Consulting Services • Published 5/26/2022 How a Mid-Year Business Review Can Impact Year-End

Organizations have a greater likelihood of surprises when they delay working on year-end tasks and processes.

A mid-year business review can help you identify potential problems and address them before they become unpleasant surprises. Steps to include in your mid-year business review fall into three broad categories: tax, audit preparation, and internal processes. When you effectively evaluate all these categories and take action, it can add up to a faster and more streamlined year-end close for you.

Tax

Taxes for the previous year have likely been filed by mid-year. As a result of feedback from your tax preparer, have you made necessary adjustments, such as depreciation, write-offs, and deferred tax liabilities? Go back and address these matters now instead of at the end of the year.

Next, reach out to your tax preparer to discuss new tax standards on the horizon that may have an impact on your business. Remember that changes might be finalized in January but applied retroactively. Your tax preparer must monitor developments and should be willing to discuss the upcoming tax landscape with you.

Audit preparation

If your organization is subject to an audit, mid-year is a great time to reach out to your auditor. Discuss what will be needed to perform the audit. Then, provide schedules and appropriate workpapers to date. These documents can help your auditor gain a sense of materiality. It may even be possible that some testing can begin on first-quarter information, thus providing insight into issues or deficiencies well before year-end.

Mid-year is also a good time to discuss whether any new standards may apply to your organization, such as those for capital leases. Coordinating early with your auditors will give you time to explore the impact on your company and review your implementation of the new standard. Inform your auditors if your organization has changed how it accounts for certain transactions (e.g., changes in fixed asset capitalization standards) so the auditor can prepare or provide appropriate input.

Internal processes

Lock the books

Closing your books and locking your books are not the same thing. Closing the books means finalizing all entries for a specific period (month or year-end). Locking the books prevents anyone from posting in a prior period and making an accidental change to the financial statements or any ledgers. Locking your books helps prevent human error. A reasonable timeframe for locking the books is no later than 90 days after month-end. Lock your books for the previous year and quarter if you have not done so already at mid-year.

Develop and publish a calendar

To avoid potential pitfalls, develop a calendar or timeline by thinking about what needs to be done and when. Then, consider who should take on each task. Share the calendar with everyone and ask for suggestions to refine the plan. After implementing revisions, distribute the final calendar of tasks and schedule regular check-in meetings to keep the lines of communication open.

Address the fixed assets schedule

Another mid-year opportunity is to check the fixed assets schedule for items that should be written off or disposed of, so you do not have to handle all of that at year-end. When you no longer use an asset, remove it from the books. An updated fixed asset schedule can alleviate or reduce the personal property tax burden. Leaving items on the schedule also hinders a thorough review because the schedule is so long. Taking care of this earlier in the year--instead of during the year-end close--can help you save time and stress.

Work on reconciliations

Some reconciliations do not make sense to address every quarter, but they do not have to wait until the end of the year. Examine what you can reconcile earlier in the year as part of your mid-year review. For example, if you have significant inventory that is not reconciled monthly, then consider counting your inventory at mid-year. This practice will also address stale and obsolete inventory issues before year-end.

Collect vendor documents

You could significantly reduce time spent collecting and confirming vendor information at year-end by moving this task to mid-year. If you collect the W-9s, Certificates of Insurance (COI), and other necessary documentation early, your team will have plenty of time to address any missing documentation over the next few months.

Review budget-to-actual

Mid-year is a perfect time to review budget-to-actual. After reviewing, determine whether you need to make any adjustments to either the budget or operational processes. Consider adjusting the budget if you locate issues that were impossible to plan for but are hitting the bottom line and cannot be corrected by the end of the year (e.g., the loss of a major client or changes to the economy). Prioritizing a review of budget-to-actual at mid-year can help uncover potential audit issues (e.g., debt coverage) and opportunities (e.g., expense reductions or revenue increases).

Operational process considerations that a mid-year review of budget-to-actual might uncover include discounts, expenses, and revenue. For example, is your organization taking advantage of available early pay discounts? On the other side, do you need to increase early pay discounts to vendors to improve cash flow timing? A revenue growth opportunity may also present itself during a detailed review. That's not something you want to miss if you can leverage it earlier in the year.

Support for your mid-year business review

Although every organization is different and has different needs, this article covers actions relevant to most businesses. P&N professionals have broad experience and a multi-disciplinary approach. We can help your organization develop efficient processes, increase capacity with outsourced accounting services, and support your team with the mid-year business review, year-end close, and everything in-between. Contact us to discuss how we can assist with a customized approach to your team's challenges.