Summer is a time when many of us go to great lengths to make sure we're beach-ready. The summer months are also an ideal time for small business owners to assess the fitness of their business’s financial condition.
Now that over half of the year is behind you, reviewing various aspects of your company's performance can shed light on what you're doing right and where you're falling short. It can help you know whether to stay the course or make changes.
Below I’ve listed some of the reports and information that will provide useful insight into whether your business is in shape to perform at its best the rest of the year.
Look closely at your profit and loss statement.
Carefully review your profit and loss statement (P&L) for the current year to date and the same period last year (e.g., P&L for January 1 to August 4, 2018 with the P&L for January 1 to August 4, 2017). Are your revenue, expenses and profit for this year ahead, behind or about the same as they were last year? If you expected to see growth but are in a “status quo” state or lagging behind, it’s worth investigating what’s holding you back.
Some potential issues might include:
- Loss of customers to a competitor
- Order fulfillment issues
- Unexpected costs (such as an increase in a vendor’s rates or paying to repair or replace broken equipment, etc.)
Making a P&L comparison serves as a great starting point for identifying what you should look at more closely.
Take stock of your tax obligations.
If your business must pay estimated taxes to the federal, state and local government, is what you've paid so far in line with what you owe? If you have difficulty assessing this on your own, consider asking a tax advisor or accountant to review your financials and determine if you’re paying the right amount quarterly.
Excessive overpayment might cash-strap your business and possibly prevent you from having the working capital needed to invest in the technology, supplies or human resources required to take on new revenue opportunities.
Underpaying by too much throughout the year can deliver an unpleasant surprise at tax time if you discover you must write a large check to Uncle Sam for the tax you owe (and possibly penalties, too).
Zero in on your budget to actuals.
Are you on target to meet your goals? End of summer is an ideal time to review the various line items on your budget, and identify if your actual sales, revenue and expenses are close to what you forecasted.
If they’re not in alignment, it’s critical to identify why and determine what you might adjust to make sure you don’t miss hitting your goals for the year.
- What marketing efforts need to be tweaked to generate more brand awareness and sales? (e.g., social media or search engine optimization)
- If a supplier recently raised rates, would it make sense to explore new, less-expensive options?
- Should you consider raising a product and service rate
Keep a close eye on your cash flow.
A cash flow statement shows how a business is spending money and earning money over a period of time. By generating this report, you’ll be able to see when and from where cash is flowing into your company and when and to where it’s flowing outside.
Even though a business may appear profitable on its P&L statement, it could still face financial hardship if its revenue isn’t arriving in time to cover its payroll and bills when they’re due. A cash flow statement can help you detect those types of issues so that you can take action before your business becomes delinquent in paying vendors and employees.
Finish Summer (and 2018) Strong
Although it may sound like a tough workout to review your business's financial health, you can breathe easier knowing that resources exist to make it less strenuous. Consulting an accounting professional can help ensure you understand your financial situation, SCORE offers a number of free financial templates and tools to simplify your efforts. Also, SCORE mentors can provide guidance as you develop strategies for running a more successful business.