20 DAYS TOO LATE

Chapter 11

The Mid-Year Review

There was always a particular kind of silence that sat across the desk from me in January. It was not the silence of a person who had nothing to say, because business owners rarely suffer from that particular affliction. It was the silence of a person who suspected the answer before the question had even been asked and had come to the meeting hoping, somehow, that the numbers might not say it out loud.

January in an accounting office was a strange month. The frantic energy of Christmas had usually passed, the staff parties had been forgotten, the credit cards had started to reveal their sins, and the beach towels were still hanging over verandah rails across the country. Business owners would return from holidays with a mixture of optimism and dread, promising themselves that this year would be different while quietly wondering whether the last six months had already made that impossible.

One fellow I remember had a small civil contracting business. He had machines, staff, utes, trailers, debtors, finance agreements, and the permanent expression of a man who had spent too many years pretending that busyness and progress were the same thing. He was not careless, lazy or foolish. In fact, he was one of those practical people who could look at a job site for three minutes and see things that most of us would miss after standing there for an hour.

His trouble was not that he could not see problems. His trouble was that he could see every problem on a job site and almost none of the problems in his own business. A leaking hydraulic hose would be fixed before lunch, but a leaking cash flow could be left alone for months while everyone kept telling themselves that the next big payment would sort it out.

He arrived in January with the usual confidence of a man who had survived December. That is a dangerous kind of confidence, because survival often disguises itself as success for just long enough to make a business owner relax. He told me turnover was up, the boys were busy, the phone was still ringing, and there were several decent jobs lined up for the new year.

The first few sentences sounded promising, as they often did. Revenue had increased compared with the same period the previous year, and the bank account had not quite collapsed under the weight of Christmas wages, supplier accounts, fuel cards and finance payments. He had taken a short break with the family, although he admitted he had spent most of it answering calls and trying not to look at his phone.

Then we looked at the debtors ledger. That was where the room changed, because the debtors ledger has a way of ruining a good story. There were customers who owed money from October, invoices that had been queried but never followed up, retention amounts that had become part of the furniture, and one large client who had trained him over several years to believe that being paid late was simply the price of keeping the work.

He pointed to one of the names and said they were good for it. I did not doubt him, because most slow payers are good for it until the day they are not. The problem was not whether they would eventually pay, but whether his business could afford to finance their business while also paying wages, fuel, tax, superannuation and suppliers.

That is where many business owners misunderstand debtors. They think an unpaid invoice is a timing issue, but it is often a funding issue wearing a polite shirt. When a customer owes you money for ninety days, they have not merely delayed payment; they have borrowed from you without asking, without signing anything, and without paying interest.

The mid-year review was supposed to be the point at which that became visible. It was not meant to be a tax meeting, even though tax would eventually wander into the room like an uninvited relative. It was meant to be a business meeting, a pause halfway through the year to ask whether the story the owner was telling himself matched the story the numbers were telling everyone else.

In that civil contracting business, the story was not complicated. Revenue was up, but profit was not following. Work was plentiful, but cash was tight. Customers were being serviced, but not necessarily at a price that reflected the true cost of labour, machinery, fuel, insurance, repairs, administration and the owner’s own exhaustion.

He had also taken on two employees during the year. That decision made sense on the surface, because the work was there and the phone had kept ringing. The trouble was that staffing decisions are often made in moments of pressure, not moments of analysis, and the cost of an employee does not end with the hourly rate written on a piece of paper.

There were wages, superannuation, workers compensation, payroll tax thresholds to watch as the business grew, training time, downtime, mistakes, uniforms, vehicles, tools, leave, public holidays and the simple human reality that a new employee is rarely fully productive from the first day. None of that meant he should not have hired them. It simply meant the decision needed to be priced into the work, not absorbed through the owner’s margin.

That is one of the quieter traps in small business. The owner absorbs everything until there is nothing left to absorb. The customer still gets the job, the staff still get paid, the suppliers still send statements, the bank still collects its repayments, and the owner silently becomes the shock absorber for every miscalculation in the business.

When we reviewed the first six months, the pattern became plain. Several jobs had been quoted too tightly, not because he was incompetent, but because he was still quoting like the business he used to be. He had more equipment now, more staff, more finance, more administration and more risk, yet parts of his pricing still belonged to a smaller, simpler version of the business.

That is why a mid-year review matters. It catches the moment where the business has changed but the owner’s habits have not. Many businesses do not fail because the owner never grew; they stumble because the business grew faster than the owner’s systems, pricing, discipline and willingness to ask awkward questions.

I remember asking him what he would do if a machine was costing more to run than it was producing. He answered immediately, because practical people understand machinery with a clarity they often deny their own numbers. He said he would either fix it, sell it, charge it out properly, or stop using it on the wrong type of job.

That answer was the whole meeting in miniature. The same thinking applied to customers, employees, equipment, pricing and cash flow. The issue was not that he lacked judgement; it was that he had not applied the judgement he already used in the field to the business itself.

A proper mid-year review is not about producing beautiful reports. Most business owners do not need another folder, another spreadsheet, or another coloured graph pretending to be insight. They need a clear conversation about what has happened, what is happening, what is likely to happen next, and what still remains within their control.

The great advantage of the mid-year review is that it arrives while there is still time. Six months into the financial year, there is room to change prices, chase debtors, review wages, alter drawings, adjust stock levels, speak to the bank, clean up systems, rethink customers, consider structures, and plan tax sensibly. By June, many of those options have narrowed, and by the time the tax return is being prepared after the year has ended, most of them have disappeared entirely.

That is why I never thought of tax as the beginning of the conversation. Tax was usually the final scorecard. It showed what had happened after the decisions had already been made, after the invoices had already been issued, after the money had already been spent, after the customers had already been carried, and after the owner had already convinced himself that things would improve when the next big job came in.

The mid-year review asks a different question. It does not ask how clever we can be at the end of June. It asks whether we are prepared to be honest in January, when honesty still has some practical use.

In that meeting, we went through the business as simply as possible. We looked at turnover, gross profit, wages, overheads, drawings, debtors, creditors, finance commitments, tax obligations and work in progress. None of it was glamorous, but most useful business conversations are not glamorous. They are plain, uncomfortable, and necessary.

The first lesson was that revenue had become a sedative. Every time turnover increased, he felt reassured, even though the bank account kept telling him something was wrong. It is easy to understand why, because revenue is visible, exciting and easy to talk about, while margin is quieter and far less flattering.

The second lesson was that cash was being confused with profit. He could point to invoices, jobs and busy weeks, but the cash cycle told a different story. Money was going out quickly and coming in slowly, which meant the business was growing in a way that increased pressure rather than relieving it.

The third lesson was that the business had no real rhythm for review. It responded to crises, BAS deadlines, supplier pressure, staff shortages and bank calls, but it did not have a habit of stopping before the crisis arrived. In that sense, the business was not being managed so much as chased from one demand to the next.

That is not unusual. Many small businesses are operated by decent, hardworking people who have never been taught to distinguish between activity and management. They know how to do the work, win the work, supervise the work and complain about the work, but they have never built a routine for standing outside the work and asking whether the whole thing still makes sense.

The mid-year review is one of the simplest ways to create that routine. It is not a magic formula, and it will not rescue a business that refuses to act on what it reveals. It is merely a chance to stop pretending that the numbers will improve by being ignored.

I have often thought that business owners would treat their numbers differently if they were covered in grease, dust, smoke or water. A broken pipe demands attention because it makes a mess that everyone can see. A broken margin does the same thing more slowly, and because it leaks through the bank account rather than across the floor, people can walk around it for months.

By the time the civil contractor could see the leak, he had already made the year harder than it needed to be. He had carried slow payers, underquoted work, taken on staff without recalibrating prices, allowed drawings to continue as though profit had grown with turnover, and treated the tax office as a problem for later. None of those decisions destroyed the business on its own, but together they had created a squeeze that was entirely predictable.

The encouraging part was that January still gave him room to move. We identified the customers who needed firmer terms, the jobs that needed revised pricing, the expenses that had crept in unnoticed, and the tax payments that needed to be planned rather than feared. He did not leave the meeting dancing down the footpath, but he left with something better than optimism. He left with a list of decisions.

That is the distinction many business owners miss. Optimism is not a plan, and hope is not a cash flow strategy. A decision does not guarantee success, but it moves the owner from wishing to acting, and that movement is often where the real improvement begins.

The businesses that benefit most from a mid-year review are not necessarily the businesses in trouble. In many ways, profitable businesses need the review just as much, because success can make people careless. A business that is making money can hide waste, tolerate poor customers, carry lazy systems, overpay for convenience, and avoid succession conversations because there is still enough profit to soften the consequences.

That is another reason tax planning alone is too narrow. A tax meeting near the end of June might ask whether the business should bring forward a deduction, pay superannuation before year-end, write off obsolete stock, review debtors, or consider asset purchases. Those questions matter, but they are much less powerful than the questions that should have been asked months earlier.

The mid-year review asks whether the business is actually producing the result the owner thinks it is producing. It asks whether growth is profitable, whether cash is keeping pace, whether the right customers are being served, whether staff are lifting the business or merely adding movement, whether the structure still suits the risk, and whether the owner is being honest about what the numbers are saying. Those questions are not tax questions, although tax will eventually reflect the answers.

There is also a psychological benefit in doing the review early. Business owners often avoid numbers because they fear being judged by them, but numbers are not moral creatures. A profit and loss statement does not care whether you are a good person, a loyal employer, a generous parent, a tired spouse, a community volunteer or a person trying to hold too many balls in the air.

The numbers simply record the consequences of decisions. That can feel brutal, but it can also be liberating. If the numbers are the result of decisions, then better decisions can change the next set of numbers, provided the owner acts while there is still time.

That is where the “twenty days too late” moment often arrives. Not always as a dramatic collapse, not always as a bank foreclosure, not always as a tax debt that suddenly becomes unmanageable. Sometimes it arrives as a sheepish phone call in June from a person who sat in the same chair in January and promised to make changes.

The civil contractor made some changes after our January meeting, but not all of them. He tightened a few terms, increased prices on some smaller jobs, and became more conscious of the cost of idle machinery. He also avoided the hardest conversation with the slow-paying client, because that client represented a large portion of his turnover and he did not want to risk upsetting them.

By early June, the same client owed him a large amount of money. The amount had grown, the excuses had become more polished, and the civil contractor had become their unwilling banker once again. He rang me with the sentence I had heard in many forms over many years, asking what could be done before 30 June.

There were still things we could do, of course. There are almost always things that can be done, even late in the game. The problem was that the best things had been available in January, and he had not taken them because they required discomfort before they delivered relief.

Had he acted then, he could have changed credit terms, reduced exposure, paused further work, insisted on staged payments, or priced the risk properly. By June, the work had been done, the wages had been paid, the fuel had been burned, the suppliers had been paid or were waiting to be paid, and the customer had all the leverage that comes from already having received the benefit.

That was the mid-year review lesson written in bold. The review had revealed the issue while it was still manageable, but recognition without action becomes just another form of delay. He was not twenty days too late because no one had warned him; he was twenty days too late because the warning had arrived while the choice was still uncomfortable rather than urgent.

Many business owners confuse urgency with importance. They respond to what is noisy, immediate and demanding, while the most important issues sit quietly in the background gathering weight. Debtors do not always scream, margins do not always wave flags, staff inefficiencies do not always announce themselves, and poor structures do not usually become obvious until the business is under stress.

A mid-year review is designed to give quiet problems a voice. It pulls issues forward before they become emergencies. It makes the invisible visible, and in business, visibility is often the first step toward control.

The review does not need to be complicated. A business owner should be able to sit down halfway through the year and explain where the profit is coming from, where the cash is going, who owes money, who is being carried, which jobs are worth doing, which customers are worth keeping, which employees are making the business stronger, and which obligations are being pushed into the future. If those questions cannot be answered, that is not a reason for shame, but it is a reason to stop and look.

There is a particular danger in saying that things are seasonal. Many businesses are seasonal, and anyone who has dealt with farmers, builders, tourism operators, retailers or tradies understands that the year does not move in a straight line. The problem comes when seasonality becomes an excuse for never asking whether the season is actually performing as expected.

A retailer can tell themselves that December will fix everything. A farmer can tell themselves that the next harvest will settle the accounts. A builder can tell themselves that the next progress claim will ease the pressure, and a professional practice can tell itself that the work in progress will convert to cash soon enough. Sometimes those things are true, but sometimes they are bedtime stories told to adults who do not want to look at the bank account.

The mid-year review does not ban optimism. It simply asks optimism to bring evidence. If the next three months are supposed to fix the last six months, the business owner should be able to explain how that will happen, when the money will arrive, what costs will be incurred to earn it, and what risks sit between the hope and the result.

This is where good advisers should earn their keep. The adviser’s role is not to frighten the business owner, drown them in reports, or turn every meeting into a lecture about compliance. The role is to notice patterns, ask the question the owner is avoiding, and help translate the numbers into decisions.

There were many times when a client did not need me to discover something new. They needed me to say out loud what they already knew but had not yet admitted. That may sound simple, but a great deal of business advice lives in that space between private suspicion and public acknowledgement.

A mid-year review also creates a better tax conversation later. When the business owner has already looked at profit, cash, debtors, wages, stock, equipment, structures and commitments in January or February, the June tax meeting becomes more practical and less panicked. There is less temptation to buy something merely to reduce tax, because the owner already understands whether the business has the cash, the need and the commercial reason to do so.

That matters because rushed tax planning can be dangerous. A business owner under pressure at the end of June can mistake activity for strategy, especially when someone waves the phrase “tax deduction” around as though it has magical properties. The deduction may be real, but a deduction is not a refund of the full cost, and spending money unnecessarily is still spending money unnecessarily.

The mid-year review gives context to those decisions. It helps the owner distinguish between buying equipment the business genuinely needs and buying a problem wrapped in a tax invoice. It helps the owner decide whether superannuation contributions, stock write-offs, bad debt reviews, trust distributions, asset purchases or finance decisions fit within the broader business position rather than being last-minute reactions.

It also forces a conversation about the owner’s own drawings. This is one of the most sensitive areas in small business, because the business owner’s personal life and business life are rarely separate, no matter how neatly the accountant draws the boxes. School fees, mortgages, family support, holidays, health costs, adult children, ageing parents and the quiet desire to enjoy the reward for all that work can all find their way into the business bank account.

There is no judgement in that reality. Business owners take risks, carry stress and often work hours that would horrify the employees who assume they are rich because the business has a sign out the front. The issue is not whether owners deserve to draw money from their business, but whether the business can support the drawings being taken.

A mid-year review can reveal whether the owner is being paid by profit or by unpaid tax, slow suppliers, increasing debt and crossed fingers. That distinction matters enormously. A lifestyle funded by profit may be sustainable, but a lifestyle funded by liabilities is merely a problem postponed.

The same applies to family businesses. A family business can carry arrangements that make emotional sense long after they have stopped making commercial sense. A son may be employed because he is family, a daughter may be underpaid because she is reliable, a sibling may be carried because confrontation would make Christmas lunch unbearable, and a parent may retain control because letting go feels like disappearing.

The mid-year review cannot solve all of that in one meeting. It can, however, reveal the cost of pretending those arrangements are free. Every family decision inside a business has a financial consequence, and every financial consequence eventually becomes part of the family story.

That is why I came to see the mid-year review as more than a numbers exercise. It was often a truth exercise. The numbers were simply the language through which the truth became harder to avoid.

The best business owners were not always the boldest, smartest, loudest or most ambitious. Quite often, they were the ones willing to be corrected early. They could look at a half-year result and say that something was not working, without treating that admission as a personal defeat.

That is a powerful habit. It means the business does not need to wait for a crisis before it learns. It can adjust while options still exist, and in business, options are far more valuable than pride.

There is no romance in a mid-year review. Nobody builds a television series around a small business owner sitting with an accountant in January, looking at debtors, gross profit and tax obligations. Yet many of the best business decisions I saw over the years began in meetings exactly like that.

They were not dramatic decisions. They were decisions to stop doing work for a bad customer, increase prices, collect money sooner, reduce drawings, sell unused equipment, change finance arrangements, review staff roles, fix bookkeeping, speak to the bank early, or accept that the business had outgrown its old structure. None of those decisions made headlines, but all of them could change the direction of a year.

The owner who waits until June still has decisions to make. The owner who waits until the tax return is prepared has fewer. The owner who waits until the bank, the tax office, the supplier or the solicitor forces the issue may find that the decision has already been made by someone else.

That is the real cost of delay. It is not only the money, although the money is usually painful enough. It is the loss of choice.

A business owner with six months remaining can choose. A business owner with twenty days remaining can sometimes manoeuvre. A business owner looking backwards after the year has ended can mostly explain.

That is why the mid-year review belongs near the end of this book, but not at the very end. It is the last meaningful pause before the final stretch. It is the moment where all the earlier lessons come together and ask whether the owner is prepared to act before the year closes around them.

By this point, we have already looked at numbers, revenue, cash, customers, employees, tax thinking, government obligations, structures, difficult conversations and the story profit tells. None of those topics lives in isolation. The mid-year review gathers them around the same table and asks the owner to stop treating business as a series of separate fires.

If the numbers are not being reviewed, the owner is flying partly blind. If revenue is growing without margin, the business may be getting bigger rather than better. If cash is tight despite profit, the business may be funding customers, stock, drawings or growth it cannot afford.

If the wrong customers are being kept, the business may be rewarding the people who create the most stress and the least return. If employees are not being reviewed honestly, wages may be rising faster than productivity. If tax planning is reduced to last-minute spending, the owner may be confusing a deduction with a decision.

If the government is being treated as a business partner, the owner may be forgetting that obligations do not disappear because cash is inconvenient. If structures are ignored, risk may be sitting in the wrong place. If the three hard conversations are avoided, the business may be waiting for family, partners, staff or mortality to force them.

Profit then becomes the story of all those choices. The mid-year review is the chance to read that story before the ending has been written. That is why it can be uncomfortable, and that is why it can be so valuable.

The civil contractor did not become a perfect business owner after that year. Nobody does, and the search for perfect business owners is a quick way to become disappointed with humanity. He did, however, become a better one, because he eventually learned that the business needed the same practical attention he gave to machinery, job sites and weather forecasts.

He learned to ask for debtor reports before they became embarrassing. He learned to price jobs with the current business in mind, not the smaller business he had once operated from the kitchen table. He learned that a busy crew could still be an unprofitable crew, and that a good customer who paid too slowly could still create damage.

Most importantly, he learned that discomfort early was cheaper than panic late. That lesson is not found in legislation, and it is not hidden in some obscure accounting standard. It is one of those plain business truths that people tend to learn either by listening or by bleeding.

The mid-year review gives business owners a chance to listen before they bleed. It is not exciting, but it is kind. It tells the truth while there is still time to do something with it.

Of course, not every business owner takes that chance. Some will still arrive near the end of June asking what can be done, hoping there is a clever answer that will undo months of drift. Sometimes there will be options, and sometimes those options will be useful, but they will rarely be as powerful as the choices that existed earlier.

That brings us to the final chapter before the epilogue. Twenty days before the end of the financial year, the questions become sharper, the room for movement becomes narrower, and the old habit of delay finally meets the calendar. It is then that tax planning becomes more than a technical exercise, because it reveals whether the business has been paying attention all year or merely hoping the ending would take care of itself.