Every year, we get those timely reminders from our doctors for our yearly physical. If you are like many people, that first quarter slips away and suddenly you are poised for a mid-year health visit. Like physicals, businesses thrive when we pause to do a mid-year financial review of our companies. Mid-year is a perfect time to take a deep dive and evaluate business performance; pivot, correct and reallocate resources as needed; and provide transparency to management and your team.
And while the hope is that a mid-year review will set the business up to be more successful for the year, it is also to help prepare for inevitable downturns.
There are three parts to your mid-year financial review: looking back at the first six months of the year; using that information to make decisions and changes now; and looking forward to the next six months.
First, you'll need to look at all your financials, from accounts payable to accounts receivable, expenses and spending to revenue. Prepare—or have someone prepare—the three main statements you'll need for financial planning:
- An income statement that displays your revenue, costs, gross profit, selling and administrative expenses, other expenses and income, taxes paid, and net profit.
- A balance sheet that outlines your assets, liabilities and equity.
- A cash flow statement that shows your operating, investing and financing activities.
Review these statements in detail. Assess your financial progress and how you are tracking toward your goals for the year. How quickly is your inventory turning? Are you overspending? Have your costs increased? Are you on track to meet your target income?
The next step is to determine if you need to pivot or make any adjustments based on the current financial position of the company and the goals you set for the year:
- Do you need to raise your prices (not uncommon right now, as companies pass along the rising costs of raw materials)?
- Are there collections that need to be dealt with?
- Are the assumptions you made at the beginning of the year still true, or is there new information you should use to revise your financial plan for the rest of the year?
Consider if now is the time to seek financing, either to spur growth or bridge a downturn. If you have financing, is your budget using the correct interest rate? With interest rates on the rise this year, you want to ensure that the budgeted rate is accurate so you can predict your true cost of financing. Discuss the current state of the business and work with the management team and your financial partners.
Finally, look at the big picture and develop next steps and revise your plan and goals for the remainder of the year as needed, based on the information you now have. The time you put into this mid-year review will help focus your work for the rest of the year, and hopefully set you up for a better outcome.
A mid-year review is a best practice for any company that wants to use all the information it can to make the best decisions possible. A good financial partner will help guide you as you assess and plan, so make sure to loop them into your review process. The mid-year review is also a time to highlight the positives—don't forget to take some time to celebrate the achievements and successes you and your team have had in this first half of the year!
Jennifer Palmer is CEO of eCapital Asset Based Lending, the leading asse-based lender for fast-growing brands, with a specialty in natural products. The company is committed to making at least 51% of its portfolio women-led or -owned companies.
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