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Why September Is the Perfect Time for a Business Financial Review

Why September Is the Perfect Time for a Business Financial Review

When summer is just ending, you’ve had enough time to get over tax season, and year-end is a comfortable distance away. 

That allows you to set it aside for a while. 

This is one of the best times of the year for Canadian businesses to go for a year-to-date financial review. There’s still time left to solve a cash flow issue, make adjustments in spending, balance your books, or adjust for a higher tax bill before December is here. 

This is a review that will make cleaning up much easier if you get it done early. 

These are some of the numbers and deadlines to check out.

Is Your Business Tracking Against the Budget?

Earnings can be strong without revenue. Actually, the better question would be if it’s on par with expectations at the beginning of the year. 

Your income statement may be used to illustrate that you are ahead, behind, or that your assumptions are correct. Also, if you compare how things are going with your budget, you can make changes to the rest of the year’s budget without blindly following a forecast that is out of date.  

For your September financial checkup, review: 

  • Revenue: Track year-to-date sales against your original sales plan.
  • Gross margin: Review if your cost to provide products or services has increased or decreased.
  • Profitability: See the actual profit, not the money that is coming into the bank.
  • Major variances: Check any items that fall outside of budget.
  • Forecast: Revise your entire year's forecast based on what you have learned so far.
However, a poor first half does not necessarily equal a bad year. That does tell you if your second half strategy will have to shift.

Does Your Cash Flow Forecast Match Reality?

Profit and cash are two different things.  

Strong sales and yet feel stifled when consumers pay late, inventory levels start to rise, or a huge bill comes in at an inconvenient time. A cash flow forecast can give you an idea of what those pressure points will look like before they become emergencies. It is recommended to use projections and compare actual results with them regularly and periodically. Also, a 13-week rolling forecast can give even better short-term visibility.  

Take a closer look at: 

  • Receivables: Identify overdue invoices and the names of those who tend to pay late.
  • Upcoming bills: Plan for big supplier payments, loan payments, and planned purchases.
  • Payroll: Ensure that you have the money to pay employees even during quieter weeks.
  • Tax cash: Save for GST/HST, payroll remittances and income tax.
  • Cash buffer: See if you have enough cash to cover an unexpected cost or expense.
Your bank balance tells you where you are today. A cash flow forecast provides you with a clue as to where you’ll be in the future.

Where Has Spending Started to Creep?

Not all costs skyrocket all of a sudden. They simply become normal. 

A subscription here. A higher software cost there. Extra advertising spends. More frequent deliveries. By September, you could have a whole new cost structure than you originally planned for in January. 

You should use your September financial review to detect those changes before they become permanent.  

  • Subscriptions: Discontinue software and services not being used by your business.
  • Operating costs: Review the main expense categories in comparison to your budget.
  • Vendor pricing: Check if vendors have raised their prices.
  • Payroll expenses: Check overtime, new employees and contractor expenditures, etc. against the plan.
  • Large purchases: If cash flow is less than anticipated, rethink non-essential purchases.
It is not your objective to slash everything.
It’s important to understand what you’re spending the money on and whether the individual large purchases are worth your money.

Are Your GST/HST and Payroll Accounts Clean?

Unresolved compliance problems don’t resolve themselves. You may want to review your GST/HST filings, payroll remittances and bookkeeping records to make certain they’re all in sync at the time of your financial review. Only set a CRA deadline based on your reporting and remitter status, and don’t use a generic calendar reminder.  

Check these items: 

  • GST/HST: Ensure that returns have been completed and payments are on time.
  • Payroll: Ensure that source deductions were paid as per the assigned remitter schedule.
  • Reconciliations: Ensure reconciliations of bank, credit card and other important accounts are done.
  • CRA balances: Check CRA accounts for any unexplainable balances, credits or outstanding balances.
  • Records: Ensure that receipts, invoices, and supporting records are kept properly. CRA particularly recommends that small companies should be aware of the records they need to maintain and the time period they should be retained.
Do not wait for CRA notice to discover that something was missed.

What Needs to Change Before Year-End?

This is where a September financial review becomes more than a bookkeeping exercise. 

After you have reviewed revenue, cash flow, expenses and compliance, ask a simple question: What should we do differently for the rest of the year? 

Your response could impact employment, pricing, inventory, financing, and year-end tax planning. 

For your September financial checkup, consider: 

  • Business goals: Do you feel you are still meeting the objectives you had for the business in January?
  • Pricing: Is it time to review your prices due to increases in cost?
  • Hiring: Does your current cash flow allow for more staff?
  • Tax planning: Would a chat with your tax advisor at that time be helpful to you in preparing for the end of the year?
  • Financing: If you're in need of financing, are you adequately financially visible to approach a lender with confidence?

The general rule is that financial models and forecasts are best when they are updated as the circumstances evolve.  

This is the true benefit of conducting this review. It’s not too late, but it is late! 

Don't Wait for Year-End to Find the Problems

A September financial review doesn’t have to be a three-week accounting assignment. Use the most recent financial statements. Compare actual results to budget. Plan ahead for cash needs. Review CRA accounts. Then determine what needs to be done before the end of the year gets really busy. 

If your books are not up-to-date enough to answer those questions, then that’s a problem that needs to be addressed now. 

Online Accountant assists Canadian businesses to keep their finances in check with cloud bookkeeping, payroll, sales tax filing and financial reporting. For businesses that need more than bookkeeping, its CFO and controller services can also provide forecasting, management reporting, and financial guidance. 

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