How to Carry Out a Financial Review for Your Business

A small business is only as strong as its cash flow, which is why regular financial reviews are essential. A review will allow you to see at a glance the state of your finances, what your forecast will look like for the next few weeks, months, and years, and it’ll help you plan your expenditure too.

The good news is that you don’t have to be a bookkeeper or an accountant to carry out a financial review of your business (although many will provide a report as part of their services to you, so do pick their brains on this if they do!). How to Carry Out a Financial Review for Your Business

In this blog, I’m going to guide you through the steps of carrying out a financial review for your business so you can get to grips with your income and expenditure, and strengthen your financial position.

Step one – Keep on top of your bookkeeping and accounts

To accurately review your business finances, your accounts need to be accurate!

I know, this is probably one of your biggest admin headaches and the task you put off the most as it can be time-consuming (and tedious if numbers aren’t your thing!) if that’s the case I urge you to outsource this to a bookkeeper or accountant to do this for you.

Not only do you need this information to complete your financial review, but you’ll need to submit your accounts on a monthly basis in the future with the “Making Tax Digital” changes, so it’s a good idea to get on top of things now.

Make sure your receipts and invoices have been entered, your books are reconciled against your bank account statement (i.e., the balance is the same on your books as your bank account), and that you’re aware of who is late paying you and an idea of when to expect it.

Step two – Spot the trends in your financial statement

Once your accounts are up to date, it’s time to print off some reports (and why I recommend you use bookkeeping software like QuickBooks or Xero rather than a spreadsheet). Your profit and loss report (for the past three months, six months, and a year are good to have) will tell you how much has come into your business, what has gone out of your business, and your overall profit.

Trends to look out for include:

  • Income going up and profit going up – what we want to see!
  • Income going up but profit going down – your expenses are higher than your income.
  • Income going down but profit going up – unlikely but possible, this may happen on an odd month when you have less income but lower expenses.
  • Income going down and profit going down – bad news, something needs to change fast!
  • No change your profit is the same – not bad but something should change to increase your profit.

Ideally, you want both your income and your profit to be going up so take a good look through the figures and spot why that might not be the case for the business. Does it look like a short-term trend or a potential long-term problem?

If you’ve had to buy a lot of stock or equipment in one go you know that your expenses further down the line won’t be so high and your profitability will bounce back up but if your expenses are likely to be the same for a while, you have some work to do!

Step 3 – Analyse and tweak your expenses

Expenses are the main reason for cash flow problems and/or a decline in profitability, but they’re also one of the easiest things to tweak and change.

Assess your recurring expenses – can you negotiate a better deal with the supplier? Are you still using that software? Is there a cheaper alternative?

Are your expenses worth it? Sometimes the biggest expenses bring the biggest benefits and financial yields to our business.

Outsourcing is a good example.

Sure, that £400 a month retainer is a large expense and theoretically you can do the work yourself, but then you’d lose their expertise and skills, you’d probably also have to pay for the software they’ve been using, and you’d need to cut time from elsewhere in your business to do it.

Sometimes, it’s not about looking at the most expensive item and looking to cut it down but finding all the small expenses that add up or tweaking what that expense is to make it work better for you instead.

Plan the best time for large expenses – try to spread them out as much as you can so they’re not going out at the same time. It’s tempting to spend at Black Friday and New year to save money, but you could end up with a lot of money leaving your account in one go which could put your cash flow in a perilous position.

Step 4 – Find ways to improve your income

No, I’m not talking about offering new products or services, or even new ways of offering what you do already. Your income is determined by several factors, how you get paid is one of them.

If you have a lot of late-paying customers, is there anything you can do to change that?

  • Can you offer different payment terms?
  • Can you accept payments differently, such as by card using PayPal or Stripe?
  • Can you offer a payment plan?

Thinking about these things now and whether you can offer them will help with new customers too. If you only accept bank transfer, many international clients dislike this option so offering an alternative can win you that sale.

Watch out for your expenses here too – PayPal, Stripe, card payments through QuickBooks etc, all attract additional fees you’re paying for. Are there alternatives that are cheaper for you? If you have a lot of card transactions each month, do talk to your bank and see if they can offer you a good deal on their card processing services.

Step 5 – Review your budget regularly

Once you’ve streamlined your expenses and improved your income, it’s time to review and tweak your budget, especially when it comes to marketing.

When things get hard and profit is going down (or staying the same) and you’re scared to change anything, nothing will change. That means it’s unlikely your business will suddenly improve out of nowhere; you need to be changing something to turn your financial forecast around.

Rather than tightening your belt and trying to weather the storm, see if there’s any money available to increase or change your marketing. Perhaps hire a marketing or sales consultant to find new ways of bringing in clients or charging more for what you do.

Similarly, if things are going well, tweak things to make them even better. Rather than spending £100 a month on ads can you increase it to £150 a month and bring in even more clients?

Marketing is just one area of a budget that can be tweaked according to the results of your financial review, other areas to look at include:

  • outsourcing
  • software
  • training and development
  • accountancy services

It is important to look at this often and review any changes you make but remember that some changes take time to make a difference, so that increase to your advertising budget may take a month or two to kick in.

I hope this has given you a good idea of what you need to be doing now to review your business finances and prepare for the year ahead. February is a fantastic time to be doing this as last year’s tax return has been submitted, so you have this information to hand.

Just remember, nothing is set in stone and if things don’t look great right now (as many of us have been hit hard by the effects of tiers and lockdowns), things can and will change, so see what you can change today to make tomorrow even better!