It’s a sweltering summer afternoon. You're swamped with customer demands and tight project deadlines. With a hectic tax season still on your mind, finances are the last thing you might want to consider. Yes, taking the time now for a mid-year financial review could be the difference between ending the year with a healthy profit or scrambling to make ends meet.

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In this article, we’ll walk you through how to conduct a comprehensive mid-year review using financial reports to help you achieve your annual business goals.

The Benefits of Mid-year Financial Review

The benefits your home service business gains from a thorough mid-year financial assessment include:

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• Goal Setting: Financial assessments help you set realistic financial goals for the remainder of the year and develop concrete plans. By understanding your current financial position, you can make informed decisions that align with your long-term business objectives and drive sustainable growth.

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• Budget Adjustments: Evaluating your current spending allows you to make necessary adjustments to stay within budget for the rest of the year. By identifying areas where you might be overspending, you can reallocate resources to more critical parts of your business, ensuring financial stability and efficiency. This empowerment in budget adjustments can boost your confidence in your financial decisions.

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• Revenue Optimization: Assessing your income streams and identifying growth opportunities can help you focus on your most profitable services or products. This enables you to expand your offerings strategically, target new markets, and maximize your revenue potential.

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• Tax Planning: Estimating your tax liability and planning for upcoming tax payments can reduce the risk of penalties and fines. By staying on top of your tax obligations, you can avoid last-minute scrambles and ensure you take advantage of all available tax write-offs and deductions. Effective tax planning can provide a sense of security and stability, relieving you from the anxiety of potential penalties.

Five Financial Reports to Include in Your Mid-Year Review

Financial reports are crucial because they offer a detailed view of your income, expenses, profits, and losses. While there are many financial reports available, the most important ones for evaluating your home service business are:

1. Income Statement: A Profit and Loss Statement provides an overview of revenues and expenses over a specific period. Its key components include:

• Revenue/Sales: The total income generated from selling goods or services.
• Gross Profit: Revenue minus the cost of goods sold (COGS), showing the profit made before deducting operating expenses.
• Operating Expenses: Costs of running the business, such as salaries and utilities.
• Operating Income: The profit generated from the company’s core operations, calculated by subtracting operating expenses from gross profit.
• Net Income: The overall profitability after deducting all expenses, including taxes and interest, from total revenue.

2. Cash Flow Statement: This shows how changes in the balance sheet and income affect cash, which is vital for managing liquidity (the ability to cover short-term financial obligations like wages and loans) and cash position (the amount of cash on hand). Key components include:

• Operating Activities: Cash generated or used in day-to-day business operations.
• Investing Activities: Cash used for or generated from asset investments like equipment or property.
• Financing Activities: Cash received from or paid to investors and creditors.

3. Balance Sheet: Provides a snapshot of a business's financial position at a specific point in time. Its key components include:

• Assets: Resources owned by the business, such as cash, inventory, and property.
• Liabilities: Debts and obligations the business owes, such as loans and accounts payable.
• Equity: The owner's interest in the business, calculated as assets minus liabilities.

4. Expense Report: An essential expense management component that details and categorizes all business spending. Key components include:

• Materials: Costs for raw materials and supplies.
• Labor: Wages and benefits for employees.
• Overheads: General operating expenses such as rent, utilities, and administrative costs.

5. Job Costing Report: helps you understand the profitability of individual jobs or projects, enabling you to set optimal pricing and manage projects efficiently. Key components include:

• Materials Costs: Expenses for raw materials and supplies used in the job.
• Labor Costs: Wages and benefits for employees working on the job.
• Revenues: Income generated from each job.

Steps In Assessing Mid-Year Financial Health

Now that you’ve gathered all the necessary financial reports and statements you will need, follow these steps to understand your financial position, make necessary adjustments, and strategically plan for the future:

1. Review Expenses and Budgets: Check where your money is going and see if it matches your budget. For example, if you've spent more on materials, figure out why (e.g., increased usage or price hikes). Compare actual expenses with your budget to spot overspending. Adjust your budget as needed, finding ways to cut costs and allocate funds effectively.

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2. Assess Income and Revenue Streams: Analyze your income sources, such as service fees, product sales, and maintenance contracts. Identify your most profitable services or products. For example, if maintenance services are more lucrative, focus marketing efforts to boost revenue.

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3. Cross-check Financial Records and Documentation: Reconcile bank statements with your financial records to spot discrepancies. Ensure clients pay on time and you are up-to-date with your payments to suppliers. Keep your income, balance, and cash flow statements updated for accurate financial visibility.

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4. Update Insurance Coverage and Policies: Mid-year is a good time to review and update your insurance. Check policies like liability, property, and workers' compensation. For example, if you've expanded your fleet, ensure they are covered. Identify any coverage gaps and discuss adjustments with your insurance agent.

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5. Tax Planning and Compliance: Estimate your tax liability based on mid-year performance to avoid surprises. If your business has grown, you may owe more taxes. Use all available deductions and credits, such as clean vehicle credits, to reduce your tax burden.

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6. Recalibrate Financial Goals and Strategies for the Rest of the Year: Review your progress on key metrics like revenue growth, profit margins, and customer acquisition. Assess the relevance of your action plan, such as new marketing campaigns or service area expansions. Continuously monitor your advancement and adapt strategies as necessary, including assessing mid- and long-term investments.

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Let Decimal Automate Your Financial Reports

Accurate and real-time financial data is essential for reviewing expenses, assessing income, and setting financial goals. Decimal can establish a financial reporting system that seamlessly integrates profit and loss statements, expense management and cash flow reports, and job costing into one dashboard. In addition, our bookkeeping services ensure your financial data is correctly labeled, updated in real time, and accurately captured by your reporting tool so you can automate your mid-year assessments.

Ready to take control of your financial health? Schedule a consultation with a bookkeeping expert to get started.