When I sit down with a new client, one of the first things I do is assess the overall health of their business. Without this essential step, any strategy or growth plan would be built on shaky ground. The key to understanding how well a business is performing—and identifying areas for improvement—starts with a clear financial review.
Here’s how I approach the process.
Step One: Review the Profit and Loss Statement
The first document I bring up is the profit and loss (P&L) statement. I focus on the last 12 months, but pay special attention to the most recent months—ideally the last three months. The P&L gives an immediate snapshot of how the business is performing. The key questions I ask are:
- Is revenue increasing or decreasing?
- Are the margins stabilised and at a level where the business can scale?
- What does profitability look like, and are there any major changes in overheads?
Understanding these elements helps me gauge the financial health of the business and whether it’s on track for growth. If revenues are flat or margins are shrinking, we need to dive deeper into why that’s happening.
Step Two: Assess the Balance Sheet and Cash Flow
Once we’ve looked at the P&L, the next step is to assess the balance sheet. This is where I look at the financial position of the business over the last 12 months, focusing on:
- Cash flow: Is cash consistently coming in or are there spikes and dips?
- Short-term and long-term debts: Are there any outstanding debts that could present a risk to the business’s sustainability?
Strong cash flow is a vital indicator of business health. If cash flow is weak, even a profitable business can face operational challenges. Debt management is also key—too much debt can be a drag on future growth, while a manageable level allows for reinvestment.
Step Three: Identify Risks and Opportunities
After reviewing the financials, it’s time to identify potential risks—such as increasing overheads or rising debt—and opportunities for improvement. By comparing the P&L and balance sheet, I can get a clear picture of the financial state of the business. This information gives us the clarity needed to make informed decisions.
It’s also at this stage where I can start forecasting with the business owner. Once we have a clear understanding of the numbers, we can start to map out a plan to either maintain or improve the business’s performance in terms of profitability and cash flow.
Step Four: Translate Financial Insights into Action
Understanding the financials is crucial, but what happens next is where the real work begins. After gathering all the necessary data, I sit down with the business owner and conceptualise a strategy. The goal is to identify the top three things the business can do in the next quarter to improve profitability and cash flow. This could include:
- Cutting unnecessary costs
- Improving pricing strategies
- Increasing lead generation or conversion rates
I believe that without an underlying understanding of your business’s unit economics, it’s impossible to make informed decisions about where the business is headed. When owners are only thinking day-to-day, they miss the big picture—and fail to adjust course before things go wrong.
Final Word: Make Financials a Priority
If I were a business owner, I would recommend meeting regularly with your accountant or business coach to thoroughly review the profit and loss statement, balance sheet, and unit economics. This financial understanding will give you the insight needed to make decisions that drive growth and profitability.
Aim to assess your business regularly and take action on the top areas that will impact profitability and cash flow. Small, consistent improvements over time can result in substantial growth and a more sustainable business.
Frequently Asked Questions
How often should I review my financials with my accountant or advisor?
At a minimum, we recommend quarterly reviews, but if your business is growing quickly or facing challenges, a monthly check-in can make a huge difference. Regular financial reviews help you spot trends, identify risks early, and stay ahead of cash flow issues before they become major problems. It’s not just about tracking numbers—it’s about staying in control of your strategy.
What’s the first sign that my business might be heading for financial trouble?
The biggest red flag we see is inconsistent or declining cash flow. You might still be profitable on paper, but if cash isn’t flowing, it puts stress on your operations. Other warning signs include shrinking margins, increased reliance on short-term debt, or unexplained jumps in overheads. A thorough review of your profit and loss and balance sheet will reveal where the leaks are
I’m profitable—why do I still feel like my business is stuck?
Profit is just one piece of the puzzle. You can be profitable and still lack clarity, scalability, or direction. If you’re not regularly assessing your business performance and aligning it with your long-term goals, growth can stall. We help business owners map out a path that ties financial results to real outcomes—like better systems, stronger margins, and time back in your day.
Ready to Simplify Your E-commerce Finances?
Whether you’re looking to optimise your pricing strategy, improve client retention, or better understand your unit economics – we’re here to help. Book a free consultation with our expert team at New Wave Accounting & Business Advisory, dedicated to supporting businesses across Australia.
