Is it really half-way thru the year?!
June for many small business owners can be a month focused on daily operations, providing for customer needs, and trying to maintain the busy schedule of summer. It’s also a great opportunity to step back and evaluate your businesses financial situation.
Conducting an evaluation of your finances prior to the second half of the year will allow you to identify any issues that could potentially cause harm to your business and capitalize on new growth opportunities. In addition, this type of evaluation will enable you to make informed decisions moving forward in the remainder of the year.
Below are seven important financial metrics every small business owner should review to prepare them for the second half of the year.
1. Revenue Growth
Begin by evaluating your year-to-date revenue compared to:
Your annual budget
Prior year(s) performance
Growth objectives
Consider asking yourself:
Are sales growing as projected?
What product or service lines contribute to growth?
Were there any unexpected declines in specific revenue streams?
Evaluating your revenue trends will assist in determining if you’re on course to meet your objectives or if strategic changes need to occur to meet your objectives.
2. Gross Profit Margin
Revenue is important, however, understanding the profit margins of your business will provide you with additional information.
Your gross profit margin demonstrates how efficient your business is converting your sales to profit after deducting your direct costs from those sales. If you see a decline in your gross profit margin, you might want to evaluate factors including:
Material cost increases
Increased labor costs
Price strategy adjustments
Vendor price increases
You may find that even slight improvements to your margin could result in improved profitability across all facets of your business.
3. Your Current Cash Flow Position
Many small business owners assume that being profitable and having positive cash flows are essentially the same thing. Unfortunately, this is not always true. A company can generate income (be profitable) and still face cash flow shortages. Consider reviewing the following items when assessing your cash flow:
Current available cash
Outstanding obligations/expenses
Seasonality related fluctuations
Projected cash flow for the remainder of the year
Having sufficient available cash flow allows your business to continue normal operations and ultimately supports future growth.
4. Accounts Receivable Aging
Delinquent accounts receivable can negatively affect the financial stability of your business.
Evaluate outstanding accounts receivable and consider identifying:
Accounts receivable greater than 30 days old.
Accounts receivable greater than 60 days old.
Process currently used for collecting delinquent accounts.
Payment history of customers.
Collecting delinquent accounts represents one of the quickest methods for improving cash flow without having to increase sales.
5. Operating Expenses
How recently did you assess your business expenditures? Identify and evaluate major expense categories such as:
Payroll
Marketing
Subscription fees associated with software
Rent and utility costs
Administrative costs
Determine which of these categories experienced unnecessary spending increases during the first six months of the year. Ensure that you continue to invest in the tools and resources necessary to grow your business.
6. Outstanding Debt Obligations
It is an excellent time to assess your current level of debt obligation.
Assess and evaluate:
Existing loan amounts
Existing interest rates
Ongoing monthly payments
Potential upcoming renewal/refinance options.
Identifying the status of your debt obligations will enable you to make informed decision regarding future financing requirements. This assessment will minimize any potential negative surprises that may arise in the latter portion of the year.
7. Year-To-Date Net Profit
Ultimately, achieving sustainable profitability will drive long-term success.
Compare your year-to-date net profit against:
Budgeted net profit
Net profit generated in prior years
Net profit generated by similar industry peers
If net profit has been lower than anticipated, utilize this time to evaluate possible alternatives to pricing, expenses, processes or operations to improve net profitability.
Why a Mid-Year Financial Evaluation Is Significant
Small Businesses who continuously monitor their financial results are much better positioned to make well-informed decisions, adapt to changing circumstances and remain on course to achieve their objectives.
The value of conducting a mid-year financial evaluation lies in its ability to reveal what works in terms of financial performance and what doesn’t. Additionally, conducting a mid-year financial evaluation will enable you to discover potential avenues for improvement and/or opportunities for enhanced financial performance prior to year-end.
Coach2Consulting assists small business owners with gaining clarity regarding their financials, improving cash flow, and making educated decisions which will enhance their long term growth prospects.
The second half of the year is fast approaching. Do you know exactly where your business stands financially?!
Schedule a free consultation today! https://www.coach2consulting.com/contact-coach2consulting/
