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The Importance of the Mid-Year Financial Review 

Whether or not you can believe it, the start of July marks the halfway point of 2022. As you head into the summer months, it’s time to start thinking about conducting a mid-year financial review for your business. Evaluating your business’ financial performance for the year so far helps to create awareness and allows you to take corrective action. Often, business owners wait until the end of the year to clean up and review key aspects of the business. Putting off the review, however, makes the task more overwhelming and time-consuming. Here, we’ll propose a tangible checklist you can use to review your business’ efficiency, performance, and trajectory.  

Assess Progress Toward This Year’s Goals 

Like most business owners, you probably started off Q1 with a list of goals and objectives to focus on in the new year. Typically, only 65% of small businesses achieve half of their yearly goals, and only 5% complete all of them. This poses the question—how many times have you checked in on your 2022 goals? Consider how you’re feeling about your business. Is it headed in the right direction? Are you achieving the growth you initially set out for? Are you building business and client relationships that are conducive to your goals? Take a moment to pause and reflect. If you find that your business isn’t on the path you intended in Q1, pick a new direction and determine your next steps. 

Review Your Financial Statements 

No matter how well or poorly your business is performing this year, a mid-year financial review can help you know how healthy your cash flow is, whether you can assume more debt, and your overall profitability. To understand your business’ financial health, we recommend looking at the following three reports:  

Income Statement 

The income statement, synonymous with profit and loss, shows revenue and expenses over a period of time—in this case, bi-annually. The income statement can help you clearly see your business’ profitability.  

Balance Sheet 

The balance sheet shows the company’s assets, liabilities and shareholder equity at a specific point in time, as opposed to a period of time. 

Statement of Cash Flows 

The statement of cash flows shows how changes in balance sheet accounts and income affect cash and cash equivalents, and breaks the analysis down to operating, investing and financing activities. The statement is concerned not only with the amount of money coming in and out, but also the timing of how your money flows. 

Evaluate Cash Flow 

Cash flow is one of the key indicators of a business’ health, as well as its chances of enjoying long-term success.  However, it is also one of the most difficult aspects to manage well. For example, if a business has revenue coming in, but routinely struggles with slow collections, it can be difficult to cover their own expenses in a timely fashion.  

Though cash flow management strategies will vary depending on the business and industry, this article from Entrepreneur recommends projecting the following three measures of cash flow, and consistently tracking and comparing what actually occurs:  

  • Collection days, which measure how long it takes to be paid 
  • Inventory turnover, which tracks how long your inventory sits on your working capital 
  • Payment days, which measure how long you wait to pay vendors 

No matter what strategy you follow, it’s crucial to have a cash flow management plan in place. If you aren’t currently monitoring your cash flow, set aside time after your mid-year review to build your strategy. 

Conduct an Expense Analysis 

If your business is struggling to maintain healthy cash flow, you have to either increase sales or cut expenses—the latter of which tends to be quicker.  

Creator of the Profit First method Mike Michalowicz holds that most businesses have the room to cut up to 20% of expenses, particularly ones that are frivolous, unnecessary, or unjustified.  

To complete the expense review, determine your total business expenses from the last six months. Next, determine recurring expenses, such as rent, utilities, subscriptions, or software fees. Add up the costs, then multiply that number by 10 percent. Then, determine ways in which you can cut your business expenses by that percentage. 

Create Goals for the Rest of the Year 

Once you’ve gained more financial visibility by reviewing reports, cash flow, budgets, projections, and expenses, the next step is to create an action plan that will ensure your business’ success for the second half of the year. Not only will fresh goals and a mid-year financial review help you to redefine your targets, but also provide you with a new set of criteria to determine if your business is succeeding. 


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