By Claire Murphy, Founder of SBS Essex Ltd

The middle of the year is a useful opportunity to pause and look beyond your day-to-day workload.

You may already have a budget, accounting software and a plan for the year ahead. However, the assumptions behind those plans may have changed. Customer demand may be different from what you expected, costs may have increased, and some of your software subscriptions may no longer be earning their keep.

A mid-year financial review does not need to be complicated. It is a practical check-in to help you understand what is happening now and make informed decisions for the rest of the year.

Here are three areas worth reviewing.

1. Check your cash flow and refresh your forecast

Profit and cash flow are not the same thing. A business can appear profitable on paper while still struggling to pay bills because customers have not paid yet, or because several large expenses are due at the same time.

Your first check should be whether your cash-flow forecast reflects your current reality.

Start with your actual cash position

Review:

• Your cleared business bank balance
• Any credit card or loan balances
• Outstanding customer invoices
• Supplier bills and other unpaid costs
• Upcoming VAT, PAYE, pension and Corporation Tax liabilities
• Planned equipment purchases or other large payments

Do not treat the bank balance as money that is all available to spend. Set aside amounts needed for tax, payroll and essential commitments before assessing what is genuinely available.

Your accounting software should help you bring this information together. Platforms such as Xero, Sage and FreeAgent can provide useful reports, bank feeds and reminders, provided the records are kept up to date and regularly reconciled.

Build a rolling view of the next 13 weeks

A rolling 13-week forecast is a helpful short-term planning tool for many small businesses. List expected money in and money out for each week, starting with your current cleared balance.

Include:

• Customer receipts, based on when clients usually pay
• Regular sales income
• Payroll and pension payments
• Rent, utilities and insurance
• Supplier and contractor payments
• Software subscriptions
• Loan repayments
• VAT and other HMRC liabilities
• One-off or seasonal expenses

The important point is to forecast when money will arrive, rather than simply when an invoice has been issued. If a customer normally takes 45 days to pay, reflect that pattern in your forecast.

Update the forecast regularly with actual figures. A forecast that is only prepared once and then forgotten quickly becomes less useful.

Look for warning signs

Pay particular attention to:

• A forecasted negative bank balance
• Customers regularly paying later than agreed
• Tax liabilities building up without money being set aside
• Increasing use of an overdraft or business credit card
• Suppliers asking for payment sooner
• Regular costs rising faster than turnover
• A cash surplus that disappears quickly each month

If you identify a potential shortfall, early action gives you more options. You may be able to improve invoicing processes, chase overdue accounts, delay non-essential spending, negotiate sensible supplier timings or discuss funding with a qualified adviser before the situation becomes urgent.

Questions to ask:

1. Which customers or income streams are slowest to pay?
2. What is the lowest projected cash balance over the next three months?
3. Are tax and payroll liabilities being set aside consistently?
4. Which costs are essential to keep the business operating?
5. How much notice would we need if we had to reduce spending?

2. Adjust your annual budget using real performance

An annual budget is a plan, not a promise. It should guide decisions, but it should also change when the facts change.

At the mid-year point, compare your year-to-date results with the budget you prepared at the start of the year.

Compare budget with actual figures

Review your:

• Turnover
• Gross profit or gross margin
• Payroll costs
• Supplier and direct costs
• Premises and operating expenses
• Marketing spend
• Software and technology costs
• Tax provisions
• Drawings, dividends or director payments, where relevant

Look at both the total and the detail. If income is lower than expected, find out why. Is it due to a temporary delay, a change in customer behaviour, lost work or overly optimistic assumptions?

If costs are higher, separate one-off expenditure from an ongoing increase. A single equipment purchase may not require a complete budget change, but a recurring rise in wages, rent or supplier costs probably does.

Reforecast the remaining six months

Use what you now know to create a realistic forecast for the rest of the year.

Consider:

• Confirmed work and realistic sales opportunities
• Seasonal changes in demand
• Planned recruitment or changes to working hours
• Supplier price increases
• Upcoming renewals and annual payments
• Equipment, premises or vehicle requirements
• Changes to pricing or payment terms
• Known personal or business commitments that may affect cash

It is helpful to prepare more than one version:

• Most likely: based on your current pipeline and normal payment patterns
• Cautious: allowing for slower sales or late customer payments
• Growth: reflecting additional investment or stronger-than-expected demand

This does not mean predicting every possible outcome. It means understanding how much flexibility your business has before making a commitment.

Avoid cutting costs blindly

Reducing spending can improve cash flow, but the cheapest option is not always the best option. Cutting a tool that saves staff time, protects data or helps you collect invoices could create a larger cost elsewhere.

Before reducing a budget line, ask:

1. What result was this spending intended to produce?
2. Is that result being achieved?
3. Is the cost fixed, variable or one-off?
4. Would reducing it affect customer service, compliance or productivity?
5. Is there a lower-cost alternative that provides the same value?

You may also discover that some costs are too low. Under-investing in training, maintenance, security or administrative support can create problems later. A good budget should support a sustainable business, not simply produce the lowest possible expenses.

3. Audit your technology stack

Most businesses gradually collect software. One tool is added for invoicing, another for payroll, another for project management and perhaps several more for communication, documents, marketing or customer relationship management.

Over time, this can lead to unnecessary costs, duplicated features and disconnected information.

A mid-year financial review is a good time to audit your technology stack.

List every subscription and system

Create a simple schedule showing:

• The name of each platform
• What it is used for
• The monthly or annual cost
• The renewal date
• Who has access
• Whether it connects with other systems
• When it was last actively used

Include subscriptions paid by card, direct debit or through app marketplaces. Do not forget free trials that may have converted into paid plans.

Look for duplication

You may find that two or more systems perform similar functions. For example, you might be paying separately for invoicing, expense tracking and reporting when your main accounting platform already offers some of these features.

Xero, Sage and FreeAgent each provide different features and pricing structures, so the right choice depends on your business, reporting needs and existing processes. The aim is not to choose the most popular software. It is to use a reliable system that suits the way your business operates.

Ask:

1. Does this tool solve a genuine business problem?
2. Is it being used regularly?
3. Does it save more time or money than it costs?
4. Is information being entered more than once?
5. Can it integrate with the systems we already use?
6. Is the data easy to export if we change provider?

Check security and access

An effective technology audit should include security, not just cost.

Review whether:

• Former staff or contractors still have access
• Shared passwords are being used
• Two-factor authentication is available and switched on
• Data is backed up appropriately
• Software providers are up to date with security requirements
• Sensitive financial or payroll information is being stored safely
• Permissions are limited to what each person needs

Be cautious about deleting an account before exporting records and checking retention requirements. Financial, payroll and business records may need to be retained for legal, tax or operational reasons.

Prioritise useful integrations

Good integrations can reduce manual entry and improve accuracy. Depending on your business, useful connections may include:

• Business banking and accounting software
• Invoicing and payment platforms
• Payroll and pension systems
• Expense management
• Stock or project management
• Customer relationship management
• Document storage and electronic signing

Before adding another integration, check what information it moves, how often it updates and who is responsible for resolving errors. Automation is valuable, but it still needs oversight.

Turn the review into a simple action plan

Once you have completed the three checks, avoid creating a long list of tasks that will never be revisited. Choose three to five actions and give each one an owner and deadline.

For example:

• Update the 13-week cash-flow forecast every Friday
• Chase invoices more than 14 days overdue
• Move surplus tax funds into a separate account
• Cancel two unused software subscriptions
• Compare the revised budget with actual results at the end of each month

The purpose of a mid-year financial review is not to criticise the decisions made earlier in the year. It is to use better information to make better decisions now.

Accurate bookkeeping, regular reconciliations and clear reports make that process much easier. If you would like to talk through your business’s financial processes, SBS Essex offers a free 1-hour discovery consultation for small and medium-sized businesses. You can contact SBS Essex to arrange an initial conversation, or learn more about our bookkeeping and financial support services.

This article is for general information and is not a substitute for tailored financial, tax or legal advice.