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Why business health matters

Knowing your business health puts you in a better position when dealing with lenders, suppliers, and customers. If your small business is in good shape (financially), it’s easier to attract finance and new commercial relationships.

Here’s why it matters:

• New customers, suppliers, potential business partners, and lenders often check your business health before engaging with you.
• Lenders want reassurance that lending to you is low risk.
• Good business health shows you’re heading in the right direction and primed for long-term growth.

3 ways to check your small business health

1. Conduct a SWOT analysis  

Every business should conduct a SWOT analysis to understand its strengths, weaknesses, opportunities and threats. It can be a structured or informal assessment. The main goal is to recognise how to best leverage advantages and identify areas for improvement.

A SWOT analysis can then provide a strategic framework to set realistic goals for your business, resource allocation, and risk management.

2. Get a certificate of good standing 

A certificate of good standing is a document that proves your business is properly registered in Australia and valid. It will also show your business is not in liquidation, receivership or administration or being investigated by the Australian Securities and Investments Commission (ASIC).

To acquire a certificate of good standing, you’ll need to engage a Notary Public, who will check all this information through the ASIC companies and organisations register and issue the certificate.

A certificate of good standing is usually required if you or any company directors want to do business or invest overseas. But, if you’re a small domestic business, chances are that you’ll never need a certificate of good standing. For you, ‘good standing’ is more likely to refer to your business reputation and financial stability and more specifically your credit rating.

If you’re thinking of taking out a business loan, your financial good standing will have a big impact on whether or not you can access credit — and if so, how much you will be charged for your finance.

3. Check your credit score  

Periodically check your business credit score or request a copy from one of Australia’s credit bureaus, such as Equifax or illion. Your credit score will put you into an assessment band, from ‘excellent’ down to ‘below average’. The minimum credit score for business lending is around 400.

Example credit report from Equifax 

Lenders may also want to look at your financial good standing as a business owner — your personal credit rating and that of any company directors (if a company).

For some types of business finance (especially unsecured business loans), you may be asked to provide a personal guarantee of the loan, in which case your personal credit score will of course be critical.

If you’re newly starting out in business, or if your business has not yet made any transactions on credit, it may not have an active credit file and rating.

How your credit score & business health are assessed

Your credit score is calculated by credit rating bodies (CRBs) in Australia, and each uses a slightly different scoring system. In each case, the higher the score, the better your financial standing is considered to be — and the more likely you are to be able to access finance at reasonable rates.

If your credit score isn’t as high as you’d like, you can order a full report directly from the CRB to understand what’s dragging you down and take steps to fix any issues.

The main credit rating bodies in Australia are:

• illion
• Experian
• Equifax

Example of a scoring system for each credit bureau