Leisl L. Cording, CFP®
Senior Vice President & Financial Advisor
When you started your business, you likely spent lots of time and effort putting together a business plan. At the start of each year, you probably revisit that plan and update it with revenue and other goals for the year ahead. But how often do you review and update that plan to measure your progress so you can make adjustments to maximize your profit?
This year is already halfway over – now is the time to take stock of how your business has performed thus far this year, so you can build on your strengths and strengthen your weaknesses. Do this 5-step mid-year business review to maximize your chances of ending the year with the kind of business growth and bottom line you were hoping for.
1. Review your cash flow statement.
The cash flow statement presents the sources and uses of cash generated from business operations. It should include monthly projections for the following year and be updated to reflect actual performance. If your company has been in business for some time, you can use past and current figures to generate predictions. If you are just starting your business, you will have to project all of your financial needs. Regardless, your cash flow statement should identify two things: (1) when and how much cash will be received, and (2) when and how much cash will be disbursed to pay expenses.
2. Review your balance sheet.
A balance sheet is like a photograph of your business's financial health at a particular point in time, such as the end of an accounting period. The balance sheet contains three categories: (1) assets--all those things of value owned by your business, (2) liabilities--all the debts your business owes, and (3) net worth or capital--the owners' equity in the business. A simple mathematical equation will show the relationship between these three categories: Net Worth = Assets minus Liabilities.
The balance sheet is a good measure of your business's financial health and can be a useful indicator of what business changes are needed, if any.
3. Complete a mid-year profit and loss statement.
The profit and loss statement (P & L) is similar to the balance sheet in that it reflects your business's financial health. Unlike the still photograph of a balance sheet, the profit and loss statement usually covers your business's tax year. The P & L is generally separated into several categories: (1) income, (2) expenses, (3) income from operations, (4) pretax net profit (or loss), (5) income taxes, and (6) post-tax net profit. The statement is especially effective in helping you determine your business's financial strengths and weaknesses. For example, a review of your profit and loss statement may show that a particular activity has not generated the revenue anticipated and should therefore be terminated.
4. Determine if your business is on track to meet its financial goals and identify how to build on strengths and correct weaknesses.
After reviewing the financial statements noted above, you should have a good understanding of whether your business is on track to meet your financial goals for the year. The next step, and the one most critical to ensuring your success at year’s end, is to determine the causes of your success or shortfall thus far.
By identifying what’s working well, you’ll be able to build upon those strengths through the rest of the year to bolster your performance even further. And by examining where and how you’re falling short, you’ll have the information you need to correct and adjust.
While external forces (such as slowed sales due to the pandemic, a supply chain issue or the introduction of a new competitor to the market) are not directly in your control, your ability to respond to them and adjust your business plan accordingly through the end of the year is.
5. Don’t go it alone – get the financial guidance you need to make strategic business decisions.
The financial health of your business, of course, serves as the foundation for the health of your own and your family’s financial health, as well as that of your employees’. The importance of planning well to achieve business success cannot be overstated.
It’s a daunting responsibility, but one that you don’t have to face alone. We help our business clients plot a solid course for both business and personal financial success, through a comprehensive and strategic Plan Well, Invest Well, Live WellTM process that’s focused on your goals. See how we can help you and your business move closer to your goals on our website and contact us to get the guidance you need.
Authored by Vice President, Associate Financial Advisor Leisl L. Cording, CFP®. Securities and advisory services offered through Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. These materials are general in nature and do not address your specific situation. For your specific investment needs, please discuss your individual circumstances with your representative. Weiss, Hale & Zahansky Strategic Wealth Advisors does not provide tax or legal advice, and nothing in the accompanying pages should be construed as specific tax or legal advice. 697 Pomfret Street, Pomfret Center, CT 06259, 860-928-2341. http://www.whzwealth.com (http://www.whzwealth.com).