The mid-year financial review: a practical guide for Canadian business owners
Most business owners only look at their finances once a year at tax time. By the time your accountant is filing your tax return, the year is done, and there is nothing left to be done. A mid-year review changes that. It gives you enough runway to actually act on what you find.
Whether your business is doing better than you thought, or you’re having a challenging year so far, taking the time to review your financial health now can help to set yourself up for a better second half of the year.
Why a mid-year financial review matters
Many business owners only take a detailed look at their financial statements when tax season approaches. By that point, there is often little time to address issues, improve profitability, or take advantage of planning opportunities.
A mid-year financial review can help you:
Identify cash flow issues before they become a serious problem
Uncover operational issues impacting your finances
Prepare for upcoming tax obligations
Set a clearer path for future growth
Review your revenue and profitability
The first step in a mid-year review is understanding how your business is performing compared to your expectations.
Start by reviewing:
Total revenue earned year to date
Gross and net profit margins
Monthly sales trends (by customer, if relevant)
Ask yourself:
Are revenues increasing, decreasing, or remaining stable?
Which products and services have the highest gross profit margin?
Have customers’ purchasing patterns changed? For example, are they buying more of a different product/service package compared to previous years?
Are certain areas of products and services underperforming based on your expectations?
Many business owners focus primarily on sales growth, but profitability often tells a more complete story. Increased sales do not always translate into increased profits, especially if expenses to deliver that revenue are higher than other revenue sources. For example, maybe you are offering a new service, and clients are buying it more than you thought. However, you and your team aren’t yet experts in offering that service, so you are taking way more time to deliver it than your other service offerings. This will mean that, although you are bringing in more sales, it may not result in profit or cash flow like you would expect from services you’ve been delivering efficiently for a long time.
Understanding where profits are being generated can help you focus resources on the most valuable areas of your business.
Analyze your cash flow
Profitability and cash flow are not the same thing.
A business can be profitable on paper while still experiencing cash flow challenges. That’s why reviewing why your cash flow differs from your reported profitability is one of the most important parts of a mid-year financial review.
Start by reviewing:
Current cash balances and cash flow statements
Accounts receivable balances & aging categories
Upcoming large expenses and debt repayment obligations
Income & sales tax instalment schedules
Ask yourself:
Do you consistently have enough cash available to cover at least a month of regular expenses?
Are your customers paying you as fast as you are paying your vendors?
Have operating expenses increased faster than your revenue?
Cash flow challenges are one of the most common reasons businesses encounter financial stress. Identifying potential issues early gives you time to plan and make changes before your business is in real trouble.
Review accounts receivable and accounts payable
Outstanding invoices can have a significant impact on cash flow.
Take time to review your accounts receivable aging report and identify customers with overdue balances. The longer invoices remain unpaid, the greater the risk that collection becomes more difficult.
Start by reviewing:
Overdue accounts by how long they’ve been outstanding
Standard payment terms on your invoices
Payment methods you offer your clients/customers and the cost of each
How often you invoice vs how long a project/product takes to deliver
Follow the same review steps on the accounts payable side – for example, look at how quickly you pay supplier invoices, how these invoices get paid, etc.
Ask yourself:
Are supplier invoices being paid faster than your customers are paying you?
Are there opportunities to negotiate payment terms with key suppliers?
Are there any recurring expenses no longer providing value?
Are you invoicing customers regularly over the course of a project, or just at completion?
Compare actual results against your budget
Budgets are valuable planning tools, but they are only useful if they are reviewed regularly and compared to what is actually happening.
Compare your year-to-date results against the budget or forecast you established at the beginning of the year. If you use QuickBooks Online or Xero as your accounting platform, you can upload your budget into the platform and run these budget vs actual reports automatically when you want to review them.
Ask yourself:
Where are the biggest variances between budget and actual results?
Are sales on track to meet expectations for the year? Why or why not?
If revenue is substantially lower than expectation, are our costs also lower?
Does the budget still reflect the plan & strategic priorities of the business?
If actual results differ substantially from expectations, determine why and what corrective action can be taken.
Some variances may reflect future growth opportunities, while others may indicate areas that require immediate attention. And keep in mind – just because the cost is below budget, doesn’t always mean that it is a good thing. For example, if you are way under budget on marketing expenses, but your revenue is lower than you expected, you probably need to start spending what you planned for marketing.
A budget should be viewed as a living document that evolves alongside your business. Don’t be afraid to update it to reflect mid-year changes to the business or to make targets more realistic.
Review tax obligations before year-end
A mid-year review also helps you to find potential tax planning opportunities before tax season.
Ask yourself:
Have I been making the required income & sales tax instalments?
Have there been any major transactions (new shareholders, new business ventures, large asset purchases) that could impact my tax situation?
If my business is much more profitable than last year, have I let my accountant know so they can provide me with an updated instalment schedule?
Waiting until year-end to discuss tax planning with your accountant may limit the options available to you, as proactive planning provides more opportunities than retroactive planning.
By reviewing your financial position mid-year, you can work with your professional advisors to identify opportunities that may help improve tax efficiency and avoid surprises later in the year.
Consider operational improvements
A mid-year financial review often reveals issues with the way your business operates, or opportunities to improve operational efficiency. Financial performance isn’t driven solely by revenue and expenses. The systems, processes, and technology your business relies on can have a significant impact on profitability.
Ask yourself:
If our gross margin has been declining on certain products/services, are there any overly manual tasks involved that could be automated or simplified?
Are we fully utilizing the tools & software that we are already paying for?
Where are the delays or bottlenecks in your team or systems? Small operational improvements can have a surprisingly meaningful impact on profitability over time, so don’t dismiss an opportunity to improve or get more efficient because it “won’t have a huge impact”. Small incremental changes are often more sustainable than huge, sweeping changes.
When to seek professional advice
Having good financial data is important but knowing what to do with it is an entirely different skill. If you’re finding it hard to interpret what your numbers are actually telling you, or you’re not sure where to focus first, that’s exactly what a good accountant should be helping you with. One of the biggest advantages of working with someone outside your business is that they aren’t carrying the baggage of how things have always been done, they just see the problem clearly.
Key takeaways
A mid-year financial review is one of the most effective ways to strengthen your business’s financial health and prepare for the months ahead.
By reviewing profitability, cash flow, budgeted expectations vs actual results, upcoming tax obligations, and how operational efficiencies impact your finances, you can gain valuable insight into your company’s performance and adjust before year-end.
Just as regular preventative maintenance helps keep a vehicle running reliably for years, consistent financial reviews help keep a business healthy and resilient. The most successful businesses aren’t the ones that avoid challenges altogether, they’re the ones that identify issues early, adapt quickly, and make informed decisions before small problems become expensive ones.