According to some print finance experts an alarmingly large number of printers have never subjected their businesses to a health check, while those that do regularly perform some kind of health assessment often look at the wrong things and produce information that’s next to useless at helping to diagnose when a company is ailing.

Yet when a health check is undertaken correctly it works a bit like “preventative medicine,” says Paul Holohan, chief executive at Richmond Capital. “You can actually fend off illness in financial health terms if you follow some fairly basic and simple rules,” he adds.

So how do you go about performing a health check and what do you need to do if you detect an ailment? What follows is a step-by-step guide to performing a basic health check on your business.

When should you perform a health check and how often?

Even financial experts can’t agree on this question. Holohan recommends annual health assessments. 

“I know it’s not easy when you’re busy running your day-to-day activities, but some things become quite obvious if you do this and you can uncover issues to prevent your business experiencing ill health,” he explains. “I would try to do it at the start or end of the financial year because at that point you’ve probably got some accurate figures from your accountant that you can use as a basis and compare with previous years.”

Matthew Peacock, director at Active PPP, who has conducted over a hundred ‘operations assessments’ in printing companies since 2003, believes they should be held at the “start of the business planning cycle each year so as to identify profit improvement and customer service improvement plans in the financial budget for the next year”.

Meanwhile, Chris Springford, chief executive at IBCD and associate consultant at BPIF Business and Vision in Print, thinks: “A health check should take place to inform the board, so it should be done before a board meeting at any time of year.”

The timing of the health check might be dictated by what you’re trying to achieve with it. Is it being used as a review of the business strategy, is it being rolled out to assess how profitable you are and whether or not there’s room for improvement to be made or is it being undertaken because you’re thinking about borrowing money?

Whatever the rationale for the health check, Mark Bailey, finance specialist at Asset Finance Solutions, says that all businesses would benefit from regular performance assessments – even if it’s something as simplistic as running regular management accounts.

“It still amazes me in the current climate how many people don’t really produce meaningful management information,” says Bailey. “If you wait until your accountant has got your draft accounts together, which can be as much as seven to eight months after your year-end, it’s far too late to make any adjustments. You can’t run your business without knowing where you are, so quarterly management accounts have got to be the absolute minimum. Ideally they would be monthly.”  

Who should perform the health check?

Again the experts are divided on this issue. Holohan believes that even if companies have their own internal financial advisor they should appoint an external expert to perform the assessment.

“If you use an internal advisor the chances are that they’re so close to the action that they sometimes miss the obvious,” says Holohan. “I’m not saying that an external advisor is necessarily cleverer than the member of staff. It’s just that sometimes if you get someone to come in and look at a situation with a fresh pair of eyes they can see something straight away that someone close to the situation might miss.”

It’s a view shared by Peacock, who says that an independent external advisor can give an impartial view and provide a benchmark against wider industry standards. “An external advisor should also provide guidance and tools so that managers continue their progress on KPIs throughout the year,” he adds.

However, Springford argues that a two-pronged attack can sometimes be more effective than just relying on an external expert to come up with an accurate diagnosis. “It should be carried out by a suitably qualified executive, but it’s always better mentored by an external practitioner to challenge the internal perceptions of their progress,” he says.

If you do decide to call on a member of staff to perform the health check on their own, the obvious first port of call is the company accountant, but this isn’t necessarily the best strategy, warns Bailey.

“In my experience, not all company accountants are by any means the same. Some are pure number crunchers, whereas others will proactively give advice and get involved in the business.” 

What areas of your business should the health check cover?

This will differ from company to company depending on scale and the market served. It also differs from financial advisor to financial advisor. 

For instance, Springford uses a yardstick based on the EFQM Business Excellence model, which are intended to generate sustainable improvements.

Nick Devine founder of The Print Coach, has devised his own strategic review guide that helps businesses to assess where they are failing and then suggests a number of ‘profit accelerator’ measures that they can put in place to address these issues (see box-out overleaf). 

As part of the ops assessments that Peacock regularly undertakes, he uses the tried and trusted KPI approach. These indicators are developed specifically to reflect an individual company’s business model and objectives.

“To help me understand the business at the start of an operations assessment I normally draw a high-level process map showing the flow of information from customer enquiry, through ordering, to invoicing, and material flow, from supplier, through production, to dispatch,” says Peacock.

He adds that in general terms the KPIs that are most relevant to the print industry are: cost control and reduction, which includes areas like productivity and gross material yield; quality, covering first pass yield and work order accuracy; and customer service, which encompasses quote conversion rate, lead times and delivery. 

There are a number of other areas that business owners could examine to assess whether or not their company is in rude health. For instance, you could perform an analysis of your sales to weigh up who your biggest clients are and then do a stress test to see what the impact on your business would be if you lost them.

You should also consider doing an analysis of gross margin, according to Holohan. “Anyone who has seen The Apprentice on TV can see that a lot of them don’t know what gross margin is, but it’s a fundamental measure of a business’s performance so you should do an analysis of it and benchmark it against some of your rivals,” he says. “A 2% improvement in gross margin adds 2% to the bottom line, so it’s very simple mathematics and most companies could improve their gross margin by 2% if they were really dedicated to it, so it’s certainly worth a review.”

Equally as deserving of a review are overheads. Based on anecdotal evidence most printers are good at keeping on top of overheads already, but it’s worth carrying out a review all the same because circumstances frequently change and as a result minor improvements can always be made.

As part of this process businesses should take a fresh look at their own purchasing policy and they shouldn’t be afraid to try and negotiate better terms with their suppliers – it’s not a particularly nice thing to do, but these are the terms of engagement.

At the same time assess who owes your business money and do regular credit checks on them as if you were looking at a new customer – just because they’ve paid in the past doesn’t mean their own financial position hasn’t worsened over time

The funding and financial structure of your own business – for example loans, overdrafts, invoice discounting agreements – should also be constantly reviewed to ensure that the company is using the right form of financing.

“For example, overdrafts are payable on demand, so if you have a couple of bad months the bank can pull the overdraft; whereas if you’ve taken out a loan, as long as you continue to make payments under the terms of the loan, they can’t ask you to repay the money,” says Holohan. “These are simple things, but I’ve seen people fall down because they haven’t looked at these kinds of issues.”

And finally it’s vitally important that you regularly reappraise at your cashflow forecasts and working capital management as these are key to any business.

“Working capital is often said to be the blood running through the veins of a business and when you haven’t got enough you need a transfusion, but it’s no good waiting until you’ve run out before going to a bank to ask for a transfusion of money,” says Holohan. 

“That’s why forecasting is important: the banks hate it when you hit them with a nasty surprise, but with proper planning and forecasting and you can show them there might be a problem for your business coming up a few months down the line, you will probably get their support.”  

Once you’ve undertaken a health check what should you do with the findings?

It might sound obvious, but you need to act on the findings – particularly if the process has identified a part of your business showing signs of some kind of ailment.

“If you’ve identified an area where you have a problem you should bring in an expert in that area and give them a measurable project with clear financial deliverables and allocate a budget against it,” says Devine. “This means that you can focus on the output as opposed to the consultant’s engagement.” 

And even if you pass your health check with flying colours don’t just file the results away and assume that everything is going to be okay in the future.

“The best companies I have worked with are never satisfied with their own performance, no matter how good they compare to their competitors and so they regularly use operations assessments to drive their continuous improvement,” says Peacock.

So what are you waiting for? Carry out a health check today to ensure your business doesn’t have a terminal condition. 

Nick Devine, founder of The Print Coach, has devised his own 11-step strategic business review programme consisting of ‘profit activators’ that will help companies to overhaul their performance.

He advises companies do an annual version of it in two separate runs. One session should be held two to three months before the end of the financial year, in which you discuss what the business might focus on in the coming year. Then, four weeks before the end of the financial year “pick the things you want to focus on and start creating milestones and action plans against these things so that by the beginning of the year you have a plan that’s ready to roll,” says Devine. 

You can also run his profit activator plan on a quarterly basis, focusing on a different theme (such as sales management or customer service) in each quarter.  

How to run a strategic business review and boost profits

1 Operational excellence Optimise your end-to-end product/service delivery systems

• Continue to use technology, automation, and workflow optimisation to remove cost and time from your output
• Translate efficiencies into customer value
• Train your sales people to communicate and sell the increased value

2 Value-added services Continue to add services that are high-margin, high-value and ‘sticky’

• Define the benefits for each service you add
• Identify the quick wins in the current customer base and set plans with measurable targets against those accounts
• Train your team in how to sell services and value versus selling on product and price

3 People Be unwilling to carry unproductive employees

• Implement a performance management system
• Create/install an effective recruitment system
• Motivate your team with a performance pay system

4 Value proposition Reposition what you do for your ideal clients

• Create a list of 100 ideal clients – identify both the business unit and the business buyer
• Understand and measure what value means to them
• Create customer ready sales messaging that engages your ideal clients

5 Customer service Make these three strategic shifts

• Friction-free customer service: minimise how much the customer has to engage with you during service delivery
• Deliver business outcomes: measure the results the client receives from the value delivered
• Tactical profits: pick the low hanging profit opportunities on a daily basis; train your team

6 Sales Make it a predictable process with predictable results

• New business: focus on the ‘leading’ activities that deliver predictable results
• Account retention/development: protect the strategic revenue (20%) and set specific growth targets with action plans for your ‘elephants’ and ‘zebras’
• Margin protection/improvement: move the conversation from price to value and train your team to negotiate effectively

7 Sales management Manage your sales team using a predictable and proactive process

• Hire ‘A’ players and link pay to performance
• Proactively manage activities to produce predictable results
• Train and coach relentlessly against a defined sales process

8 Execution Execute on organisational priorities combined with performance accountability

• One year: define the three to five ‘must deliver’ projects/goals for the coming year – align priorities at a company, departmental and individual levels
• 90 days: define the five milestones that must be delivered in order to achieve the five annual goals – agree three to five action points against each milestone
• Weekly: schedule ‘big rocks’ in the diary on a weekly basis

9 Talent management Raise the talent bar in your company by hiring more ‘A’ players

• Put management focus on the virtual bench with accountability for delivering measurable results
• Build performance scorecards for all key roles – both existing and new
• Interview and promote based on performance scorecards

10 Strategy and skill gap Build the strategy and skills gap so that you can bridge the sales and profit gap

• Define the critical business functions where a strategy and skill gap exists
• Retrain or replace people as required
• Maintain a relentless focus on training and coaching so that skills remain up-to-date

11 Fight for margin Make margin a cornerstone of your growth system

• Train everyone to understand the impact that margins have on bottom-line profits
• Train your CSR/account managers/estimators on how to find and create margin opportunities
• Train your account directors and new business salespeople on how to negotiate effectively and drive new business