Mid-year is an ideal time for business owners to review their finances and make necessary adjustments to ensure they stay on track to meet their financial goals.
Before we get started, let me stop you right here… If your books are a mess, this is your sign to record your transactions and get your books CLEANED UP.
Okay, now that we have that handled, here are the top 5 things business owners should examine in their finances mid-year:
- Cash Flow Analysis
Ensuring your business has sufficient cash flow is crucial! A whopping 82% of small businesses fail due to cash flow problems (U.S. Bank study).
To avoid financial strain, compare your actual cash flow against your projections, identify variances, and understand their causes. Review your cash reserves and ensure you have at least 6 months of expenses, including payroll, readily available. Plan for upcoming expenses to maintain smooth operations.
- Budget vs. Actual Performance
If you don’t have a detailed budget for your business, you should! Let’s leave the blank check writing to the politicians and others who have an endless bank account to tap into.
Regularly comparing your budget to actual performance is crucial in identifying where you might be overspending or underspending.
Focus on the three most important items for a budget: income, expenses, and cash flow. Review your income and expenses against your budget to pinpoint areas where you are off track, and make necessary adjustments to meet your year-end goals. This practice ensures that your business remains financially healthy and on course.
- Profitability Metrics
Revenue is for vanity and profitability is for sanity, but cash is king!
Understanding your profitability helps you make informed decisions about pricing, cost management, and growth strategies.
To get a clear picture of your profitability, focus on two key metrics: profit margins and net income. Analyzing your profit margins helps you determine how efficiently your business is converting revenue into profit. Net income, the bottom line of your income statement, shows your overall profitability after all expenses are deducted. By regularly monitoring these metrics, you can identify trends and assess the performance of different products or services. This insight enables you to make strategic adjustments that can boost your business’s financial health and growth potential.
- Tax Planning
Now that your bookkeeping is in order, it is also time to schedule time with your tax accountant and talk strategy and goals for the rest of the year!
Mid-year is a good time to review your tax situation and make any necessary adjustments to minimize your tax liability. This is also a great time for your tax preparer as they have finished with personal filings and aren’t fighting against the October deadline yet.
Review your year-to-date income and deductions. Talk with your accountant about your goals and where you are projected to end the year. Having this conversation now will help you implement strategies suggested by your part-time CFO and Tax Accountant that can reduce your taxable income, such as retirement contributions or capital purchases.
- Review Financial Goals
If you don’t have your big audacious goals posted where you can see them in your office each day, you should. Seeing your goals and ensuring you are on track to meet your financial goals requires regular assessment and adjustments.
Block 2 hours on your calendar to revisit the financial goals set at the beginning of the year. Assess your progress and determine if any goals need to be adjusted based on your current financial situation and market conditions.
Regularly monitoring these key areas allows business owners to make proactive decisions and adjust strategies as needed to stay on course for financial success and help you reach your summit.
Consider hiring fractional CFO services like SummitCFO if needed, as a CFO for a small business can provide valuable insights and strategies for maintaining financial health.
SummitCFO can help you with cash flow analysis, budgeting, profitability metrics, tax planning, and reviewing financial goals to ensure your business remains on track for success.
