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An annual financial plan can help you regulate cash flow, reduce costs, manage taxes, and generate growth. But no matter how thorough that plan is, it's important to set up regular checkpoints to review it throughout the year. By June, you should have a good idea of how your business is performing against your annual plan and what to expect for the rest of the fiscal year. Now is a good time to take a closer look, evaluate your business's performance, and make adjustments.
Here are five questions to ask mid-year to maintain healthy financial planning:
1. Do you keep an eye on your budget?
Review your income statement to see how you are doing compared to your projected budget. Are revenues, expenses and net profit or loss where you expected them to be? Why or why not?
If you don't yet have an operating system for budgeting and monthly reporting, or you're falling behind, it may be time to seek outside assistance.
Related: 6 critical questions your business plan must answer
2. What is your cash flow and runway?
Throughout the year, the inflow and timing of cash flow into the business is an important indicator of health. Take a closer look at your cash flow statement mid-year to understand where the money is coming from and where it is going. Review things like operating expenses, working capital, and cash inflows from ongoing contracts so you can make changes as needed. Here are some questions to consider:
- Do you have outstanding invoices that need to be processed now?
- Are you on track to reach your target income?
- What planned expenses do you need to prepare for (e.g. equipment purchases, staffing, conferences, training)?
- Do you need to increase your prices to better suit the market?
Related: 10 Expert Cash Flow Management Tips for New Businesses
3. Do you plan to make new investments in the next quarter?
If you have cash, it may be time to invest it back into the business. Do you want to make major purchases, hire more staff or invest in research and development before the end of the year? If so, the third quarter is the best time to do so, as you will have a better overview of how the year will pan out.
4. Do you pay the correct amount of taxes quarterly?
Now that you have made two quarters of tax payments, you can see how those payments line up with your actual tax obligations. Are you paying enough to cover your annual tax obligations, or do you need to make adjustments? Conversely, you may be paying too much or discover that there are tax obligations that can be pushed back to next year. In that case, you could adjust your quarterly tax payments and free up money for business investments in the second half of the year.
Related: Important Tips for Getting Through Tax Season with a Side Job
5. Do you comply sufficiently with tax laws?
Tax laws are constantly changing. Depending on your company structure and industry, you may be eligible for more breaks than you were last year or have to pay more for certain expenses. For example, in 2023, the rules for R&D costs have changed for certain companies. Tech companies are now forced to capitalize a larger percentage of these costs than ever before, and this can have drastic tax implications for venture-backed startups. They must now plan to set aside 30 or 35% of their revenue for taxes, which takes away from what can be spent on the business.
To mitigate these problems, build a good relationship with a tax professional. Schedule regular meetings with your advisor so you can adjust payments as needed, reallocate cash, and monitor changes in tax law as they occur.
It's always difficult to find time for a financial check-up in the middle of the year. But now is the perfect time to review your budget, cash flow and tax planning to make sure you're still on track to meet the goals you set for the end of 2023. Chances are, you'll gain new insights into your business and be able to make important adjustments to get you through the rest of the year.
Create your very own Auto Publish News/Blog Site and Earn Passive Income in Just 4 Easy Steps
