5 Questions to Ensure Your Business Stays on Track

Your Annual Financial Plan: A Guide to Success

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As a business owner, creating an annual financial plan is crucial for regulating cash flow, cutting costs, managing taxes, and generating growth. However, a well-crafted plan is only the first step. To ensure your business remains on track, it’s essential to regularly review and adjust your plan throughout the year. By June, you should have a clear understanding of your business’s performance and what to expect for the remainder of the fiscal year.

1. Are You on Track with Your Budget?

A budget is a vital tool for financial planning, providing a roadmap for your business’s financial performance. At mid-year, take a closer look at your income statement to assess how your revenues, expenses, and net profit or loss are aligning with your forecasted budget. Ask yourself: Are you experiencing any deviations from your projected budget? If so, what are the reasons behind these discrepancies?

If you don’t have an operating system in place for budgeting and monthly reporting, or if you’re struggling to stay on track, it may be time to seek external support from a financial advisor or accountant.

2. Is Your Cash Flow Healthy?

Cash flow is the lifeblood of any business, and a healthy cash flow is essential for making timely payments, investing in growth opportunities, and weathering unexpected expenses. Take a closer look at your cash flow statement to understand where money is coming from and where it’s going. Consider the following questions:

Do you have outstanding bills that require immediate attention?
Are you on track to meet your target income?
What planned expenses are approaching that require preparation (e.g., equipment purchases, headcount increases, conferences, training)?
Do you need to adjust your pricing strategy to align with the market?

By addressing these questions, you can identify areas for improvement and make adjustments to ensure a healthy cash flow.

3. Are You Prepared for Future Investments?

If you have cash reserves available, it may be time to reinvest in your business. Are there opportunities for major purchases, hiring new talent, or investing in research and development before the end of the year? The third quarter is an ideal time to make these investments, as you’ll have a better understanding of how the year is unfolding.

4. Are You Paying the Right Amount in Quarterly Taxes?

As you approach the midpoint of the year, take a closer look at your tax payments. Are they aligned with your actual tax obligations? If not, do you need to adjust your quarterly payments? Conversely, are you paying too much or finding that there are tax obligations that can be deferred until next year? By revising your quarterly tax payments, you can free up cash for business investments in the second half of the year.

5. Are You Staying Abreast of Tax Law Changes?

Tax laws are constantly evolving, and it’s essential to stay informed about changes that affect your business. Depending on your company structure and industry, you may be eligible for new benefits or face increased tax liabilities. For example, changes to research and development (R&D) cost rules can have significant tax implications for venture-backed startups.

To mitigate these issues, establish a strong relationship with a tax expert and schedule regular check-ins to ensure you’re aware of changing tax laws and can revise payments as needed.

In conclusion, conducting a mid-year financial checkup is crucial for ensuring your business stays on track. By asking these five questions and addressing any areas of concern, you’ll be better equipped to make informed decisions about your financial strategy and set yourself up for success in the second half of the year.