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How to check if your business is in good health (and what to do if it isn’t!)

by Shaun McGowan

Firstly, why should you check your business health?

Here’s three reasons why many business owners want to know their business health:

  1. Are other businesses going to want to do business with me?
  2. Will lenders want to lend my business money?
  3. Is my business heading in the right direction?

Okay, so now we know the major reasons, let’s get into this.

When you’re talking about business health, the term ‘good standing’ often comes up, but let me first explain that the term ‘good standing’ can have a couple of different meanings.

  • Certificate of Good Standing

    If you’re planning to do business overseas, you may well be asked to provide a ‘Certificate of Good Standing’ to your international trading partner.

    Certificate of Good Standing

    This is a document that proves your business is legitimate, has been legally incorporated, is not in liquidation, receivership or administration, and is not at risk of being struck off by 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.

  • Financial Good Standing

    However, if yours is a small domestic business, the chances are that you’ll never have need of 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.

    Look at it as your overall business health.

    Business Credit Score

    New customers or suppliers, potential business partners or investors, and especially lenders may want to check your business health before doing business with you.

    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.

Where does your business stand right now?


What you don’t know, can’t hurt you – right?

But when it comes to your credit rating, that couldn’t be more wrong.

Think of it as a hidden but crucial aspect of your brand. If customers were making complaints about you on social media, you’d want to find out fast and address their concerns before they could permanently damage your reputation.

Bad Social Media Comments

Treat your credit rating the same waynurture it carefully, monitor it closely, and fix any errors as quickly as you can.

The first step is to find out where you stand right nowand that means getting a copy of your credit report.

Example report from equifax:

Equifax Credit Report Sample

Business vs personal credit rating

Depending on your business structure and history, your business may have its own credit file with one or more credit bureaus in Australia Such as Equifax or illion. There are 4 main types of business structures (Company, Sole trader, Partnership and Trust).

However, 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.

If you’re looking for business finance, the lender may also want to look at the financial good standing of the business owners and company directors (if a company) – i.e. your personal credit rating.

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.

How is your financial health assessed?


There are several different credit rating bodies (CRBs) in Australia, and each use a slightly different scoring system. The main ones are:

Illion Credit Report

Illion
Score between 0 and 1000

Experian Credit Report

Experian
Score between 0 and 1000

Equifax Credit Report

Equifax
Score between 0 and 1200

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.

Each of these CRBs base their score on the financial information on your report, which for a business will include:

Business Running Time Illustration

How long your business has been in operation

Credit Enquiries Illustration

The number of credit inquiries on your report

Payment Patterns Illustration

Payment patterns on existing loans

Payment Patterns Illustration

Payment patterns on existing loans

Judgement About You Illstration

Judgements against you, payment defaults and any other commercial credit information

Info About You Illstration

Judgements against you, payment defaults and any other commercial credit information

Info About Owner Illstration

Information about the owners or directors of your company, including bankruptcies, defaults and court judgements

Info About Business Illstration

Any other relevant information about your business on the public record, such as unpaid taxes, recorded liens and lawsuits

Your credit score will put you into an assessment band, from ‘excellent’ down to ‘below average’. Each lender will have different risk appetites, and some may be willing to lend to you even if your credit score is low, provided that you meet their other criteria.

How to check your credit score


One way to check the health of your business is to apply for a loan and see what happens – but we definitely don’t recommend this strategy!

Every time a potential lender checks your credit, the mere fact that someone has looked at your file will be marked on your report. Too many entries in a short period of time will drive your score down.

What’s more, if you apply for finance and are rejected, you’ll get a negative entry on your credit rating that could do even more harm. So it’s vital that you check your rating yourself, before you start applying for finance.

There are several free services you can use to take an instant look at your credit score. Using these services won’t affect your credit rating.

They include:

Creditsimple Logo Illion Score Length

Illion score
Score between 0 and 1000


Creditsavvy Logo Experian Score Length

Experian score
Score between 0 and 1000


Getcreditscore Logo Equifax Score Length

Equifax score
Score between 0 and 1200


Credit Score Categories Illustration

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

You’re entitled to one free credit report each year, and another within 90 days if you are rejected for credit. If you need to see your report more frequently than this you can order additional copies for a fee.

What if your business health isn’t so good?


If your credit report contains any errors (e.g. notations for unpaid bills or late payments) you can take steps to get them removed from your report.

There are several companies out there offering to repair your credit record for a fee but be sure to avoid these – they can’t do anything you can’t do yourself for free. Check out ASIC’s Moneysmart website for tips and strategies on how to fix your credit history.

ASIC Credit Repair Screenshot

If your credit report is disappointing but right then you’ll have to work on your financial management – a much slower process.

Even if you can still get a loan from one of the many ‘bad credit’ loan specialists, your interest rate will be through the roof – and the chances are that the last thing you need is to take on more debt.

Instead, get some help from a professional financial advisor. Over time may be able to repair a bad credit rating and get your business into a much stronger financial position so you can access business finance at a reasonable rate.

The bigger picture


While your credit rating is an important factor when it comes to getting a business loan, it’s only one of several data points your lender will use to assess your business.

Credit Rating Assess Illustration

Some lenders, especially traditional banks, will look at the broad ‘character’ of your business, and will also consider where you stand within the context of your sector.

This means that your trading history, your reputation with your customers, competitors and suppliers, the experience and expertise of your management team, your market share, and the outlook for your industry will all be considered when deciding whether your company is in ‘good standing’.

What’s more, your character is just one of the ‘five cs of business credit’ that your lender will use to evaluate your application. A 1200/1200 credit rating and a first-rate reputation still won’t secure you finance if you don’t have the capacity to service a loan.

Conclusion


Knowing your business health puts you a better position when dealing with your suppliers, customers, bank and alternative lenders.

If you have a business in good health you can confidently grow your business by attracting finance and/or new commercial relationships.

The financial health of your business is assessed by looking into manor factors, which we went through in detail above.

What's the main reason you want to check / increase your business health? Let us know by leaving a comment below. Or ask a question.

Even if your business is not in good health right now, the sooner you know, the sooner you can do something about it.

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