Running a small or medium sized business means there are a number of priorities to juggle. Between looking after customers, managing staff and keeping day-to-day operations moving, it can be difficult to find the time to review the bigger financial picture.
The summer can be a useful opportunity to review how your business is performing, identify any potential issues and make sensible decisions about the rest of the calendar year.
Here are seven areas to consider:
1. Take a look at cash flow
A profitable business can still experience cash flow difficulties, so it’s important to understand not just how much your business is earning, but when money is coming in and going out.
Look at your expected income and expenditure for the next few months. Are there any large bills, tax payments or investments approaching? Are there periods when income is typically lower?
A cash flow forecast can help you spot shortfalls early, allowing more time to take action.
2. Check outstanding invoices
Late payments can quickly put pressure on small business finances. Check how much money is currently owed to your business. Review aged debtors and identify invoices that are approaching or have passed their payment date.
If overdue invoices are a regular problem, it might be worth reviewing your payment terms and invoicing processes. Simple changes, such as invoicing promptly and following up consistently, can make a meaningful difference to cash flow.
3. Review profitability and margins
Turnover is important, but it doesn’t tell the whole story.
Costs can increase gradually without being immediately obvious, potentially reducing the profit you make on particular products, services or customers.
Compare your current figures with previous periods and consider whether your margins have changed. If costs have risen, do your prices still reflect the true cost of providing your products or services?
Understanding where your business makes money can help you make better decisions about where to focus your time and resources.
4. Prepare for tax bills
Tax bills shouldn’t be a surprise. Check your position on Corporation Tax, VAT, PAYE and Self Assessment and make sure funds are being set aside.
Keeping your bookkeeping and accounting records up to date makes this much easier. It also gives a clearer picture of your likely tax position before payment deadlines arrive.
5. Review staffing costs
Employees might be one of your largest costs. Review current payroll and employment costs alongside the expected workload for the rest of the year. If you’re considering recruiting, increasing hours or making other changes, think about the wider cost to the business rather than salary alone.
Planning ahead can help you understand whether additional staffing is affordable and what impact it could have on cash flow and profitability.
6. Consider major investment plans
If you’re considering buying new equipment, upgrading technology, taking on new premises or investing in another area of the business, think about how any investment fits with your wider financial position. Plan how it’ll be funded alongside the return you expect. And don’t forget to factor in any impact on your cash reserves.
There may also be tax implications or available allowances to consider, so it can be useful to speak to your accountant before making a significant purchase.
7. Look ahead
Accounts aren’t only useful for telling you what’s happened. Up-to-date financial information can help you plan for what comes next. Consider your expectations for the remainder of the year and whether your current performance is in line with them.
If it isn’t, understanding why now gives you time to respond.
Regular management accounts and forecasts can be particularly useful, helping track performance, identify trends and make decisions based on current information rather than waiting until year-end.
How is your business looking for the rest of the year?
A mid-year financial review doesn’t need to be complicated. The important thing is to have a clear understanding of where your business stands and what may be coming around the corner.
We work with businesses across Chichester and the surrounding area, helping owners understand their numbers, plan ahead and make informed financial decisions. If you’d like to review your business finances or discuss your plans for the months ahead, please get in touch with our team.