Is my business healthy right now?
Not “are we making money” but truly healthy. Revenue trends, cash reserves, margins, collections, customer concentration. Here's how to check all 7 signals yourself, step by step.
The short answer
Is your business healthy?To answer that properly, you need to check 7 things: revenue trajectory, gross margin, net margin, cash reserves, receivables aging, customer concentration, and expense trends. Below, we'll walk you through how to check each one using the tools you already have.
Why business health is more than revenue
Revenue can be up and your business can still be dying. You close a great month, $80K collected, but your margins shrunk by 6 points, two invoices are 60 days overdue, and 40% of revenue comes from one client who hasn't renewed yet.
Most business owners find out they're in trouble after something breaks. A missed payroll. A surprise cash gap. A client who leaves and takes a third of the revenue with them. The point of tracking business health isn't to celebrate when things are good. It's to catch the cracks before they spread.
The problem is that “health” doesn't live in any single number. Profit doesn't tell you about cash flow. Cash flow doesn't tell you about concentration risk. And none of it tells you whether the trend is getting better or worse. You need to check all seven signals.
The 7 signals that tell you if your business is healthy
Before we get into the how-to, here's what you're actually checking and what each signal tells you:
1. Revenue trajectory
Is revenue growing, flat, or declining? Compare this month to last month and the same month last year.
2. Gross margin
Revenue minus cost of goods sold, divided by revenue. Are you making enough on each dollar before overhead?
3. Net margin
Net income divided by revenue. After everything is paid, how much of each dollar do you actually keep?
4. Cash reserves
Current cash divided by average monthly expenses. How many months could you survive with zero revenue?
5. Receivables aging
How much money is owed to you and for how long? Anything over 60 days is a warning sign.
6. Customer concentration
What percentage of revenue comes from your top 1-2 clients? Over 30% from one client is risky.
7. Expense trends
Are costs growing faster than revenue? Compare expense growth rate to revenue growth rate over 3-6 months.
How to check your business health in QuickBooks Online (7 steps)
This takes about 20-30 minutes if you know where everything is. You need to pull four different reports and do some math.
Signals 1-3: Revenue, gross margin, and net margin
- 1Go to Reports → Profit and Loss
Set the date range to the current month. Click Run report.
- 2Read Total Income
This is your revenue. Now compare: change the date range to last month. Is revenue up or down? That's your revenue trajectory.
- 3Calculate gross margin
Find “Cost of Goods Sold” on the P&L. Subtract it from Total Income, then divide by Total Income. Multiply by 100 to get a percentage. Example: ($92K - $35K) / $92K = 62% gross margin.
- 4Find net margin
Net Income is at the bottom of the P&L. Divide it by Total Income. Example: $6,200 / $92K = 6.7% net margin. Is this higher or lower than last month?
Signal 4: Cash reserves
- 5Go to Reports → Balance Sheet
Set the date to today. Look at “Total Bank Accounts” under Current Assets. That's your cash on hand.
- 6Calculate months of runway
Go back to your P&L and note your Total Expenses. Divide your cash on hand by that number. Example: $52K cash / $86K monthly expenses = 0.6 months of runway. That's 18 days. Not great.
Signal 5: Receivables aging
- 7Go to Reports → Accounts Receivable Aging Summary
This shows you who owes you money and how overdue it is. Look at the 31-60 day and 61-90 day columns. Anything significant in those columns is a collection problem.
Signal 6: Customer concentration
- 8Go to Reports → Sales by Customer Summary
Set it to the current month. Sort by amount descending. Take your top customer's total and divide by your Total Income. If one customer is more than 30% of revenue, that's a concentration risk.
Signal 7: Expense trends
- 9Go to Reports → Profit and Loss Comparison
Set it to compare the last 3 months side by side. Look at whether Total Expenses is growing faster than Total Income. If expenses are up 15% but revenue is only up 8%, your costs are outrunning your growth.
Total time: 20-30 minutes. Four different reports. Two manual calculations. And you'll need to do this again next month to see if things are getting better or worse.
How to check your business health in Xero (7 steps)
The same signals, different menus. Xero's reporting is laid out differently, but you're pulling the same numbers.
Signals 1-3: Revenue, gross margin, and net margin
- 1Go to Accounting → Reports → Profit and Loss
Set the date range to the current month. Select “Compare with: Previous Period” to see both months at once.
- 2Read the numbers
Total Revenue is at the top. Gross Profit is revenue minus direct costs (Xero calculates this for you). Net Profit is at the bottom. Divide Gross Profit and Net Profit by Total Revenue to get your margin percentages.
Signal 4: Cash reserves
- 3Go to Accounting → Reports → Balance Sheet
Find “Bank” under Current Assets. Divide that by your Total Operating Expenses from the P&L to get months of runway.
Signal 5: Receivables aging
- 4Go to Accounting → Reports → Aged Receivables
This groups outstanding invoices by how overdue they are. Focus on the 30+ day columns. Anything material in 60+ days needs immediate attention.
Signals 6 and 7: Concentration and expense trends
- 5Go to Business → Invoices → filter by customer
Xero doesn't have a built-in “Sales by Customer” report the way QuickBooks does. You'll need to export your invoices, sort by customer in a spreadsheet, and calculate what percentage each customer represents. This is the most manual part.
- 6Compare P&L across 3 months for expense trends
In the P&L report, set the comparison to show 3 periods. Check if Total Operating Expenses is growing faster than Total Revenue across those months.
Total time: 30-45 minutes. Five different reports, one spreadsheet export, and several manual calculations. The customer concentration check alone can take 15 minutes.
Why most owners never actually do this
The steps above are real. They work. If you sit down for 30-45 minutes on the first of every month and run through all of them, you'll have a genuine picture of your business health.
But in practice:
- It's 4 or 5 different reports.You're jumping between P&L, Balance Sheet, AR Aging, Sales by Customer, and P&L Comparison. No single screen gives you the answer.
- You need to do math on the raw numbers. Gross margin, net margin, months of runway, concentration percentages. Your accounting software gives you the data but not the ratios.
- There's no single score. Even after you check all 7 signals, you still have to synthesize them. Revenue is up but margins are down and receivables are aging. Is that healthy, caution, or critical? That judgment call is the hardest part.
- You only see what's in your accounting tool. Your books don't know that your ad spend is up 30% with flat conversions, or that your CRM has 12 deals stuck in pipeline with no follow-up. Business health is bigger than what shows up in your P&L.
Or check your business health automatically, every month
Bottomline connects to your QuickBooks or Xero account (plus your CRM, ad platforms, and payment processor) and runs all 7 checks on the first of every month. It grades each signal as Healthy, Caution, or Critical, and gives you one overall score.
Status is “Caution” based on 7 signals.
30-45 minutes of manual report pulling, math, and synthesis becomes a single card at the top of your inbox. And because Bottomline also connects to your CRM, ad platforms, and payment processor, it catches things your accounting software can't: pipeline stalls, ad spend with declining returns, and customers who are slipping away before they churn.