The paper presents the concept of financial health for small businesses and describes the MFC’s approach to constructing a comprehensive measure of financial health. First, the paper argues for the need to develop a measure of financial health for a small business that goes beyond traditional balance sheet and income statement-based financial indicators. Next, the paper consolidates emerging understanding of what financial health means, and proposes a new definition that captures key dimensions of financial health. This is followed by a discussion on the construction of the indicators and the methodological approach adapted for collecting data, which is based on “rules of thumb” rather than financial indicators. The paper ends with the discussion of the proposed methodology and its field applications.
This Guide was developed with financial support of the European Union Programme for Employment and Social Innovation (EaSI) 2014-2020. For further information: http://ec.europa.eu/social/easi