Mid-year is here! Due to COVID-19, you may feel like 2020 is only two months old – or two years old – instead of being half over. Also due to COVID-19, you may have already taken a hard look at your business finances. Even so, mid-year is a good time for a financial checkup.
Think about it. You get a physical checkup to detect any serious problems that can result in a medical crisis that stops you in your tracks. A financial checkup will help you to detect problems with income, expenses or other financial concerns that can stop your business cold.
At a minimum, your Mid-Year Financial Checkup should cover these three areas:
- Actual vs. Budget
Compare actual financial performance to planned, or budgeted, financial activity. Focus on variances in income and expense categories that most significantly impact achieving your organization’s goals. If the budget was not met, figure out why. Did conditions change? Were projections unrealistic? Focus on “why” and use that information to refine your current and future budgets.
- Cash Flow
Project your cash flow for at least three months, preferably for six months or more. Start with expected income and expenses, like contract income, payroll, and leases, then add other income and expense items based on history and your assumptions. You may need to revisit your assumptions often during volatile times, like now. Be realistic about payment timing and what it really costs to sustain your business.
- Expense Control
Control planned expenses to ensure they remain within established plans. Carefully consider unplanned expenses, such as additional safety equipment and supplies related to COVID-19, and how necessary those expenses are to business operations, strategy, and branding. Keep in mind that you may also need to spend on growth and technology to remain relevant and competitive.
Yes, it’s time for your 2020 Mid-Year Financial Check-up to detect any serious problems that could impact your business finances and stop your business cold. Like your body, your business needs to undergo a periodic financial checkup to alert you to existing or impending problems. During volatile times like now, it’s even more important than ever to perform a Mid-Year Financial Checkup on actual vs. budgeted financial performance, cash flow and expense control.