Mid Year Financial Health Check

We're now past the halfway point of the year, which makes early July one of the most useful - and most overlooked - moments to stop and check how your business is actually doing.

Most owner-managers keep a close eye on sales. Fewer keep an equally close eye on the handful of figures that actually predict whether the second half of the year will be comfortable or stressful. Here are the five we'd ask you about first.

1. Gross profit margin

Revenue tells you how much is coming in. Gross margin tells you how much of it you actually keep once the direct cost of delivering your product or service is taken out.

It's worth comparing your current margin to the same period last year, not just to your budget. Costs creep - supplier prices rise, a discount becomes the norm, a service takes longer to deliver than it used to - and margin erosion is often the first sign, well before it shows up as a cash flow problem.

2. Cash runway

Profit and cash are not the same thing, and a business can be profitable on paper while running low on cash in practice. Runway is simple: at your current rate of spend, how many months could you continue trading if income stopped tomorrow?

There's no universal "right" number, but if you don't know your runway off the top of your head, that's usually the first thing worth fixing - not because the answer will necessarily be bad, but because decisions get made very differently once you can see it.

3. Debtor days

How long does it typically take a customer to pay you, from invoice to cash in the bank?

If that number has been creeping up, it's easy to miss month to month but adds up quickly - a business turning over the same revenue with debtor days rising from 30 to 45 can find itself needing significantly more working capital just to stand still.

This is also one of the easiest numbers to improve without changing anything about the business itself: tighter payment terms, quicker invoicing, and a simple chase process usually move it faster than any amount of extra sales.

4. Fixed cost coverage

How much revenue do you need each month before you start making money? Owners often know this instinctively but haven't written it down as an actual figure. Once fixed costs - rent, salaries, software, insurance, and so on - are added up and compared to average monthly gross profit, you get a genuinely useful planning number: the point below which every month is a loss-making one.

This is particularly worth revisiting at the mid-year point if you've taken on any new overhead since January - a new hire, a bigger office, new software - since the breakeven point moves every time fixed costs do.

5. Owner drawings vs. profit

For sole traders, partnerships and owner-managed companies, it's common for what the owner draws out of the business to drift away from what the business can actually sustain, especially if trading has been good for a stretch. Checking this at mid-year - drawings taken so far against profit generated so far - is a useful reality check before habits set in that the second half of the year can't support.

Why now, specifically?

Six months in, you have a real half-year of trading data to work with, rather than a single quarter that might be seasonal noise. There's also still enough of the year left to actually change course - adjust pricing, chase overdue invoices, revisit an overhead - before December arrives and options narrow.

None of these five numbers takes long to pull together if your bookkeeping is up to date. If it isn't, that in itself is useful information: it usually means these numbers have been unclear for longer than six months, not just since January.

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