The Halfway Point

Just like baseball, business is at the All Star Break in July

For most of you, July represents the half way point for 2016 results. This is an excellent time for business owners to review their performance to budget for the first six months of the year (you do have a budget, right?), as well as determining what adjustments may be needed. The job of management is not to predict the future, it’s to pave the way for the future.

With that in mind, here are nine (9) areas you want to address now to help pave the way for the second half of the year:

  • How “close” was my top and bottom lines to the budget?
    Analyze the results: what were my new customers, lost customers, more volume, higher prices, and new products.
  • Why did we miss our revenue or expense projections?
  • Can our break-even point be sustained?
  • Was my gross profit percentage in line with the budget?
    If not why not? Some examples may be revenue shortfalls/overages and/or price revisions.
  • Are my operating expenses in line with the budget?
    If not did changes in volume cause logical changes in operating expenses?
    For example, if revenue was significantly higher than planned that may have caused additional demands on your business and caused higher than budgeted spending.
  • How are your analytic metrics compared to the budget?
    Look at the cash collection cycle, utilization, inventory turns, operational headcount to direct labor headcount, etc.
    How are our conversion ratios, output to input ratios, and staff turnover?
    Basically the assumptions used to build the budget should be monitored monthly as variances will be key leading indicators to above or below budget performance.

Don’t forget the Balance Sheet

  • How is our leverage ratio, total assets, total liabilities, etc. compared to budget?
  • Is my cash where I thought it would be, especially in light of budget adjusted for actual items?
  • Did I acquire more or less new equipment than originally planned?

The main objective of this “deep dive” is to have a solid understanding of the variances between actual results and the budget. Where there are shortfalls, was that due to unrealistic expectations, timing, or changed conditions (for better or worse). Where your business did better, ask the same questions.

Armed with the analysis, we then look to determine if we need to alter the plan for the next 6 months, and also see what new information is available that should be incorporated in a budget update. For example, the upcoming revision to minimum wage and sick days in the City of San Diego will likely have an impact, as will the Federal change to the exempt minimum wage effective in November.

Lets’ assume that you have done all of the above, and have uploaded the budget to your accounting software. Now you can get the actual vs. budget each month, which is a start. Adding the first half of 2017 to your budget so that you keep at least a prospective year in front of you—that’s world class financial management. We have seen many companies that don’t add to the budget, so that by the time they are in the fourth quarter, they literally have a one or a two month budget left.

We generally recommend a monthly review, and at least a semi-annually update with extension. A quarterly review is preferred in larger, multi-location or product line companies. Many of our clients can’t change the budget once approved, either because it’s part of a loan agreement, bonus program, or for a non-profit who would need board approval, etc. That’s not a problem, in these cases we use a second budget (generally called the internal forecast) and make comparisons to both.

In summary, this is a great time to review your results, assess, make adjustments to your business and/or your budget to take stock of where you are, where you want to go, and the financial path forward to make it happen.

If you have any questions feel free to contact us at 858-622-1681 or


Scott Palka
CFA CPA CMA MBA, Pro Back Office Partner/Consulting CFO
Scott holds a Master of Business Administration from the University of Denver’s Daniels School of Business, a Bachelors’ of Science, with honors, from the University of Illinois, and an Associate of Science in Chemical Technology from the College of Lake County. Scott is a Chartered Financial Analyst, a Certified Management Accountant, and a Certified Public Accountant. During his career, Scott has led financings from $1 million to $370 million, provided merger & divestiture analysis, deal structure and execution, led several major financial and operational system implementations, and put six sigma process improvements into action. Scott has 4 kids and loves spending time with his family. He is an enthusiastic cyclist who rides for both fun and charity.