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Hello August! This month many parents prepare for their kids to return to school. Others are savoring the last bits of summer with pool parties and last minute vacations. And those of us in Houston, Texas are gearing up for the 100-degree weather days.
August could also be the month to check-in with your business by doing a mid-year review. There are five months left in 2016, which is enough time to make the necessary adjustments needed to keep your business moving in the right direction. By checking-in small businesses and individuals would have the opportunity to be more proactive rather than reactive.
Here are four tips for small businesses and individuals to follow mid-year:
1. Get Current with the Bookkeeping
Bookkeeping is still a task that tends to be of little value to many small businesses and individuals. The common result is the bookkeeping is done last minute, at the end of the year, as prep for the tax season. However, this bookkeeper strongly urges small businesses and individuals to reconsider that view.
Not to use fear as motivation, however, many small businesses fail because they do not manage their cash properly, even when sales are good.
Current bookkeeping allows the business to see how their money flows in and out. Therefore businesses are better able to manage their cash flow properly and make powerful and informed decisions.
2. Analyze and Know the Story
Now that your bookkeeping is current, the monthly financial statements can become the chapters for the financial novel that is being written about your business for this year.
For example, look at January, February, March and so on. How did the business do during those months? Is the business meeting expectations and goals?
What external events affected your business? Did a snowstorm affect sales or employee productivity? Did a competitor move nearby? Is business seasonal?
What about the internal events? Did you hire or fire anyone? Did you change office locations? Has a business process changed? Are your employees happy?
Also do a per month, side-by-side comparison of the accounts (cash, accounts receivable, accounts payable, etc). If the data is available, compare 2016 to 2015. These comparisons will allow the business owner to identify trends and understand his or her business better.
3. Check for Unnecessary Expenses
This is something that should be reviewed closely. During my days as an auditor, and now as a bookkeeper, I always saw bank service charges on client bank statements. For example, depending on the account type, your bank could penalize your business for having a cash balance under $100k or $50k. Often the penalty or charge is $25 to $50 per month, however, if you have a cash strapped business, those charges mean everything.
Another common expense is the overdraft fee. Often the result of incomplete bookkeeping, small business owners make the mistake of making payments when funds are not yet available in the bank account. I’ve seen overdraft fees as high as $1,000 per month, and those fees could have been easily prevented.
Another popular item to pay attention to is the auto-pay subscription. Are there monthly subscriptions your business thought were canceled? Four or five subscriptions at $5 to $100 per month could also leave a negative impact on your small business.
Review the bank statement and reconcile bank balances to uncover any unnecessary expenses.
4. Retain and Organize Your Financial Documents
Your bank statement is not the only financial document your business needs to retain. You also need your receipts, customer invoices, vendor bills, credit card statements, Paypal statements, contracts, and more.
Not only do those documents help with preparing financial statements, they can also assist with identifying tax related business deductions.
What if the IRS questions an item? You’d have your financial document available to assist with explaining that item and proving its existence.
For small businesses and individuals, I personally recommend using online applications like Hubdoc and Shoeboxed. Both integrate well with cloud based accounting software, such as Quickbooks Online and Xero. While different, both organize your financial documents electronically, which can (and does) reduce the paper clutter while making the accounting process very efficient. As a bonus, Hubdoc and Shoeboxed are IRS approved.
These tips are not all inclusive. I'd love to know what tips or reminders you all use for your mid-year review!