As a business owner or executive, the summer is one of the best times to re-evaluate your progress from the previous six months and devise a financial strategy that works for your business. Conducting a mid-year financial review is the simplest way to do so. But what’s involved in a mid-year financial review, and how can you maximize its outcome?
In this blog, we’re looking at the basics of what you should incorporate into your mid-year financial review. Using income statements, balance sheets, cash flow statements, cash flow analysis, budget planning, and a marketing strategy, you can decide the best course of action for your business in the remaining months of the year. Financial statements are crucial as they provide a comprehensive view of your company’s financial health, aiding in informed decision-making.
At Fully Accountable, our team of financial professionals is dedicated to getting you more out of your mid-year financial review. Our controllers and fractional CFOs can help organize your financial infrastructure to simplify the mid-year financial review process. With the help of our financial professionals, you’ll be able to identify new financial initiatives and strategies for the future of your business.
Business Financial Goals and Financial Strategy
As a business, you should constantly look for new sustainable growth opportunities. One of the most critical aspects of the mid-year financial review is looking at your financial strategy from a top-down approach. Here, it’s okay to think outside the box instead of analyzing specific metrics, such as your cash flow and income statement.
Start by evaluating your financial strategy and financial planning from the first two quarters. Did you accomplish all that you wanted to accomplish? What obstacles did you have to overcome? Was there an occurrence that should cause a re-evaluation? The mid-year point is the perfect time to ask yourself whether your goals from six months ago still align with your company’s current standing.
When you’re trying to expand, things can change quickly. The mid-year financial review helps you identify those strategic shifts and plan accordingly. This review also provides insights into your company’s financial performance, helping you understand its economic health and management effectiveness. Having a strategic CFO during this time is one of the easiest ways to ensure you get the most out of your mid-year financial review. These professionals are dedicated entirely to formulating a durable financial strategy for your business.
Your business goals will be able to adapt as challenges arise so you can enter the second half of the year feeling like your operations are aligned with your financial goals.
Evaluate Your Financial Statements, Budget, and Marketing Plan
After evaluating your financial strategy from the beginning of the year, identifying the potential obstacles that could arise in the future, and formulating a plan of action for the next six months, it’s time to get down to more specific numbers. One crucial metric to consider is the gross profit margin, which indicates the percentage of revenue remaining after deducting the cost of goods sold and helps evaluate the profitability of specific products or item lines.
Income Statement
The income statement gives you a financial overview of your performance thus far in the year. In it, you can locate revenues, expenses, and net profit/loss over specific periods of time. It reports business performance and can reveal your current profitability or a net loss. The net profit margin, a key profitability ratio, measures the percentage of revenue that remains after all costs and expenses are deducted, providing a comprehensive view of your business’s financial performance.
The financial metrics in this statement show a year-over-year analysis of your financial health. Using this document as an overview gives you the foundation to perform your cash flow analysis in further detail.
Cash Flow
Your cash flow statement is the most important metric to evaluate during this phase. In it, you can identify outstanding collection issues that require immediate attention, clarify whether you are on track for target income, determine whether you’re managing expenses correctly, and decide whether it’s time to raise your rates. It might also be time to plan a new product launch if the numbers support that initiative.
On the other hand, if you’re struggling, you will need to address cash flow problems first. Identify areas that can reduce your expenses. Re-evaluate your offerings. Look for new ways to increase revenue and profit. Analyze your current marketing plan to see if it can be revamped in any way.
Assessing your cash flow works by breaking it down into five sections:
- Income
- Profit
- Owner’s Comp
- Taxes
- Operating Expenses
Breaking down cash flow this way helps you closely monitor your targets for revenue and profits and identifies problems as they occur.
Marketing Plan
Six months into the year is an excellent time to evaluate the fruits of your marketing labor. Though marketing can be difficult to analyze, with financial metrics, data analytics, and accounting software, creating an effective marketing plan has never been easier. But how can you maximize your marketing return?
With the continuous shift from traditional marketing to digital marketing, you should start by analyzing the efficacy of your current traditional marketing campaign. Does it accomplish a specific purpose or is it too costly with little return? Performing a cost-benefit analysis will help you determine whether any ongoing activities need to be slashed or amended. It will also open up room for ideas on where you can better spend your marketing budget.
Assess Your Tax Plan
Evaluating your financial strategy and strategic tax plan is as important as evaluating your income statement, cash flow, and marketing plan. Though it may seem like it’s farther down the road than other financial metrics, you should continuously evaluate your tax plan throughout the year. Doing so ensures you take advantage of the tax benefits afforded to you. It also helps you identify where you will have cash flow in the future from tax breaks so you can better allocate funds for your growth strategy.
Revisit Your Strategy
You started out with a brainstorming session about your strategy. You progressed into a stage of acute financial analysis. Now, it’s time to return to your strategy to see if it works with your current position. How does your current cash flow change your ideal financial strategy? Should you be more concerned about cutting expenses or expanding with new products or services? Additionally, consider the role of equity investments in your financial strategy, as they can significantly impact shareholder returns and measure profitability through the return on equity (ROE) ratio. Revisiting your strategy at the end of the mid-year financial review is the perfect way to ensure everyone is on the same page about what’s going to happen in the remaining six months and beyond.
General Tips for Conducting a Mid-Year Financial Review
The mid-year review simplifies any updates you need to make to your business plan. It also brings action and insight into the planning process. You will no longer be throwing ideas out to your employees in hopes they run with them. According to Harvard Business School Online, using established financial performance measures can enhance the effectiveness of your review. To ensure a comprehensive plan, you can use the following tips:
- You must be prepared for the mid-year financial review. All of your executives must be aware of the financial objective of the meeting. They should have all of the required planning material, and you should make them aware of the objective for the review.
- Whether created by your CFO, finance team, or yourself, there should be a written agenda of what you plan to cover in the review.
- Start with the strategy portion of the meeting and work your way into the granular financial details to see if that strategy fits. Having an initial plan and having to adapt later because of specifics is better than becoming overwhelmed by the specifics. Looking at the details first can paralyze you.
- Discuss the successes with your team first. Then, delve into areas of improvement. Doing this creates a sense of congruency. Everyone in the room will be able to identify the common goal they are striving toward instead of feeling like failures are preventing them from progressing.
- Delegate responsibilities to quality check all metrics and strategic initiatives.
What Should You Consider In Your Business Financial Reviews
Conducting a mid-year financial review for your business is one of the most important meetings you can call. However, it can be difficult to coordinate with all of the moving parts of your business.
That’s why having a team of financial professionals on your side can simplify your mid-year financial review. At Fully Accountable, we believe business owners and executives should be able to focus on more abstract aspects of business expansion – the big plans that move the needle.
Our accounting controllers and fractional CFOs can implement the latest accounting technology and devise thorough strategies that keep your company growing sustainably at all times. Contact us today to learn more about how we can take your business expansion to the next level.
