The business barometers are dropping, endless legislation is being introduced, the employment market is tightening and cash flow has become critical. As business compliance tightens and the number of competitors entering your market space increases, management needs to ask some key business survival questions;

In a nut shell, when was the last time your board of directors took your business through a Warrant of Fitness check? Im making a bold prediction that most business would end up having to go back through the re-check lane.

If you put your business in an uncomfortable scenario such as the unexpected need to sell within a short time frame, or, the business needed some additional funding from your bankers, then there is a strong likelihood that you could be opened up to a due diligence. To receive a successful report card the business must be ready.

An internal due diligence is the radar which can help to detect the storm warnings hidden in your business. Early attention to these matters can help to avoid a fresh breeze from turning into a hurricane which has the ability to cause mass destruction to your business. However, the key to a successful health check is for those who are performing the review to take the blinkers off and read the business for what it really is.

Who is the best person to perform the appraisal? If an external party such as your Chartered Accountant is not the person of choice to perform the review (i.e. a member of senior management may be charged with the responsibility to carry out the exercise), then it is often useful to run the report and/or review process past them for comment. Most Chartered Accountants will have checklists or programs that help them to ensure they cover most bases of a business during a business diagnostic. An external eye may also identify an issue which may have prejudice to the internal reviewer. Accountants or lawyers are also aware of most current company compliance requirements.

Housekeeping

The business health check should cover general housekeeping matters such as;

Just as important, the warrant of fitness should extend out to look at the trading of your business to determine its ability to continue to trade effectively and also to review the attractiveness for a potential sale in the market place. The warrant of fitness should consider;

Early or ongoing identification of business compliance and operating effectiveness will help to reduce weaknesses or threats so that they dont become a burden on your business. In many cases, a timely appraisal can assist management to review KPIs (Key Performance Indicators) and discover opportunities which could have otherwise been overlooked.

In a buoyant economy a businesss fitness is often overlooked. Management can get inadvertently complacent and lose track of core business fundamentals that the built the business to its current success. Health checks are necessary in waning, stagnant and booming economies to ensure the business continually achieves peak performance and is ready to operate in a changing market place. Ask yourself, Would our business, or that of our clients, pass a warrant of fitness? Review, plan, and act!

About the author:

Aaron Wallace is a principal at Hayes Knight, Chartered Accountants and Business Advisers, with a special interest in Business Development and Problem Solving. He is part of the presenting team for the Institute course: Succession and Exit from Business- 60 Ways to leave your lover being held in September and October 2005. He can be contacted on aaron.wallace@hayesknight.co.nz or (09) 379-7013