Every financial year begins and ends for a business in the same way: it starts on a note of hopefulness and optimism, only to end in a frenzied panic about filing your taxes correctly. Most small business owners don’t get the time to review their business decisions amidst the chaos because they time their reviews incorrectly. A great time to do a checkup of your business’s financial health is mid-year, just as summer sets in. Here’s why.
Timing it Right: Why Mid-Year?
At the beginning of a new financial year, you happily look at the future that is to come. At the end of the year, you look back, pondering on the hits and misses of the year gone by. But in the middle of the year, you have a clear view of what has happened and a fair idea of what is going to happen, giving you a chance to make essential changes to your business plans while they can still be revised and improved. It enables you to realign your goals and recalibrate your business plans to align with your business ambitions.
Five Reasons to do a Mid-Year Financial Health Checkup for Your Small Business
The saying “prevention is better than a cure” holds true not just for your physical health but also your small business’s financial health. A half-yearly financial review prevents your business goals from going astray and ending in losses. Here are five critical reasons why your business should not miss its annual mid-year checkup:
Checking Costs and Cash Flow
You began the year with the resolution to cut down on frivolous costs, but have you been able to stick to it? If not, it’s still not too late. You can start by cutting down on operational costs by renegotiating payment terms with suppliers and vendors, unsubscribing from unused software subscriptions, moving to a smaller office space, or reducing the fuel usage of the company vehicle. This will free up financial resources to allocate to growth-oriented activities and increase profitability. If these activities are underway, consider following up to identify the cause of the delay and tweak your approach accordingly. Apart from this, check your cash flow status and see if any payments or receivables have been delayed. By identifying and resolving problems in time, you can avoid future cash flow crunches or operational issues.
Reconciliation and Compliance Check
Most accountants perform the bank reconciliation process regularly, typically either weekly or monthly. Many small businesses do not employ a full-time accountant or bookkeeper but prefer to hire one on a part-time or contractual basis. If your small business does the same, it would be a great idea to do a thorough reconciliation mid-year to make sure your books of accounts and bank statements are aligned. This can also help you detect any potential fraud and take remedial measures before it’s too late. At the same time, checking if your business activities, especially any expansion plans, are progressing in line with all legal and industrial compliance regulations can save you from much anxiety – and potential fines or disciplinary action – later.
Reviewing Liabilities
Every small business experiences cycles of revenue upturns and demand slumps, sometimes multiple times in a year. Both scenarios call for a review of how you handle your debt and tax liabilities. By getting an estimation of your year-end tax liability from your accountant, you can adjust any upcoming payments accordingly. If your business is enjoying a particularly favourable phase, consider clearing any outstanding debts while the going is good and building a reserve for challenging days. Also, ensure you clear all your tax obligations – advance tax, GST – and keep adequate provision for future tax liabilities.
Staff Decisions
A growing business could call for a bigger team, and you might have hired some new talent at the start of the year. By reviewing your financial health within six months, you can gauge how much the business has benefited from team expansion or whether it is costing more than expected. On the contrary, the review could show if you are understaffed and need to hire more people. Other payroll-related issues, such as employee benefits and overtime costs, can also be reviewed and adjusted on time, if necessary. Leaving these issues to the year-end could also affect your tax planning. A mid-year review will leave scope for adjustments.
Re-aligning business goals
All businesses begin their financial year with a concrete business plan and budget. However, changing external factors such as consumer trends, supply chain problems, and geopolitical upheavals often lead to disruptions, causing your actual business numbers to deviate from your planned goals. Sometimes, other attractive opportunities may arise, for which a different plan of action must be initiated. A mid-year check gives you a chance to review and rethink your business options and priorities, without wasting another six months. It gives you ample time to revisit your business goals and align your current activity with those goals. In case of significant deviation, seek timely business consultation and put it back on track.
Running a small business with limited financial resources is a job of immense skill and effort. A mid-year financial health check provides an opportunity to ensure your business is utilizing its limited resources to their optimal best and driving growth. If not, you can reallocate or rethink your budget and business plan well in advance to avoid year-end stress and potential losses in revenue or profitability. It’s all about refining and fine-tuning your business to meet your financial goals efficiently with the best possible outcome.
Contact MW&CO in Woodstock for Expert Business Planning and Financial Health Review
A skilled accountant and business consultant plans the budget, manages debt, and secures fundraising in line with the business goals. They ensure the business is on track to meet the budget with half-yearly reviews and make adjustments accordingly. At MW&CO, our business advisors can provide services to support your business’s financial planning, whether you need partial or complete support. To learn more about how MW&CO can provide you with the accounting, tax and advisory support, contact us online or by telephone at 519-539-6109 or toll-free at 1-877-539-6109.