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8 smart financial steps to take for your business in Q1

Growth and Operations

8 smart financial steps to take for your business in Q1

Updated: January 11th, 2022

8 smart financial steps to take for your business in Q1

Finances are the foundation of a business. Smart financial practices give you a stable jumping off point for growth, while poor practices make it hard to build upward. As the calendar and fiscal years come to a close, it’s a good idea to get organized financially

By strengthening your business’s foundation, you can make positive changes across your operation. Think: reducing expenses, increasing profitability, and minimizing headaches. Here are eight important financial steps to take for your business in Q1:


1. Meet with your accountant

No matter how confident you are in your financial knowledge, it’s still valuable to have outside help. A business accountant can work with you to review your last year’s financial statements, identify problem areas, create a yearly budget, improve cash flow, and plan debt repayments. 

If you don’t have a business accountant yet, set aside some time to try and find one. You can research local accountants, ask your business bank of choice to pair you with one, or reach out to fellow business owners for recommendations. 


2. Start getting organized for tax season

The earlier and more thoroughly you prepare for tax season, the less likely you are to miss payment deadlines or make errors on your forms, potentially incurring penalties along the way. Plus, getting organized early on in Q1 can limit last-minute scrambling—and high stress—during March and April. Start by taking the following steps:  

  • Understand your business tax return and filing deadline: Review IRS business guidelines and check in with your accountant about which forms you have to file and when. 
  • Gather your financial statements and business paperwork: Make sure you have your employer identification number (EIN), previous year’s business tax return, balance sheet, income statement, yearly bank statements, yearly credit card statements, payroll records, and receipts for business expenses. 
  • Figure out your tax deductions: Comb through your bank statements and financial records (or pull from your software reports) to total up your business expenses and estimate your deductions. Then talk to your accountant about which business tax credits you might qualify for, and make sure you fill out the proper forms to apply. Think: small employer health insurance credit or the work opportunity tax credit.

3. Create a cash flow forecast

Q1 is the perfect time to create a cash flow forecast for the upcoming year. By estimating your incoming and outgoing cash flow, you can budget more easily and prepare for cash flow shortages and surpluses. Depending on your forecast numbers, you may decide you want to switch up your sales techniques, order extra inventory ahead of a busy season, or invest in a long-term growth project. 

It’s helpful to work with your in-house finance team or business accountant when forecasting cash flow, but here are the basic steps involved: 

  1. Decide on the period of time you want to forecast. You could do the entire year, the next quarter, or even just the next two months. 
  2. Gather your financial records from the last year, including your expenses and income. 
  3. Calculate the cash flow at the start of the period in question using the following basic formula: Starting cash flow = Previous period’s income – previous period’s expenses. (This is considered your opening balance.) 
  4. Using your past company data and best seasonal predictions, estimate what your income and expenses will be like for the period of time. Start by adding up your fixed expenses and estimated variable costs, then factor in your revenue based on past years. If, for example, you typically see a slump in sales during the first quarter of the year but still have to stock up on inventory to get ahead of the busy summer, you might have tighter cash flow. 
  5. Calculate your closing balance using this formula: Closing balance = Opening balance + (Total incoming cash – total outgoing cash).
  6. Calculate your cash flow by subtracting your closing balance from your opening balance. Cash flow = Closing balance from period – opening balance from period

4. Revisit your debt obligations

To properly allocate your spending and maximize your revenue, it’s critical to understand your business’s debt obligations—and develop a realistic plan for making repayments. Start by reviewing your assets and liabilities statement from the last year to see exactly how much debt you have. From there, you can do the following: 

  • Calculate your debt service coverage ratio (DSCR): Your DSCR is a good measure of whether or not you can afford to take on new debt. The ratio tells you exactly how much revenue you’re generating relative to how much you have to spend on debt payments. Here’s a breakdown of exactly how to calculate your business’s DSCR.
  • Consider restructuring your debt: Depending on how much debt you have—and what type—you may want to look into restructuring your loans or credit payments. Debt consolidation lets you bundle your existing debts into one new loan, so you can streamline repayments. Refinancing gives you the chance to replace an old loan with a new one, ideally to score a lower interest rate. 
  • Evaluate your payments: Consider whether or not you can afford to make changes. If you’re flush with cash after a particularly profitable year, you may want to put more toward your principal loan payments, so you can pay off your debt sooner and save on interest (just watch out for prepayment penalties). Or maybe you want to pad your monthly budget so you can bring your credit card balance back to zero each month, instead of making the minimum payments and racking up interest. 

5. Look for ways to cut spending

Figuring out how to reduce your expenses at the start of the year can free up your cash flow for business improvements or emergencies. Start by combing through your financial statements and bank records to look for money leaks, areas where your cash is going down the drain instead of benefitting your business. Next, review your past year’s fixed expenses and variable expenses in detail, and try to calculate the rough ROI of each one. 

Here are just a handful of ways to reduce expenses: 

  • Try to negotiate a lower rent; if you own your building, consider subleasing a part of it to another business.  
  • Implement an expense tracking system (either with software or spreadsheets) so you can stay on top of your spending.
  • Call your internet provider to try and negotiate a better package. 
  • Talk to your suppliers to see if you can get discounts on inventory or materials if you order at certain times of the year or in certain quantities. 
  • Nix print ads and traditional marketing methods in favor of more cost-effective strategies, like social media marketing and email campaigns. 
  • Switch to free or more affordable business solutions where possible. Think: website hosting platforms or project management software. 
  • Cancel your monthly orders of office supplies or materials, and look for ways to buy in bulk instead. 

6. Set business goals and budgets

Your business goals and budgets directly inform one another. Your goals shape your budget, and your budget determines what you can achieve. 

To put yourself on the path to success, work on setting SMART (Specific, Measurable, Attainable, Realistic, and Timely) goals for Q1 and beyond. Consider your objectives for every area of your business—from sales and revenue to staffing and operations. You may want to develop and launch a new product by the end of the year, for example, or hire a project manager by the end of Q1. 

Once you clarify your goals, work on determining a budget for each one. You can work backward by listing out the steps involved in achieving your goal, as well as the timeline for reaching each benchmark. From there, estimate the costs involved in hitting your goal and adjust your priorities or benchmarks if necessary. 


7. Streamline internal systems

Organization breeds efficiency. The more efficient you are with your business’s financial upkeep and processes, the more time you have to spend serving your customers or working on growth strategies. Here are a few ways you can streamline your internal systems and make financial reviews easier:

  • Consider going paperless: Digital banking eliminates the need for manual filing and organizing. Instead of accumulating hard copies of your bank records and financial statements, save everything on a cloud-based platform. From there, you can develop a business-wide system for organizing your documents digitally. 
  • Automate bill and debt payments: If you haven’t already, consider setting up recurring automatic payments for things like utilities, loan repayments, and regular inventory orders. 
  • Upgrade your accounting software: Smart payroll software can take the burden off you and your financial staff by updating your records automatically and generating real-time analysis reports.   

8. Consider business financing

As you’re reviewing your business finances, consider whether or not you could benefit from a capital injection this quarter or year. You don’t want to take on more debt than you can responsibly pay off, but having a healthy amount of working capital can help you get ahead. If you plan to apply for financing—or just want to be prepared in case of an emergency—take the following steps: 

  • Update your business plan: Add in your last year’s finances and update your marketing and goals sections
  • Organize your tax returns: Make sure you have at least three years worth of business and personal tax returns on hand.   
  • Research lenders and financing solutions: Do your homework to see which financing options or lenders suit your business best. Make sure you review the lender’s requirements, loan qualifications, and application process. That way, you’re one step ahead when you’re ready to apply. 

Getting a loan with Funding Circle

At Funding Circle, we’re dedicated to helping you get the capital you need to reach your goals—in Q1 and beyond. Our business term loans let you borrow anywhere from $25,000 to $500,000 for a variety of uses. If you qualify, you can get funds in as few as three days, and benefit from predictable monthly payments and fixed interest rates. Learn more about our loan terms or apply today

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