Is Your Small Business Financially Healthy? A Practical, Plain-Text Accounting Checklist for Beancount Users
· 9 min read
As a founder, you live and breathe your product, your customers, and your team. But are you just as connected to the financial pulse of your business? Financial health can feel like a complex topic reserved for accountants, but it really comes down to four pillars: liquidity, profitability, insolvency, and operational efficiency.
This article provides a concise, founder-friendly checklist you can run monthly or quarterly to get a clear picture of where you stand. Best of all, it’s designed specifically for users of the plain-text accounting tool Beancount, showing you exactly where to look and what to track.
Beancount Tip: Fava, the web interface for Beancount, is your command center for this checklist. Its built-in Income Statement, Balance Sheet, and Holdings reports, combined with its query capabilities, provide everything you need to check these metrics fast.
The 12-Question Financial Health Check
1) Do you have enough cash to sleep at night?
- What to look at: Your cash reserve. The common rule of thumb is to hold 3 to 6 months of operating expenses in cash or highly liquid assets. Adjust this target based on your business’s volatility, seasonality, and growth plans.
- Why it matters: A healthy cash buffer allows your business to absorb unexpected shocks—a lost client, a market downturn, a supply chain delay—without resorting to expensive, reactive financing. It's the foundation of financial peace of mind.
- Where to check in Beancount: In Fava, navigate to the Balance Sheet and sum the balances in your
Assets:Bank:*accounts, plus any short-term liquid investments you hold.
2) Is today’s liquidity solid?
- What to look at: The Current Ratio (
Current Assets / Current Liabilities). For an even stricter view, use the Quick Ratio (or "Acid Test"), which excludes inventory from current assets. A ratio above 1.0 is generally considered stable, but this varies by industry. - Why it matters: These ratios gauge your ability to cover all your short-term obligations (like payroll and supplier bills) using only your short-term assets. They answer the critical question: "If we had to pay all our upcoming bills right now, could we do it without distress?"
- Where to check in Beancount: Your Balance Sheet in Fava provides all the necessary figures. To make this easy, ensure you are tracking
Assets:Receivables,Assets:Inventory, andLiabilities:Payablesin separate sub-accounts.
3) Are you consistently profitable?
- What to look at: The Net Income on your Income Statement. More importantly, look at the trend. Is it positive and growing month-over-month or quarter-over-quarter?
- Why it matters: Profit is the engine of your business. It funds growth, attracts investment, and provides the ultimate cushion against downturns. Consistent profitability is the clearest sign of a sustainable business model.
- Where to check in Beancount: Go to the Income Statement in Fava. (Pro-tip: consider enabling Fava’s option to invert income signs, which many find more intuitive for reading financial reports.)
4) Are gross margins holding (or improving)?
- What to look at: Your Gross Margin Percentage, calculated as
(Revenue − COGS) / Revenue. COGS, or Cost of Goods Sold, is typicallyBeginning Inventory + Purchases − Ending Inventory. - Why it matters: Gross margin reflects the profitability of your core product or service before overhead. A shrinking margin is a major red flag, often signaling issues with pricing power, discounting pressure, or rising supply costs.
- Where to check in Beancount: Categorize all direct costs under
Expenses:COGS:*. You can then review your margin directly on Fava’s Income Statement.
5) Are you collecting on time? (DSO)
- What to look at: Days Sales Outstanding (DSO), which is approximately
(Accounts Receivable / Total Credit Sales) × Number of Days. This tells you the average number of days it takes to collect payment after a sale. - Why it matters: A high DSO means your cash is trapped in your customers' bank accounts, tightening your own cash flow. Efficient collections are crucial for maintaining liquidity.
- Where to check in Beancount: Track invoices using metadata (e.g.,
invoice: "INV-123"andcustomer: "AcmeCorp"). You can then monitor the total A/R balance on Fava’s Balance Sheet.
6) Are you turning inventory efficiently?
- What to look at: Inventory Turnover, calculated as
COGS / Average Inventory. This measures how many times you sell and replace your inventory over a period. You can also track Days Sales of Inventory (DSI) to see how many days stock sits on the shelf. - Why it matters: Slow-moving inventory ties up cash that could be used elsewhere. Conversely, turning inventory too quickly can lead to stockouts and lost sales. Finding the right balance is key.
- Where to check in Beancount: Use Beancount’s built-in inventory lot tracking to manage cost basis and quantities accurately. You can then review your current positions in Fava under Holdings.
7) How fast do you turn cash? (CCC)
- What to look at: The Cash Conversion Cycle (CCC), calculated as
DSI + DSO − DPO(Days Payable Outstanding). It measures the time between paying for inventory/supplies and receiving cash from customers. - Why it matters: A shorter CCC means your business needs less external capital to operate and grow. A negative CCC (common in businesses like Dell or Amazon) means your customers pay you before you have to pay your suppliers—a powerful position for liquidity.
- Where to check in Beancount: With DSI and DSO already tracked, the final piece is DPO, which you can derive from your
Liabilities:Payablesaccount. Reviewing this trend quarterly is sufficient for most businesses.
8) Can you comfortably service your debt? (DSCR)
- What to look at: The Debt Service Coverage Ratio (DSCR), calculated as
Net Operating Income / Total Debt Service. Many lenders, including for SBA loans, look for a ratio of 1.25 or higher. - Why it matters: This ratio signals your ability to make your loan payments from the cash your business generates. A healthy DSCR is critical for maintaining good relationships with lenders and avoiding breaches of loan covenants.
- Where to check in Beancount: Tag your loan payments (both principal and interest). You can use a query or manually summarize your total debt service for the period and compare it to your operating income from the Income Statement.
9) Is leverage appropriate for your business model?
- What to look at: Your Debt-to-Equity ratio and overall Working Capital. Don't just look at a single number; analyze the trend over several quarters.
- Why it matters: Debt can be a powerful tool for financing growth, but it also introduces risk. The right level of leverage depends on your industry and risk tolerance. Are you taking on debt faster than you're growing equity?
- Where to check in Beancount: Fava’s Balance Sheet clearly lays out your total liabilities versus your total equity.
10) How concentrated is your revenue?
- What to look at: The percentage of total revenue coming from your top 1, 3, or 5 customers. Many practitioners flag a risk when a single customer accounts for 10-20% or more of your revenue.
- Why it matters: Over-reliance on a few large clients magnifies churn risk and can weaken your pricing power. Diversification creates a more resilient business.
- Where to check in Beancount: This is where metadata shines. Add a
customer:tag to every income posting. You can then use Fava's filtering or Beancount's query language to pivot revenue by customer.
11) Do your unit economics work?
- What to look at: The Contribution Margin for each product or service line (
Revenue - All Variable Costs). - Why it matters: This tells you if scaling a particular offering will add cash to your bottom line or just burn through it faster. If the contribution margin is negative, you lose money on every additional sale.
- Where to check in Beancount: Track variable costs and revenue with specific metadata tags like
product: "Widget-A"orchannel: "Retail". This allows you to slice and dice your data with queries to calculate profitability at a granular level.
12) Are your books clean and audit-ready?
- What to look at: Do you have clear documentation, a consistent chart of accounts, and are you retaining records for as long as the IRS recommends?
- Why it matters: Clean books reduce errors, dramatically speed up tax preparation, and are essential for securing financing or passing due diligence if you ever sell your company.
- Where to check in Beancount: Use
invoice:anddocument:metadata, and leverage Fava’s ability to link directly to source documents (like PDFs of receipts or invoices) to keep proof organized and accessible.
A One-Hour Monthly Financial Ritual
Turn this checklist into a routine. Block out one hour on the first business day of each month to perform this health check.
- (15 min) — Cash & Runway: Confirm your cash balance. Review upcoming major payables and expected inflows from receivables. Re-validate that you still have your 3–6 month buffer.
- (15 min) — P&L Review: Scan your net income and, most importantly, your gross margin trend. Did margins dip? If so, investigate whether it was due to discounting, returns, or higher COGS.
- (15 min) — Working Capital Check: Quickly glance at your DSO, inventory turnover, and DPO. Calculate your CCC. Identify any actions needed, like following up on late invoices or adjusting inventory reorder points.
- (15 min) — Solvency & Risk: Check your DSCR if you have debt. Review any changes in your Debt-to-Equity ratio and revenue concentration. Are any trends moving in the wrong direction?
Final Reminders
- Benchmarks vary by industry. A "good" current ratio for a SaaS business is very different from that of a retail store. Compare your metrics against your own history first, and then against industry peers.
- Trends beat snapshots. A single data point can be misleading. Charting your key ratios over 6–12 months will reveal the true direction of your business.
- Plain-text wins. The beauty of Beancount is transparency. If a number on a report looks off, you can drill down to the exact plain-text transaction in seconds. This puts you in complete control of your own financial narrative.
