As we embark on a new year, businesses must set the stage for success. The start of January presents the perfect opportunity to reflect on the past year and fine-tune your strategies for the future. One essential step in this process is conducting a mid-year financial review.
At the beginning of each year, business owners often set ambitious company goals and objectives. However, statistics show that only a fraction of these goals are achieved. To ensure your business stays on track, it’s essential to assess your progress regularly. Ask yourself if your growth aligns with your initial plans from June 2023 and whether you’re building the necessary relationships for success. If you find discrepancies, don’t hesitate to adjust your course and set new targets.
Here are a few things you can do this month to check how your business is performing.
Review Your Financial Statements
Financial statements are the heartbeat of your business, offering valuable insights into your financial health. A mid-year financial review involves closely examining three key reports:
- Income Statement (Profit and Loss): This report provides a snapshot of your revenue and expenses over the past six months. It’s a crucial tool for gauging your business’s profitability.
- Balance Sheet: The balance sheet reveals your company’s assets, liabilities, and shareholder equity at a specific time. It offers a snapshot of your financial position.
- Statement of Cash Flows: This report tracks how changes in balance sheet accounts and income impact your cash and cash equivalents. It breaks down your financial activities into operating, investing, and financing categories.
Evaluate Cash Flow
Cashflow is the lifeblood of your business. With a healthy cash flow, your business can meet its financial obligations. Slow collections or delayed payments to vendors can lead to cash flow issues. During your mid-year review, project and monitor key cash flow measures such as collection days, inventory turnover, and payment days. A cash flow management plan ensures your business’s financial stability. Knowing who owes you money and getting payments as quickly as possible will always be vital to keeping your business cash flow positive!
Do an Expense Review
If your business faces cash flow challenges, one effective strategy is to reduce expenses. By conducting an expense analysis, you can identify areas where cost-cutting is feasible. Calculate your business expenses over the last six months, including recurring costs like rent, utilities, subscriptions, and software fees. Aim to cut expenses by a manageable percentage, focusing on unnecessary or unjustified expenditures.
Create Goals for the Rest of the Year
After gaining clarity through your financial review, it’s time to set goals for the remainder of the year. These goals should be based on the insights you’ve gathered from your financial reports, cash flow analysis, and expense reduction efforts. Establishing new targets redefines your business’s objectives and provides a fresh perspective on your path to success.
Create a growth plan.
A business cannot be built on cutting costs and expenses alone. Creating a growth strategy through marketing activities, networking, and partnership is the perfect way to invest those profits made over the last six months and generate new opportunities. Growth also means capacity. Do you need to invest in equipment, staff, or even a new premise to help your business scale? Now is the time to plan how to make clever use of the leftover budget and get the maximum tax deduction for your business before the end of this financial year.
A mid-year financial review is pivotal in steering your business toward success in 2024. By assessing your goals, reviewing financial statements, evaluating cash flow, analysing expenses, and creating new objectives, you’ll set the stage for a prosperous year ahead. Astute Business Consultants is here to help you navigate this process, ensuring your financial strategies are on track for a successful year.