Cheryl Sharp, CEO and founder of Pink Pig Financials, the accountancy firm for SMEs
How important is it to conduct a mid-tax year business review? Very.
When we’re in the thick of running our business, it can be really hard to take stop, pause for breath and look at the numbers. It can be even harder to analyse these numbers and check whether we’re on track to be where we need to be. However, it’s important that we make the time and space needed to do this. If we don’t, how will we know if we are on track to achieve whatever it is we set out to do.
At the beginning of each tax year I advise our small business clients to put goals in place. At least one of these should be financial, but the rest can be about business expansion, marketing, entering new markets, product development or whatever it is that’s relevant for your business and lifestyle goals. The latter is important to factor in too. Running a business has to help get you where you want to be in life, otherwise what’s the point.
Believe it or not, the 5th October marks the mid-way through point of the current tax-year. This is a great opportunity to take a look at your business accounts and ensure you have a good grasp of how the first six months have been, and what the next six months might look like if you follow the same trajectory. If you are not quite on the path you want to be, doing this review also allows you to make necessary changes to get to where you want to be.
Having said that, running your business is your forte and being an accountant is perhaps not where you feel your strengths lie. If you don’t have the luxury of getting an actual accountant to help you, here I share my own top five steps to creating your own mid-tax year business review.
1. Look at the business trajectory
Look at your business trajectory to see where you are at the mid-year point. To do this, add up the sales for the first six months of the year, divide by six and times by 12 to get a projected end of year sales total. Then do the same again for profit. This should give you a good indication of how the year will end if you continue the way you have been going.
What were your goals for the year? How close are you to reaching these? Do you need to put steps in place to help you get there? Being a smaller business means you can be faster to react if things are not going quite how you might want them to, or to be able to quickly react to market trends to capitalise on demand.
2. Conducting a mid-year cost review
Rising supplier costs, wage increases, energy bill increases, these all have an impact on pricing and profit, especially for small businesses. Conducting a mid-year cost review is necessary to ensure you are being as profitable as possible. The odd few pence can be absorbed into the business or with savings found elsewhere, but when this starts to rise you need to reconsider your pricing.
You may be worried about doing this and the potential impact it will have on customer retention. It’s important to remember that your customers will have a certain loyalty to you and a small increase is probably not going to mean losing them. Look closely at what your competitors are doing as well. It’s important that you don’t just compete on price, but on quality, level of service, convenience, speed to delivery and other areas that are relevant to your business. Often, it’s about the added value you provide.
3. Ensure your bookkeeping is up to date
My biggest tip is always to make sure your bookkeeping is kept up to date as you go. Don’t let your receipts pile up as the longer you leave it, the harder it will be to capture everything you need. Once you have your accounts up to date, you can get a much fuller picture of where your business is at, and what the future might look like.
4. Check profit levels and calculate tax
Once you have a clear view of your up-to-date numbers, work out how much tax you may be expected to pay at the end of the year. If you haven’t already done so, start putting money aside ready for those tax bills. Planning and forecasting at this halfway point is really important as no one wants any nasty surprises when the tax bill comes in.
5. Reconnect
Are there previous clients you haven’t spoken to lately? Warm leads you could nurture a bit more? As H2 kicks in, now is the perfect time to reconnect with contacts who might be ready to convert. It’s also worth having conversations with existing clients to see if there is any more you can do for them. Getting more business from established clients is a great way to build the business. Also offer current clients an additional perk if they recommend you to their clients. Word of mouth and networking is a powerful way to get more business through the door.
As we head into the second half of the financial year, stay focused. Running a business in the current climate isn’t easy, but you are on the right track. Stay alert to trends and opportunities that present themselves, stay nimble and flexible enough to adapt quickly when you need to. And more importantly, know your numbers. Knowledge is power and this is key when forecasting what the future looks like.
Pink Pig Financials offers a full accountancy service for small and medium sized businesses of all shapes and sizes from bookkeeping to payroll to accounts and tax returns. It also offers a new service, Pink Pig in Your Pocket, aimed specifically for smaller businesses and those just starting out who will manage their own accounts, but would appreciate having accountancy resources and expertise available to help guide them through the process.
