Why August Is the Right Time to Review Your Cash Flow and Tax Strategy
August is an effective checkpoint for business owners because enough of the year has passed to reveal actual revenue, expenses, payroll trends, and tax obligations, while several months remain to correct course. A practical August review should reconcile year-to-date books, compare actual results with the original forecast, update estimated tax calculations, examine upcoming cash requirements, and identify major transactions that could affect the rest of the year.
The timing also matters because the third federal estimated tax installment is due September 15, 2026, for calendar-year individuals and many businesses. Reviewing cash flow before that deadline gives owners a chance to make decisions using current financial information rather than relying on assumptions made earlier in the year. The IRS itself recommends a midyear tax check to keep records organized and identify changes that could affect tax liability.
Use August To See Where the Business Actually Stands
The first step is to bring the books current. A cash flow review is only useful when the underlying records reflect actual activity.
Review bank and credit-card reconciliations, unpaid customer invoices, outstanding bills, payroll, recurring expenses, inventory where applicable, and year-to-date revenue. Then compare those figures with the business plan or prior forecast.
This distinction matters because profit and cash are not the same thing. A profitable business can still experience a cash shortage when customers pay slowly, inventory absorbs cash, or large obligations fall due before expected collections.
Research from the JPMorgan Chase Institute found that the median small business had a cash buffer of about 27 days, illustrating how quickly a business can become exposed when cash inflows are disrupted.
Review These Cash Flow Numbers in August
Financial area | What to review | Why it matters |
|---|---|---|
Revenue | Year-to-date sales versus forecast | Shows whether growth is tracking expectations |
Accounts receivable | Unpaid customer invoices and aging | Identifies delayed cash collections |
Accounts payable | Upcoming bills and recurring obligations | Reveals near-term cash requirements |
Payroll | Current payroll and expected changes | Helps forecast recurring cash needs |
Operating expenses | Actual spending versus budget | Identifies unexpected cost increases |
Cash reserves | Current available cash | Shows the business's short-term financial cushion |
Tax payments | Estimated and payroll taxes already paid | Prevents overlooked obligations |
Bonus tip: Do not look only at the current bank balance. Review the next 60 to 90 days of expected inflows and required outflows. A healthy balance today does not guarantee sufficient liquidity when several large obligations arrive together.
Update Your Tax Strategy Before September
August provides a practical opportunity to replace an early-year tax projection with a forecast based on actual results.
The IRS explains that estimated tax calculations should account for expected income, deductions, credits, and changes in circumstances. If earnings or deductions change during the year, taxpayers can recalculate estimated tax for the next payment period.
For calendar-year taxpayers, the third estimated tax installment is due September 15, 2026.
Tax planning item | August review |
|---|---|
Year-to-date taxable income | Update using current business results |
Estimated payments | Verify amounts already paid |
Withholding | Include applicable personal or employee withholding |
Major deductions | Identify qualifying expenses and changes |
Asset purchases | Review potentially relevant depreciation treatment |
Business structure | Consider whether circumstances have materially changed |
Other taxable income | Include investments, rentals, or other sources |
The objective is not simply to reduce tax. A sound tax strategy should also preserve enough liquidity to meet tax obligations and continue operating normally.
Connect Tax Planning With Cash Flow
Tax decisions should never be made independently of the cash position.
A deduction may affect taxable income, but the underlying transaction can still require cash. Similarly, a business may have strong accounting profits while having limited available cash because customers have not yet paid.
The August review should therefore answer two separate questions:
What is the business likely to owe based on current-year results?
What cash must remain available to meet that obligation without disrupting operations?
Keeping those questions separate prevents a common planning error: making a decision based on tax savings without considering its effect on working capital.
Compare Your Planning Approach
Approach | Best suited for | Main advantage | Main limitation |
|---|---|---|---|
Repeat prior forecast | Stable business with predictable results | Simple to maintain | Can overlook current-year changes |
Update quarterly | Business with moderate fluctuations | Keeps projections current | Requires regular bookkeeping |
Monthly review | Variable revenue or expenses | Detects problems early | Requires more consistent financial reporting |
Rolling cash forecast | Businesses with uneven collections or large obligations | Shows upcoming liquidity pressure | Requires reliable receivable and payable data |
Businesses with irregular cash flows deserve particular attention. JPMorgan Chase Institute research found that firms with irregular cash-flow patterns were associated with slower revenue growth and higher exit rates, reinforcing the importance of monitoring timing rather than focusing only on annual totals.
Look Ahead Before Making Major Decisions
August is also a useful point to identify financial events that could affect the final months of the year.
Review planned equipment purchases, hiring, expansion, new contracts, debt changes, inventory commitments, owner distributions, and significant asset sales. Each can change either cash availability, taxable income, or both.
Bonus tip: Create a simple list of every unusually large transaction expected between September and December. Review the tax and cash-flow implications before committing to the transaction rather than after it appears in the books.
Consider These Factors Before Changing Your Strategy
Before making a major tax or cash-flow decision, evaluate:
Factor | Question to answer |
|---|---|
Business stability | Is current revenue representative of the rest of the year? |
Collection timing | When will outstanding invoices actually become cash? |
Upcoming obligations | What large payments are scheduled? |
Tax position | Has the projected tax liability changed materially? |
Seasonality | Does the business typically experience a strong or weak final quarter? |
Records | Are the books complete enough to support the projection? |
Personal needs | Will owner draws or distributions affect business liquidity? |
For businesses operating in regions affected by seasonal weather, August can also be a useful point to review weather-related operational risks, especially where storms, extreme heat, or seasonal disruptions can affect staffing, inventory, transportation, or customer demand.
Common Questions Before an August Review
Should a business wait until year end to review taxes
No. Waiting removes much of the opportunity to respond to changing income, expenses, and financial circumstances. A midyear review provides time to make informed adjustments.
Should cash flow and tax planning be reviewed together
Yes. Tax obligations affect cash availability, while cash-flow conditions can determine whether a tax-related decision is practical.
What if the books are several months behind
Bring the records current before relying on the numbers for major decisions. An outdated profit-and-loss statement can produce an unreliable tax or cash-flow forecast.
Does a higher profit automatically mean better cash flow
No. Outstanding receivables, inventory purchases, debt payments, and other cash movements can cause cash to lag behind reported profit.
Keep the Rest of the Year on Track
August should function as a decision point, not merely another month on the calendar. Bring the books current, assess cash availability, update tax projections, verify upcoming obligations, and identify major transactions before the final quarter begins.
A disciplined review can turn year-to-date financial information into practical decisions for the months ahead. The IRS's 2026 guidance also emphasizes keeping organized records and performing a midyear tax check rather than waiting until filing season.
Get Your Financial Review Organized
The most relevant services from We Do Taxes for this type of review include:
Bookkeeping Services — Keeps financial records current so cash-flow and tax decisions rely on accurate information.
Business Tax Services — Supports tax planning based on current business activity and projected obligations.
Controller & CFO Services — Provides broader financial reporting and forecasting support for businesses that need ongoing financial oversight.
For questions about organizing a cash-flow and tax review, We Do Taxes can be reached at info@wedotaxes.co or (681) 331-8110.
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