First Quarter Financial Review: Setting Your Business Up for Success
The first quarter of the year is an ideal time for Ontario business owners to review their financial performance, assess progress toward goals, and make adjustments before too much of the year has passed. While many businesses conduct annual reviews, quarterly check-ins provide opportunities to course-correct early, capitalize on trends, and avoid year-end surprises.
At BBS Accounting in Toronto, we encourage all our clients to treat Q1 as a planning and assessment period, not just tax filing time. A thorough first quarter financial review sets the foundation for a successful year.
Why Q1 Reviews Matter
The first quarter represents approximately 8% of your year (by the time you complete the review). This is early enough that you have time to implement changes that will impact the remaining 75% of the year, but late enough that you have meaningful data to analyze.
Many business trends that will define your year emerge in Q1. Customer behavior, market conditions, expense patterns, and cash flow rhythms become apparent. Identifying these early allows strategic responses rather than reactive scrambling in Q4.
For Ontario businesses, Q1 also follows the holiday season for many industries. Reviewing Q1 performance helps you assess whether holiday results met expectations and how to position for the rest of the year.
Key Financial Statements to Review
Start your Q1 review by examining your three primary financial statements:
Income Statement (Profit and Loss): Shows your revenue, expenses, and resulting profit or loss for Q1. Compare this to your Q1 budget, Q1 of the prior year, and your annual goals.
Look for revenue trends—are sales growing, declining, or flat? Which products or services are performing well? Which are underperforming? Are expense categories in line with budget, or are certain costs running higher than expected?
At BBS Accounting, we help clients analyze their income statements to identify both opportunities and concerns early in the year.
Balance Sheet: Shows your assets, liabilities, and equity as of March 31. Review changes from year-end. Has your cash position improved or declined? Are accounts receivable growing (which may indicate collection problems)? Are liabilities increasing?
Your balance sheet reveals your financial health. Strong balance sheets show growing cash and equity with manageable debt. Weak balance sheets show declining cash, growing receivables, and increasing liabilities.
Cash Flow Statement: Shows actual cash movements—where cash came from and where it went. This is often the most important statement for small Ontario businesses, as profitability on paper doesn’t always translate to available cash.
Many profitable businesses fail due to cash flow problems. Reviewing your cash flow statement reveals whether you’re collecting receivables promptly, managing payables effectively, and maintaining adequate working capital.
Compare Q1 to Budget
If you created a 2026 budget (and you should have), compare Q1 actual results to Q1 budgeted amounts.
Identify significant variances—areas where actual results deviated from budget by more than 10-15%. Determine whether variances are favorable (higher revenue or lower expenses) or unfavorable (lower revenue or higher expenses).
More importantly, determine why variances occurred. Revenue below budget might indicate sales problems, pricing issues, or market changes. Expenses above budget might reflect inefficiencies, unexpected costs, or inflation.
Some variances are acceptable and expected. Others require action. A thorough Q1 review distinguishes between the two.
If you don’t have a budget, now is the time to create one for the remaining three quarters. At BBS Accounting, we help clients develop realistic budgets based on historical performance and forward-looking projections.
Year-Over-Year Comparison
Compare your Q1 2026 results to Q1 2025 results. This removes seasonal effects and provides true performance comparison.
Calculate key percentage changes: revenue growth or decline, gross margin changes, operating expense changes as a percentage of revenue, and net income changes.
Example: If Q1 2026 revenue was $250,000 compared to Q1 2025 revenue of $225,000, you achieved 11% growth. But if your Q1 2026 expenses were $240,000 compared to Q1 2025 expenses of $200,000, your expenses grew 20%. This reveals a profitability problem despite revenue growth.
Year-over-year comparison reveals trends. Are you growing or contracting? Are margins improving or eroding? Is your business becoming more or less efficient?
Key Performance Indicators (KPIs)
Beyond financial statements, review key performance indicators relevant to your Ontario business:
Gross Profit Margin: Gross profit divided by revenue, expressed as a percentage. This reveals how much profit you generate before operating expenses. For many businesses, gross margin should be 40-60%. Lower margins may indicate pricing problems or high cost of goods sold.
Net Profit Margin: Net income divided by revenue. This shows your bottom-line profitability. Many small businesses target 10-15% net margin, though this varies by industry.
Revenue Per Employee: Total revenue divided by number of employees. This measures productivity and efficiency. Compare to industry benchmarks and prior periods.
Average Transaction Value: Total revenue divided by number of transactions. Increasing this metric often requires less effort than increasing transaction volume.
Customer Acquisition Cost: How much you spend on sales and marketing divided by new customers acquired. This must be significantly less than customer lifetime value to be sustainable.
Accounts Receivable Days: Average accounts receivable balance divided by daily revenue. This shows how long it takes to collect payments. Ontario businesses should target 30-45 days for most industries.
Cash Conversion Cycle: How long cash is tied up in operations before converting back to cash. Shorter cycles are better.
At BBS Accounting, we help clients identify KPIs most relevant to their industries and track them quarterly.
Revenue Analysis
Dig deeper into your Q1 revenue:
Revenue by Product/Service Line: Which offerings generated the most revenue? Which are growing? Which are declining? Consider whether to invest more in high-growth areas and whether to discontinue underperforming offerings.
Revenue by Customer Segment: Are certain customer types more profitable or reliable? Should you focus marketing efforts on segments with best results?
Revenue by Geography: For businesses operating across Ontario or beyond, which locations are strongest? Should you expand in certain areas?
New vs. Existing Customer Revenue: How much came from new customers versus repeat business? Healthy businesses maintain balance between acquisition and retention.
Revenue Timing: Was Q1 revenue evenly distributed across the quarter, or concentrated in certain weeks? Understanding timing helps with cash flow management.
Expense Analysis
Review your Q1 expenses with similar detail:
Fixed vs. Variable Expenses: Fixed costs (rent, insurance, base salaries) remain constant. Variable costs (supplies, commissions, production costs) change with activity level. Understanding this mix reveals your break-even point and operating leverage.
Controllable vs. Uncontrollable Costs: Some expenses you control (advertising, travel, supplies). Others you don’t (rent, insurance, regulatory fees). Focus improvement efforts on controllable costs.
Expense Trends: Are certain categories growing faster than revenue? This indicates inefficiency requiring attention.
Vendor Management: Review your top vendors. Are you getting competitive pricing? Should you renegotiate contracts or seek alternative suppliers?
Labor Costs: For most Ontario businesses, labor is the largest expense. Review payroll as a percentage of revenue. Industry benchmarks vary, but many service businesses target 30-40%.
Cash Flow Assessment
Cash is the lifeblood of any business. Even profitable businesses fail if cash flow is mismanaged.
Cash Position: How much cash do you have on hand? Is this increasing or decreasing? Do you have adequate reserves for unexpected expenses or opportunities?
Accounts Receivable: Review your A/R aging report. How much is current versus 30, 60, or 90+ days overdue? Old receivables may require collection efforts or write-offs.
Implement strategies to accelerate collections: deposit requirements, progress billing, immediate invoicing after work completion, early payment discounts, and regular follow-up on overdue accounts.
Accounts Payable: Review payment terms with vendors. Are you taking advantage of early payment discounts? Are you paying bills promptly to maintain good relationships? Are you managing cash by strategically timing payments?
Working Capital: Current assets minus current liabilities. Positive working capital means you can cover short-term obligations. Negative working capital indicates potential problems.
Tax Position Review
Q1 is perfect timing to review your tax situation for the year:
Estimated Tax Liability: Based on Q1 results, estimate your 2026 tax liability. Are you setting aside adequate funds? Should you increase installment payments?
Deduction Opportunities: Review potential deductions for the rest of the year. Are there equipment purchases or improvements that should be made? Are you tracking all deductible expenses properly?
Tax-Saving Strategies: Consider strategies like income splitting with family members working in your business, timing income and expense recognition, maximizing capital cost allowance on equipment, and contributing to RRSPs.
At BBS Accounting, we provide year-round tax planning, not just annual preparation. Q1 reviews often reveal opportunities to reduce your 2026 tax bill significantly.
Adjusting Your Strategy
Based on your Q1 review, identify necessary adjustments:
Budget Revisions: If Q1 results suggest your annual budget is unrealistic, revise it now rather than waiting for year-end disappointment.
Pricing Changes: If margins are too low, consider price increases. Q2 is often a good time to implement pricing changes with less customer resistance than year-end.
Cost Reduction: If expenses are out of line, develop action plans to reduce spending. Prioritize cuts that least impact revenue generation.
Marketing Adjustments: If certain marketing channels or campaigns performed well in Q1, increase investment. If others underperformed, reduce or eliminate them.
Staffing Changes: If revenue doesn’t support current headcount, address staffing levels. Conversely, if you’re turning away business due to capacity constraints, consider hiring.
Product/Service Mix: Double down on what’s working. Consider discontinuing or de-emphasizing offerings that consistently underperform.
Setting Q2 Goals
Use your Q1 review to establish specific, measurable goals for Q2:
- Revenue targets by product/service line
- Expense reduction goals for specific categories
- Cash flow objectives like improving receivables collection
- Customer acquisition or retention targets
- Efficiency improvements measured by relevant KPIs
Write these goals down and review them monthly during Q2 to track progress.
Technology and Systems Review
Q1 is also ideal for reviewing your business systems:
Accounting Software: Is your current system meeting your needs? Should you upgrade to more robust solutions like QuickBooks Online or Sage?
Point of Sale Systems: For retail businesses, are your POS systems efficient and integrating properly with accounting?
CRM Systems: Are you properly tracking customer interactions and sales pipeline?
Inventory Management: Do you have real-time visibility into inventory levels?
At BBS Accounting, we help clients select and implement accounting technology that provides better financial visibility and reduces administrative burden.
External Factors
Consider external factors affecting your Ontario business:
Economic Conditions: How are broader economic trends in Ontario and Canada affecting your business? Interest rates, inflation, employment levels, and consumer confidence all impact business performance.
Industry Trends: What’s happening in your industry? Are competitors doing things differently? Are customer expectations changing?
Regulatory Changes: Have there been regulatory or tax law changes affecting your business? Are changes coming later in 2026 that require preparation?
Seasonal Factors: How will the next three quarters differ from Q1? Do you need to prepare for busy or slow seasons?
Working Capital Management
Q1 reviews often reveal working capital issues:
Inventory Levels: If you carry inventory, review turnover rates. Excess inventory ties up cash. Insufficient inventory loses sales.
Credit Terms: Review credit policies. Are payment terms too generous? Should you require deposits or progress payments for large orders?
Supplier Terms: Negotiate better payment terms with suppliers to improve cash flow.
Line of Credit: If you don’t have a business line of credit, Q1 is a good time to establish one before you need it. Banks lend most willingly when you don’t need money urgently.
Employee and Team Assessment
Review your team’s performance and needs:
Staffing Levels: Are you adequately staffed for expected Q2-Q4 activity? Over-staffed for current workload?
Training Needs: Have skill gaps emerged? Should you invest in employee development?
Compensation: Are salaries competitive? Should you adjust compensation to retain key employees?
Roles and Responsibilities: As businesses grow, roles must evolve. Does your current organizational structure still make sense?
Working with BBS Accounting
At BBS Accounting in Toronto, we provide comprehensive quarterly financial reviews for clients who want proactive financial management. Our Q1 review includes:
- Preparation and analysis of financial statements
- Year-over-year and budget comparison reports
- Identification of trends, opportunities, and concerns
- Tax planning and projection for the year
- Recommendations for strategic and tactical improvements
- Goal setting for Q2 and beyond
Our clients benefit from having an experienced financial advisor reviewing their numbers quarterly, identifying issues early, and providing strategic guidance.
Creating an Action Plan
Your Q1 review should result in a concrete action plan:
- List specific issues identified
- Prioritize them by impact and urgency
- Assign responsibility for addressing each
- Set deadlines for completion
- Schedule follow-up to monitor progress
Don’t let your Q1 review become a report that sits in a drawer. Use insights to drive meaningful change in your business.
The Bottom Line
A thorough first quarter financial review provides clarity about your business performance, identifies opportunities and challenges early enough to make meaningful changes, and sets the stage for a successful year.
Too many Ontario business owners wait until year-end to review financials, then discover problems when it’s too late to fix them. Quarterly reviews provide course-correction opportunities that can transform your annual results.
Contact BBS Accounting today to schedule your Q1 financial review. Whether you need comprehensive analysis and strategic planning or just want to discuss your numbers with an experienced advisor, we’re here to help ensure your Ontario business achieves its full potential in 2026.
