With Inflation Surging, a Midyear Review is More Critical Than Ever

Fundamental to sound business management are annual and midyear assessments. The midyear review is essential to firm up their goals and strategies, evaluate the execution of those strategies, and make any necessary adjustments. Considering the havoc wreaked on businesses by the pandemic and now rising inflation, these are extraordinary circumstances requiring a thorough assessment of the business and its capacity to overcome them.

Steps to Conducting a Midyear Financial Review

The first step is to conduct an objective and in-depth financial checkup to understand where you are financially compared to where you want to be at the end of the year. Using your six-month financial reports—including balance sheet, income statement, and cash flow statement—complete the following steps:

Compare year-over-year numbers: Comparing year-over-year numbers is an essential measure of how your business is doing. Are your revenue and profits trending up or down? Whether the change is positive or negative, you need to explore why. What impact is inflation having on your bottom line?

Compare the numbers vs. your goals: The more important comparison is how your mid-year numbers stack up against your goals. It’s a reality check to see if your goals were too optimistic or pessimistic, especially in light of inflationary pressures. Assess your goals and your progress to determine what you can realistically achieve by yearend.

Compare actual spending with budget: If you are not on track to meeting your cash flow projections or achieving your profit goal, your spending may be the culprit. Your income and cash flow statements will tell you where you may be spending too much on day-to-day operating expenses, debt service, or marketing. Look for which expenses might be directly impacted by inflation that can be reduced or eliminated to increase your profit margin immediately.

Recalibrate your cash flow projections: Knowing what you now know at mid-year, how would you adjust your cash flow projections? Are you anticipating a spike in business that would require additional hires or more inventory? Could that lead to a possible cash crunch down the line? Now would be an excellent time to meet with your bank to shore up financing or explore cash management tools that can speed up receivables and get control of payables to improve cash flow.

Reassess your pricing strategies: How are supply price increases impacting your profit margins? Where can prices be increased that won’t negatively impact customer relations? If broader price increases are necessary, what can be done to improve product value or enhance your customers’ experience to offset the negative impact.

Assess Your Goals and Strategies

Once you complete your financial checkup, you will have a better sense of your business’s progress towards your goals. The next step is to assess your goals and strategies to see what’s working and not working and whether you need to adjust your plans.

Adjust or replace strategies: Focus first on strategies that aren’t working as expected and determine whether they need to be fixed, changed, or abandoned altogether. Don’t be afraid to change or drop a strategy that’s no longer working or no longer a priority. This is a time to rethink things based on what you know and the current circumstances. Assess your strategies that are working and learn the reasons why so they can be repeated or applied to strategies that aren’t working.

Consider new opportunities: Now is the time to go after any new opportunities that might have popped up on the horizon. Have you been approached by a vendor about a possible joint venture? Have you been thinking about introducing a new product or service? Does your current cash position open the opportunity to purchase new equipment? How would the opportunity impact your trajectory – near term and long term? While these are questions that could come up any time of year, now is the time to act if the opportunity is right.

Identify one key process area to improve: An increase in efficiency in any process area can do wonders for your bottom line and your ability to achieve your business goals for the year. Maybe your marketing program or inventory control process could use a boost. Are there areas in which you could improve efficiency to lower costs? There are always enhancements to be made in your cash management that can improve cash flow in and out of the business. The best investment you can make for the rest of the year is to bring in a professional consultant for a few hours to upgrade a key process area.

Meet With Your Banker

Midyear is the ideal time to meet with your banker to review your accounts and transactions. Your cash management needs are constantly changing, and your banker can recommend ways to improve cash flow. It’s also an excellent opportunity to discuss your business plan and potential future financing needs and see if your business qualifies for a new or increased credit line or loan.

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