Halfway through the year is a natural moment to stop and take stock. It is far enough into the year that real patterns have emerged, but there is still plenty of time left to make changes if something needs adjusting.
Many business owners only look closely at their numbers around year end, by which point opportunities to change course have often already passed. A mid-year check gives you a chance to catch problems early, correct plans that are drifting off track and go into the second half of the year with a much clearer picture of where things stand.
Here is what a proper mid-year financial health check should cover.
Review profitability
The first place to start is profitability. Revenue on its own does not tell you very much. What matters is what is left once costs have been accounted for.
A mid-year review of profitability should look at:
- Gross margin so far this year and whether it is holding steady, improving or slipping
- Which products, services or clients are contributing the most to profit
- Whether costs have crept up faster than revenue
- How this year’s profitability compares with the same period last year
It is common for a business to be busier than ever while quietly becoming less profitable, simply because costs have risen without anyone noticing. Reviewing profitability at the halfway point makes it much easier to spot this before it becomes a bigger issue and gives you time to act on it rather than discovering it after the year has already closed.
Review cashflow
Profit and cash are not the same thing and a mid-year check is a good opportunity to look specifically at how cash has been moving through the business.
Things worth reviewing include:
- Whether cash in the bank matches what you would expect given reported profit
- How quickly customers are paying and whether debtor days have crept up
- Any recurring gaps between cash coming in and cash going out
- Upcoming commitments such as tax payments, loan repayments or larger supplier invoices
A business can be profitable on paper and still run into cashflow difficulty if money is tied up in unpaid invoices or stock. Checking cashflow at the halfway point, rather than only when a problem becomes obvious, gives you room to plan around it, whether that means chasing overdue payments, adjusting payment terms or simply making sure enough is set aside for what is coming.
Review tax liabilities
Tax bills have a habit of catching business owners out, usually because they were not front of mind until the payment was due. A mid-year review is a good time to check where things stand.
This should include:
- An estimate of the corporation tax likely to be due based on profit so far this year
- Whether enough has been set aside to cover it
- Any VAT position that needs attention, particularly if turnover has changed significantly
- Personal tax obligations such as self-assessment payments on account
- Any planning opportunities that are easier to act on now than closer to the year end
Tax planning generally works best when there is still time to act on it. Waiting until the accounts are being finalised often means opportunities to plan ahead have already been missed. Reviewing tax liabilities now means there is still time to make decisions that could genuinely make a difference.
Adjust forecasts
Whatever budget or forecast was set at the start of the year, the reality of the first half will not have matched it exactly. That is normal. The value of a forecast is not that it turns out to be perfectly accurate, it is that it gives you something to measure against and adjust.
A mid-year update should:
- Compare actual performance against the original budget or forecast
- Identify where the biggest variances have come from and why
- Update assumptions for the rest of the year based on what is now known
- Flag anything that needs a decision, such as slower than expected sales or costs running ahead of plan
Forecasts that are never revisited quickly become out of date and stop being useful. Updating them at the halfway point keeps them realistic and gives you a much better basis for decisions in the months ahead.
Set goals for the rest of the year
With a clearer picture of profitability, cashflow, tax and an updated forecast in hand, the mid-year check is also the right moment to set out what you want the second half of the year to look like. This might include:
- A revised revenue or profit target for the remainder of the year
- Specific actions to address anything that has drifted off track
- Plans for investment, hiring or new opportunities that the numbers now support
- Milestones to check progress against before the year end
Setting goals at this point is far more grounded than setting them at the start of the year, because they are based on real information about how the business is actually performing rather than assumptions made twelve months ago.
A mid-year financial health check does not need to be complicated, but it does need to happen. Six months is enough time for small issues to grow if they go unnoticed and it is also enough time to make a real difference if action is taken early.
If you would like some support getting a clear picture of where your business stands at the halfway point, we would love to help. Call us on 01173 700 079 or drop us an email at hello@steppingstonesaccountancy.co.uk and we can talk through what would work best for you.
