By July, Marissa thought she was on track. Sales were strong, her team was busy, and the bank account wasn’t screaming. But when her CFO ran a mid-year review, it turned out cash flow was down 18%, client turnover rates were up, and their Q4 targets were suddenly at risk. How could this have happened? She quickly contacted her CPA and discussed in detail where her business was slacking and how to correct the course. She breathes a sigh of relief. Had she not taken the time to do a mid-year financial check-up, she could’ve been in real trouble come tax season.
It’s important to take a look at your finances frequently. Let’s talk about why financial planning for business should include a mid-year review and the importance of revisiting your financial plan after the first half of the year.
Why Most Business Owners Miss the Mid-Year Moment
A mid-year financial check-up can save you a headache come tax season and give you important information regarding the company’s financial health. So why do most business owners miss this mid-year moment? Some business owners may think it is too early to plan for year-end or too late to fix the year. This simply isn’t true. Checking in on your financial health mid-year can give a deeper insight into the overall well-being and help you address any concerns you may have.
Some may address summer as the busy season for their business and don’t want to give in to the false confidence and surface-level successes they are seeing because of it. Properly forecasting for this summer rush can be addressed early on in the year, and a mid-year financial check-up can identify if you’re on track to meet your end-of-year goals. Smart businesses are proactive and not reactive. Taking charge now, reviewing your financial health, and planning for end-of-year goals at the end of Q2 and the beginning of Q3 can only benefit you in the long run. Take the time to assess your business proactively rather than react when things go awry.
5 Key Areas to Focus On
Good financial strategies for small business owners start with a few key concepts. By understanding how to adjust financial planning for business in Q3 and ways to realign your business goals before Q4, you’ll be more aware of your business’s overall financial health and avoid surprises come tax season. Here are some steps to take in a mid-year financial check-up.
1. Revenue vs. Forecast
Revenue and forecasting are important numbers to keep in mind when doing a mid-year financial check-up. However, the role of forecasting in financial planning for business is different from the actual revenue you will see. Forecasting allows you to see the projection of cash flow, but it may not always account for the unexpected bumps you experience. For example, let’s assume you have a projection of 15% growth this year. However, your business loses a large contract, and you actually experience a revenue growth of 8%. That’s not to say your initial forecast was wrong. It just didn’t account for the client backing out. Doing a mid-year financial check-up can help you identify any weak points in your business and make sure a big loss like that won’t send you into the red.
2. Assess Expense Run Rate
Expense run rates should also be watched and periodically assessed. Where are you spending the most money? Is it vital and accounted for? This is an important piece to your mid-year financial check-up. You might discover you’re spending more than you thought you were on things like our friend Maxine. Her ad budget had doubled since Q1—no one noticed until we lined up the numbers. Thankfully, she caught this during the mid-year check-up and was able to reallocate expenses accordingly.
3. Analyze Cash Flow
Cash flow is always going to be paramount to your business. It allows you to see how much money you have, and how long you’re going to have it for. Income can rise and fall at a moment’s notice, so your projection may occasionally miss the mark. That’s why it’s important to have an understanding of what the coming months may look like and where possible losses may be incurred.
4. Tax Planning Strategy
In order to maximize the benefit of a mid-year financial check-up, you’ll want to have a solid tax planning strategy. After following the steps above, you should have an understanding of your finances. From the forecasting and cash flow, you should be able to formulate a financial strategy that best meets your needs. Based on all of the new information, draft new projections, plan for contingencies, and continue to monitor and assess goals through the end of the year.
The Q3 Shift: From Looking Back to Planning Forward
So you know now, after doing your mid-year review of where you’ve been. Now, what about where your business is going? Now is the best time to revise your financial planning goals. Take the opportunity after a mid-year financial review to align your spending with your newly updated financial goals and prepare for the end-of-year deductions and investments you will be making. Learn how the office of finance can improve business planning mid-year and adjust your goals based on their findings. The office of finance can see what others can’t. Missed KPIs, bloating expenses, and eroding margins can all be accounted for when doing a mid-year financial check-up. With their findings, you are able to set new KPIs for Q4 and begin laying some groundwork for next year’s budget.
Let’s Build the Next Half Together
What if the second half of the financial year outperformed the first, just because you paused to look? If you think your business could benefit from a mid-year financial check-up (which it absolutely can!), book a free 15-minute consultation with one of our consultants today, and check out our resources for ongoing financial planning support.
