Autumn Financial Health Check for Established Businesses

An autumn financial health check should tell you six things: what you are actually earning, how quickly customers are paying, whether suppliers are becoming uncomfortable, what is happening to margins, how much tax is already spoken for, and how much of the bank balance is genuinely available to spend. Running this Autumn Financial review in September, rather than waiting for the year-end accounts, leaves enough time to fix what has been drifting since spring.

September has always felt more like the start of the business year to me than January.

People are back from holiday. Schools restart. Customers reappear. There are roughly four useful months left before Christmas starts interfering with everything. And for plenty of established businesses, there is still enough of the year left to fix something that has been drifting since spring.

It is therefore a good time to look properly at the numbers.

Not just the bank balance.

I mean the management accounts, debtors, creditors, gross margin, tax provision and the amount of cash that actually belongs to the business after everything already committed has been taken into account.

A healthy-looking bank account can hide a surprisingly unhealthy business.

Key Takeaways

• A bank balance is a snapshot of cash, not a measure of profitability or financial strength.
• Management accounts are most useful when they lead to a decision rather than merely confirming what happened last month.
• Rising debtor days can turn profitable sales into a cash-flow problem surprisingly quickly.
• Increasing pressure from suppliers often appears before a business regards itself as being in difficulty.
• Falling gross margin can do more damage than falling turnover because businesses often continue carrying the same overhead base.
• VAT, PAYE and Corporation Tax sitting in the bank are not genuinely spare cash.
• A useful Autumn financial health review separates available cash from committed cash.
• September still leaves enough time to change prices, chase debt, reduce costs, rebuild cash or alter spending before the year disappears.

Start With Management Accounts, Not the Bank App

Begin an autumn financial health check with current management accounts, not the bank balance, because the bank app only shows what cash exists, not why it exists or what it is already earmarked for.

One of the most common conversations in small businesses begins with:

“We’ve got £180,000 in the bank. We’re doing all right.”

Possibly.

But I cannot tell from that number.

The £180,000 might include £42,000 of VAT, £28,000 needed for PAYE and wages, £55,000 of supplier payments and a Corporation Tax bill that has not yet fallen due. There may also be dividends taken during a profitable earlier period while the current quarter has deteriorated.

The bank tells you what is there.

The management accounts begin to tell you why it is there, which is the first real step of any Autumn Financial review.

At a minimum, I would want reasonably current figures showing turnover, gross profit, overheads, operating profit, debtors, creditors and cash. Depending on the business, I might also want stock, work in progress, payroll costs, recurring revenue or performance by branch, service line or salesperson.

Annual accounts have their place, but a set of accounts produced months after the year end is not much use for deciding whether to put prices up next Tuesday.

The first question in an Autumn financial health check is not “How much cash have we got?” but “What have we actually earned, and what has happened since the last set of numbers?”

Look at the Trend, Not One Month

An Autumn Financial review should compare this month against a rolling average, last year’s figures and budget, because a single month can mislead almost as easily as the bank balance.

A single month’s management accounts can mislead almost as easily as the bank balance.

August might look dreadful because half the customers were away. July may look exceptional because a large job completed. One month may contain annual insurance or a large professional fee. Another may include a stock adjustment.

The more useful view is normally comparative.

Look at:

The turnover in this example looks fine. It is actually up.

But gross margin has fallen from 42% to 38%, overheads have risen, and operating profit is nearly £7,000 below the same period last year.

That is the sort of business that can feel busy while becoming less profitable and it is exactly the pattern an Autumn Financial review is designed to catch before December.

See our guide to How Often Should I Actually Look at My Numbers? for the wider point about getting useful information while there is still time to act on it.

Debtor Days: Are Customers Quietly Borrowing from You?

Check debtor days and their trend as a core part of your Autumn Financial review, because rising debtor days mean customers are quietly funding themselves with your cash.

A debtor list deserves more attention than the total at the bottom.

A business may have £200,000 owed to it and believe that means £200,000 is coming in shortly. It does not.

I would want to know:

• How old the debt is;
• Which customers owe it;
• Whether invoices are genuinely undisputed;
• Whether one customer represents too much of the total;
• Whether payment times are lengthening;
• And whether the business is actually chasing debt consistently.

Debtor days give you a useful broad indicator of how long customers are taking to pay.

If annual credit sales are £1.2 million and trade debtors are £150,000, a rough debtor-days calculation is:

£150,000 ÷ £1,200,000 × 365 = 45.6 days.

If customers are supposed to pay in 30 days, that deserves a look and a place on your Autumn Financial checklist.

Even more useful is the trend. If debtor days were 34 in March, 38 in June and 46 in September, something is changing.

It may be one problem customer. It may be weak credit control. It may be that the sales team is agreeing payment terms nobody else knows about. Or it may simply be that customer themselves are under more pressure.

Whatever the explanation, you are funding the gap.

Revenue is not cash until the customer pays you.

Creditor Pressure Tells You Something Different

An Autumn Financial review should track how supplier and HMRC payments are moving, not just whether they are being made, because lengthening payment terms are often the earliest sign of strain.

Debtors show you how quickly your customers are paying you.

Creditors show, among other things, how comfortably you are paying everyone else.

There is nothing inherently wrong with taking the credit terms suppliers offer. If a supplier gives you 60 days, paying on day 3 does not make you morally superior.

What interests me is the movement.

Are suppliers who used to be paid in 30 days now being paid in 50?

Have people started chasing?

Are direct debits being moved because the balance will not quite stretch?

Are you paying whichever supplier shouts loudest?

Has HMRC quietly become another source of working capital?

Those are different things from deliberately managing normal trade credit.

HMRC expects monthly PAYE to be paid electronically by the 22nd of the following tax month, while quarterly employers have the corresponding 22nd-after-quarter deadline. HMRC guidance on paying employers’ PAYE

For most VAT businesses, the return and payment are usually due one calendar month and seven days after the end of the VAT period. HMRC guidance on VAT return and payment deadlines

Once ordinary liabilities start being postponed simply because the cash is not there, the conversation has changed.

Stretching an agreed supplier term is working-capital management. Repeatedly delaying bills because you cannot pay them is a warning sign.

Margin Is Often Where the Problem Is Hiding

Look beneath turnover to gross margin in every Autumn Financial review, because rising sales on a falling margin can leave a business working harder to earn less.

Owners tend to notice turnover.

They say:

“We did £2 million last year and we’re heading for £2.3 million.”

Fine. What did you keep?

I have seen businesses work considerably harder to make less money because nobody was properly watching margin.

Suppose turnover rises from £2 million to £2.3 million.

At a 40% gross margin, £2 million of sales produces £800,000 gross profit.

If margin slips to 34%, £2.3 million produces £782,000.

So, the business has found another £300,000 of sales, serviced those customers, carried the working capital and probably created more administration to produce £18,000 less gross profit.

That is why an autumn financial check should look beneath total sales.

Depending on the business, ask:

• Have suppliers increased prices?
• Are you passing increases on?
• Is overtime eating into job profitability?
• Has discounting crept in?
• Are salespeople rewarded for revenue rather than margin?
• Are delivery costs or subcontractor costs being allocated properly?
• Are older customers still paying prices set two or three years ago?
• Is one apparently successful service actually subsidised by another?

You do not necessarily need a complicated costing system. You do need enough information to know whether growth is making you richer.

Our article Why Can a Profitable Business Still Run Out of Cash? sits alongside this one because margin, working capital and cash are separate issues even though they eventually collide.

More turnover is useful only when the additional business creates enough margin and cash to justify doing it.

Tax Provision: How Much of the Cash Already Belongs Elsewhere?

Treat VAT, PAYE and Corporation Tax as money already spoken for in your Autumn Financial review, because cash earmarked for tax looks identical to every other pound in the bank until it is due.

This is one of the more dangerous bits of the September review because cash earmarked for tax looks exactly like every other pound in the bank.

There is no little HMRC watermark on it.

For most companies with taxable profits of up to £1.5 million, Corporation Tax is normally due nine months and one day after the accounting period ends. Companies above the relevant limits can instead fall into the quarterly-instalment regime. GOV.UK guidance on paying Corporation Tax

The Company’s Tax Return normally comes later: HMRC states that it is generally due 12 months after the end of the accounting period, meaning the tax itself can become payable before the return-filing deadline. HMRC guidance on Company Tax Return deadlines

This is a small distinction that causes large problems.

A company can finish its year with a good bank balance, continue trading for several months, invest in equipment, pay bonuses or dividends and then discover that a meaningful slice of the original cash balance was always going to HMRC.

The same applies to VAT and payroll taxes.

I prefer those liabilities to appear in cash-flow thinking as money already spoken for.

Not necessarily sitting untouched in a separate bank account – although that works well for some businesses – but at least recognised.

If you owe £75,000 in VAT and Corporation Tax and have £120,000 in the bank, you do not have £120,000 of spare cash.

You have £120,000 of cash and commitments that need to be identified before anybody decides what is available the central discipline of any Autumn Financial review.

Tax provision turns the bank balance from a number into something much closer to economic reality.

Cash in the Bank and Cash Available Are Not the Same Thing

The most useful step in an Autumn Financial review is deducting committed liabilities from the bank balance to reveal genuinely available cash, rather than treating the whole balance as spendable.

This is probably the most useful calculation in the whole exercise.

Take the bank balance and begin deducting the things already committed.

For example:

That does not necessarily mean the company should only ever regard £46,000 as accessible. Cash is dynamic. Customers will pay, more sales will be made and further costs will arise.

But it stops a director looking at £210,000 and making a £100,000 decision as though every pound were idle.

This becomes particularly important before taking dividends.

The Insolvency Service’s current guidance reminds directors that dividends should only be paid from available profits, and that a company cannot simply distribute more than its available profits because it happens to have cash in the bank. Insolvency Service guidance on dividends for company directors

The Companies Act principle is similarly clear: distributions are made from profits available for the purpose, not simply whatever balance happens to be showing in online banking.

Cash, profit and distributable reserves are three different things.

The useful question is not “What is in the bank?” It is “What remains after we recognise what the business already owes and needs?” and that question sits at the centre of every Autumn Financial Health Check.

Build a Simple 13-Week Cash View

A 13-week rolling cash-flow forecast is the practical engine room of an Autumn Financial review, because it is long enough to expose trouble but short enough to stay realistic.

I do not think every small business needs a beautiful autumn financial model with 27 tabs.

A 13-week cash-flow forecast is often much more useful.

It is long enough to expose trouble but short enough for most of the assumptions to have some basis in reality.

Start with today’s cash.

Then show, week by week:

• Expected customer receipts
• Payroll
• Supplier payments
• VAT
• PAYE
• Corporation tax where applicable
• Rent
• Finance payments
• Insurance
• Planned capital spending
• Dividends or drawings
• And any significant one-off items

Do not make the forecast say what you want it to say.

A debtor that has been promising payment “next Friday” since June should probably not be treated as guaranteed cash next Friday.

The purpose is to identify the pinch point while there is still time to deal with it.

If cash drops to £12,000 in week nine, you can ask why in September.

That is much nicer than discovering it from the bank app in November.

Look at the Balance Sheet as Well as the Profit and Loss Account

A thorough Autumn Financial review reads the balance sheet alongside the profit and loss account, because that is usually where accumulating strain shows up first. Management-account discussions sometimes get stuck on the profit and loss account.

The balance sheet often tells a different story.

Look particularly at:

• Trade debtors;
• Trade creditors;
• VAT and PAYE liabilities;
• Corporation tax provision;
• Stock;
• Director’s loan accounts;
• Finance balances;
• Accrued expenses;
• Retained profit;
• And cash.

If stock has grown by £150,000 while sales have barely moved, why?

If debtors are up 40% on a 10% increase in sales, why?

If the director’s loan account has moved dramatically, why?

If creditors are climbing month after month, why?

These are not necessarily problems. Businesses grow, build stock, make investments and alter working-capital cycles. But unexplained balance-sheet movements are worth understanding, and they belong on every autumn financial checklist.

Companies still have statutory annual reporting obligations, of course. For an established private company, annual accounts are normally due at Companies House nine months after the autumn financial year end. GOV.UK guidance on private-company accounts and filing deadlines

My point is that waiting for those annual accounts to discover what happened nine- or twelve-months earlier misses much of the value of accounting.

The profit and loss account tells you how the period performed; the balance sheet often tells you where the strain is accumulating.

Creditor Pressure Can Become a Director Issue

Persistent creditor pressure is not something an autumn financial review should normalise, because it can signal the business is drifting towards genuine insolvency rather than an ordinary tight month.

Most businesses occasionally have an awkward cash week.

That is very different from a company reaching the point where it genuinely cannot pay debts as they become due.

The Insolvency Service describes a company as insolvent where it cannot pay its debts, either because it cannot meet bills as they fall due or because its debts exceed the value of its assets. If insolvency arises, directors’ priorities and responsibilities change, including duties concerning creditors. Insolvency Service guidance on directors’ duties upon insolvency

That is not where I would start every autumn financial health review. Most businesses with slow debtors or a stretched month are nowhere near insolvency.

But it is why persistent creditor pressure should not simply become normal.

If the same liabilities are being rolled every month, HMRC arrears are increasing or essential suppliers are being paid selectively because there is not enough for everyone, get advice early.

Options tend to reduce as cash gets worse.

How We Handle This at CCM

At CCM, an Autumn Financial review is built around identifying the two or three numbers that genuinely need a decision, rather than producing another historical report.

When we review an established owner-managed business, I am usually less interested in producing another historical report than in identifying the two or three numbers that actually need a decision.

That might be a margin that has slipped four points, debtors that have grown far faster than turnover, an underprovided tax bill, a large amount tied up in stock or simply a business that is profitable but does not understand why it never seems to accumulate cash.

CCM works mainly with owner-managed businesses where the owners are close enough to the operation to know what is happening commercially but often do not have a full-time finance department converting that activity into useful management information.

The point of the exercise is not a prettier spreadsheet.

It is to decide what, if anything, needs doing.

What Should Established Businesses Review Before Setting Next Year’s Budget?

Before setting next year’s budget, established businesses should review actual margin (not just turnover), debtor and creditor trends, tax already committed, and genuinely available cash because a budget built on a bank balance rather than an Autumn Financial review tends to repeat this year’s mistakes rather than fix them.

Budgeting season tends to arrive whether or not the underlying numbers have been properly looked at. Plenty of businesses roll last year’s budget forward, add a percentage for inflation, and call it done. An Autumn Financial review exists precisely to stop that happening, because a budget is only as good as the assumptions behind it.

Three figures are worth knowing before you sit down to budget:

• Formal budgeting is still the exception, not the rule: A widely cited Clutch survey found that 61% of small businesses have not created a formal budget, which means most owners are setting next year’s spending from memory and the bank balance rather than from an Autumn Financial review of what actually happened this year.
• Keeping to a budget has become harder, not easier: Research from Capital on Tap found that 60% of business owners say sticking to their budget has become more challenging amid recent economic pressure, which is exactly why an Autumn Financial review of margin and overheads should happen before the figures are set, not after.
• Investment decisions are being paused pending clarity: Barclays’ business prosperity index found that 55% of UK firms were holding back investment decisions until after the Budget, with small firms building precautionary cash buffers rather than committing to spending. That caution is a reasonable instinct, but it only works if you know, from your own Autumn Financial review, what cash is genuinely available to hold back in the first place.

Before finalising next year’s numbers, an Autumn Financial review should answer:

1. Is next year’s budget based on this year’s actual gross margin, or on last year’s assumptions?
2. Have debtor days and creditor days been factored into working-capital needs, not just profit?
3. Has the tax already accrued VAT, PAYE, and Corporation Tax been separated from cash available to invest?
4. Are overheads that crept in this year being carried into next year’s budget by default?
5. Does the 13-week cash view support the spending, hiring or investment the budget assumes?

A budget produced without an Autumn Financial review underneath it is really just a hopeful extrapolation of the bank balance. A budget produced with one is a plan the business can actually stand behind.

The September Financial-Health Check I Would Do

A proper Autumn Financial Health Check ends with twelve specific questions and, ideally, one action taken immediately rather than deferred to December.

If I were sitting down with the numbers this month, I would want answers to these questions:

1. What is turnover doing over the last three, six and twelve months?
2. What is gross margin doing?
3. Which overheads have moved materially?
4. What is the underlying monthly operating profit?
5. How old are the debtors?
6. Are debtor days rising?
7. Are creditors being paid within agreed terms?
8. What VAT, PAYE and Corporation Tax is already accrued?
9. How much cash is genuinely uncommitted?
10. What does the next 13 weeks look like?
11. What are the three largest financial risks before Christmas?
12. Is there one action we should take now rather than discussing again in December?

The last question matters.

There is no point spending two hours discovering that prices are too low and then agreeing to “keep an eye on it”.

Put the prices up. Renegotiate the contract. Chase the debtor. Stop the unprofitable service. Reduce the stock order. Ring the bank before you need it.

Numbers become useful when something happens as a result of looking at them.

September Is Early Enough to Do Something

An autumn financial health check is not an exercise in proving that everything is fine.

You are looking for the bit that is not.

For one company that will be margin. For another it will be debt collection. For another, perfectly respectable profits are being swallowed by stock and tax. Some will discover that the £250,000 apparently sitting in the bank is mostly spoken for.

That is useful information.

September gives you something December does not: time.

Financial Health Reviews From CCM

If your business is established, profitable and busy but you are not entirely sure what the numbers are telling you, Carter Collins & Myer can review the management information with you and identify where profit, cash or working capital is being lost.

That may mean reviewing existing management accounts rather than producing anything new. If you want CCM to undertake additional work – such as producing management accounts, forecasts, cash-flow models or detailed calculations – we would agree the scope and cost with you before doing it.

Carter Collins & Myer | Accountants & Tax Advisers

Chichester House, 2 Chichester Street, Rochdale OL16 2AX

01706 225 617 · CCM website

About Rob Newman

Rob Newman is a partner at Carter Collins & Myer and has spent over 29 years in accountancy practice working with owner-managed businesses and individuals. His work focuses on practical accounting, tax and commercial issues where technically correct numbers still have to make sense in the real world. CCM is an independent accountancy and tax advisory firm based in Rochdale, working with businesses across Greater Manchester, Lancashire and Cheshire.

Sources and Further Reading

• GOV.UK – Pay your Corporation Tax bill
• GOV.UK – Company Tax Returns
• GOV.UK – Pay employers’ PAYE
• GOV.UK – Accounts and tax returns for private limited companies
• Insolvency Service – Director information hub: dividends
• Insolvency Service – Director duties upon insolvency
• GOV.UK – Corporation Tax instalment payments for large companies

Disclaimer

This article provides general information only. Tax, accounting, dividend and cash-flow treatment depends on the circumstances of the individual company, and businesses facing significant creditor pressure or possible insolvency should obtain advice appropriate to their position.

Frequently Asked Questions