Mid Year Financial Checklist for Entrepreneurs

July 21, 2023

As a small business owner, it's easy to get caught up in the day-to-day operations of your business and overlook your personal finances. However, the mid-way point of the year presents an excellent opportunity to conduct a financial checkup for your business and personal financial strategy. 

To assist you with your mid-year financial checkup, I have created a simple list of things to consider. At the end of this blog post, you can download a PDF checklist to serve as a foundation for customizing your checklist according to your unique business and personal goals.

What should you consider checking up on around the midpoint of the year?

Review business financials

If you haven't already done so, I recommend creating a cash flow forecast. If you created one already, it's time to compare your actual cash flow for the year with your initial projections.

Analyzing your cash flow will provide valuable insights into the money coming into and leaving your business. This understanding will enable you to make informed decisions for the future.

During the cash flow review, look for opportunities to improve your cash flow if necessary. If you find that cash flow is tight, identify areas where you can increase it. This might involve optimizing your sales strategies, negotiating better supplier payment terms, or reevaluating your expenses.

On the other hand, if you discover a cash flow surplus, consider how best to utilize the excess funds productively. You can reinvest the profits back into your business to fuel growth or allocate them to strengthen your personal financial plan. Or maybe it's best to accelerate debt payments. 

In addition to your cash flow, you’ll want to examine your profit and loss (P&L) for the year. Assess whether your business is on track, trending higher, or facing lower profits. If your profits are lower than expected, it's essential to investigate what's causing it. 

If your business is performing exceptionally well, consider reinvesting the profits to enhance your business further or distribute profits for your financial goals. 

Review business distributions

If your business operates as an LLC taxed as an S corp, you pay yourself a salary and receive business profit distributions. These distributions, essentially dividends, offer an excellent opportunity to enhance your personal financial plan. Start by reviewing the distributions you've taken and ensure you've utilized them proactively within your financial plan. 

For future distributions (if anticipated), consider establishing a regular distribution schedule, such as quarterly. This approach will bring more organization to your personal cash flow and make it easier to automate your plan.

A common pitfall I observe is business owners taking sporadic and small distributions to cover specific expenses. This can be challenging to track and, more importantly, may make you feel less profitable from a behavioral standpoint.

However, it's essential to remember that profit distributions can be a well-deserved reward for running a successful business. So, grant yourself permission to treat yourself, especially if you're already meeting your investing and financial goals.

If you’re a sole proprietor or self-employed,  you pay yourself with an owner's draw, which can be used similarly. You might take regular owner draws to replicate a "salary" and cover your standard living expenses. The additional profit can then be directed towards external investments, reinvestment in the business, or personal goals.

Review total cash position

As a small business owner or entrepreneur, your number 1 goal is never running out of cash. An adequate cash reserve on the personal and business side is good planning.

On the personal side, aim for a cash reserve that helps you sleep at night. Generally, 6-12 months is a reasonable target. The key here is not to overthink it but to have an amount that provides peace of mind and remains readily accessible.

On the business side, having a minimum of 2 months of operating expenses as a cash reserve is a good starting point. Depending on your business's revenue patterns, you might need 6 months or more in a cash reserve. 

If you find yourself with a surplus of cash, consider deploying it in productive ways. You can reinvest in your business to fuel growth, invest in personal wealth-building, or take the opportunity to enjoy the profits you've earned.

If you had to dip into your cash reserves this year, prioritize replenishing them through your cash flow. Rebuilding your reserves should be a high-priority objective.

A word of caution concerning cash reserves: Avoid yield chasing or investing in short-term cash reserves. The primary goal here is stability, not maximizing returns.

While reviewing your cash position, remember the importance of having a line of credit as backup access to capital. This safety net can prove valuable during unexpected challenges or opportunities.

Review tax estimates and payments

Double-check your tax situation and ensure you're on track with your tax obligations. If you make estimated tax payments each quarter, confirm that you have already made your payments for the first and second quarters of 2023.

If your income is projected to be higher this year than the previous year, you must account for the additional taxes you'll need to pay. Preparing for the higher tax liability will help you avoid surprises when you file your return. 

On the other hand, if your income is expected to be lower this year, consider working with your financial planner and tax professional. They can guide you in adjusting your tax payments to avoid overpaying throughout the year. This way, you can free up cash flow that would otherwise be tied up in excess tax payments.

Get ahead on tax planning

Tax planning is a year-round sport. Trying to strategize last minute during tax season won't yield the best results. To maximize your money through tax planning, it's essential to address it throughout the year, making mid-year an ideal time to gameplan.

Start by reviewing your profit and loss statements on a monthly basis. Analyze your year-to-date profit and loss figures to identify opportunities for tax-saving strategies this year. Collaborate with your financial planner and tax professional to develop to see what actions make the most sense.

If you anticipate a significant increase in income, it might make sense to map out a plan to accelerate expenses or consider making strategic business investments. This could maximize your business and reduce your tax liability at the same time.

This can also be a good time to increase or initiate a retirement plan for your business. Retirement plans can offer tax benefits while helping grow investment outside your business. 

Work with your financial advisor and tax professional to leverage the tax strategies that best align with your goals. 

Remember, your goals come before tax savings. Making tax the primary decision-maker could lead to poor financial choices that may not align with your objectives.

Review investments

Mid-year is a great time to review your portfolio allocation and investment objectives. Instead of focusing on performance, ensure your allocation aligns with your investment goals.

If your portfolio allocation is out of balance or has changed drastically from your target core portfolio, consider a small rebalance to realign it with your objectives. However, if nothing has changed, resist the urge to make unnecessary adjustments. Remember, the less you tinker with your investments, the better.

Take a close look at any new investments you've made this year. Are there any that deviate from your core investment philosophy or fail to align with your goals? As an entrepreneur, you may encounter numerous investment opportunities, so having clear guidelines for your investment strategy is essential.

Overall, make sure you're distributing enough from your business (if that's part of your plan) to establish a secure baseline for your personal financial goals. Achieving some level of financial independence from your business is good planning.

Connect with your professional team

Connect with your professional team, including your financial planner and tax professional. Hopefully, they proactively contacted you, but if not, schedule a meeting to discuss your mid-year progress and confirm whether any adjustments are necessary. 

Keeping your professionals informed throughout the year empowers them to offer valuable guidance when it matters most. Don't wait until December or when you are preparing to file taxes. Not much can be done at that time. 

Keep moving forward

Don't spend all your time in review. Review and then look ahead. Looking ahead and thinking bigger will help you keep moving in the right direction. Step back from your business and personal obligations to map out your aspirations for the rest of the year and beyond. Here are a few questions to answer…

  • What is the biggest thing you want to accomplish personally between now and the end of this year?
  • What's the biggest thing you want to accomplish for your business between now and the end of the year?
  • What purpose does your business(s) play in your overall financial plan?

Creating check-ins throughout the year is a powerful tool for small business owners and entrepreneurs. Since you made it this far, here is your free one-page PDF checklist of the topics I discussed. Use this to create your own checklist with items more specific to your business and personal finances. Many of these things will apply to every business owner.

In the end, money is just a tool, so let your goals drive the planning and give yourself permission to make small course corrections along the way!

Are you making these common money mistakes?
This free guide breaks down 6 mistakes I see entrepreneurs make with their finances! Learn what mistakes to watch out for & how to avoid them: