist of four major areas to consider in your annual wellness checkup:
- Organizational documents
- Financial reporting
- Professional relationships
These are often overlooked when addressing business concerns. In many cases, these documents are reviewed when originally signed and then not revisited unless an event occurs that is addressed in these documents.
Review the operating agreement to determine whether a non-compete clause is needed or needs to be updated, whether the owners’ responsibilities are clearly defined or whether they have been changed, and whether there has been a change in ownership or profit share percentage.
Review the buy/sell agreement to determine whether all the guidelines are being adhered to, for example does the agreement call for periodic valuations, to determine whether circumstances have changed, to determine if the terms of the buyout make sense in the current economic climate and to determine if the business still has the financial capabilities to adhere to the terms.
Management structure is integral to the success of a business, and it’s a common area of struggle for family businesses. Consider whether your business management structure is defined and effective, whether duties to be performed are defined and communicated to each family member and/or employee and whether your business cross-trains employees to be able to perform the duties of one another.
How current is your organization’s business plan? Does your business have a marketing plan? Does it have a succession plan? These are all important factors to be considered and should be a part of your business’ checkup.
Planning is integral to goal setting, achieving those goals and overall success of a business.
As a business owner, how confident are you in the financial reporting of your business? There are both internal and external factors to consider during your wellness check.
Internally, do you have the proper staffing in charge of financial record keeping? Are you performing the duties yourself? Should you hire a bookkeeper? Should you outsource the financial reporting to a bookkeeping service or to your accountant? Accurate and timely reporting to management assists in decision making-needed for a business to prosper.
Today just about everything is technology based: websites, financial records, on-line banking and personnel records just to name a few. Does your business back up its servers on a regular basis? If so, are you performing the backup frequently enough and are the backups kept offsite? Take one moment to think about the affect on your business if your computer system crashed and all your data was lost?
Externally, are all governmental reporting requirements being met? Are you in compliance with the bank covenants listed in the terms of your financing? Are customers/clients complaining about billing or are vendors complaining about payment? Problems with any of these items could possibly cripple business operations. As a business owner, you want to focus your energies on growing your business and not on cleaning up issues that can be avoided.
Assess your business’ professional relationships on an annual basis. Professional relationships include bankers, insurance brokers, financial advisors, lawyers and accountants/auditors. As a business owner, do you feel that these professionals are responsive to your needs, proactive in assisting you to run your business, and keeping you up to date on items that affect your business? Do they take your best interest into consideration? Your professionals partners should ideally work together as a team, since each has an area of expertise that is beneficial to the success of your business.
In today’s economic climate, it is so important to be proactive in order to avoid additional challenges that could jeopardize the success of your business. By addressing the four areas listed above and regularly assessing the health of your business, you can help grow and strengthen your business. This will set your firm up for success and help you be prepared for those unwanted, but inevitable bumps in the road.