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Business.com

Pros and Cons of Starting a Business in Q4

Posted: 08 Dec 2019 08:00 AM PST

If you have a business startup idea that you can't wait to put into action, is it okay to charge ahead even in the midst of quarter four? After all, Q4 is the end of the fiscal year for most businesses. It's a time when entrepreneurs are tallying their profits, evaluating their goals and looking over financial statements and tax projections.

While starting a business in Q4 isn't against any rule, it does come with its fair share of struggles that you will need to plan for accordingly. Your business model might not look like that of your competitors, but you can also expect to take in some unique advantages.

Read on for a list of pros and cons that business owners can expect to encounter when starting a business in Q4.

Why you should start a business in Q4

Let's start with the pros. As with any pro/con list, certain factors will affect specific businesses differently. Retail businesses won't benefit in quite the same way that service-based businesses will. However, certain principles apply across the board.

Customized quarterly system

If you're starting a business like an LLC or S-Corp in Q4, consider flipping the traditional quarterly system upside down by making October, November and December your Q1. There are many businesses that don't follow a traditional quarterly system, the federal government being one of them.

It's okay for your fiscal year and corresponding quarterly system to begin when your business does. While you can stick with the traditional system, it's also completely doable to apply your own fiscal reporting and analysis according to your unique start date. Of course, you'll still be required to adhere to typical quarterly tax reporting schedules, but the IRS does allow businesses to apply their own tax year and filing schedule.

Increased sales potential

Quarter four can be a magical time of the year due to the holiday season and the extra capital people are willing to spend on gifts, experiences and investments going into the new year. For retail businesses, this will mean a natural increase in their market and their sales. 

For service-based industries that aren't specifically tied to seasonal experiences, there is still the potential for increased sales if you work to engage in PR that appeals to the customer who is already thinking ahead to next year. If your product or service solves a problem, engage with the customer who is looking to start the new year off on the right foot.

No matter what type of business you start in Q4, consider offering discounts or other promotional offers. While this might seem counterintuitive for a new business, customers are looking for deals on the products and services they purchase at the end of the year. Lowering your prices, and planning for that in your budget, can result in a higher frequency of overall sales in Q4.

Marketing potential

If customers are willing to spend more during Q4, that also means that they're actively seeking out businesses to fulfill their needs. Depending on the type of business you're starting, you can take advantage of the natural increase in web activity to cash in on using keywords and other SEO tactics to boost your discoverability and web presence.

You also have a built-in demographic to focus on: the holiday shopper. With this person in mind, in addition to the demographic that you've already established for your customer base, you can tailor your marketing efforts to appeal to the holiday shopper. Use words and phrases like:

  • Deals

  • Gifts

  • Holiday

  • End of year

  • Limited time

Not only will these words and phrases serve as keywords to boost your visibility online, but they often trigger positive purchasing responses for customers who are making holiday purchases.

The regulatory gap

If new tax laws or business policies are going into effect in 2020, that could make business establishment or licensure more difficult. Starting now could help you get things set up in advance of that. 

On the other hand, if new regulations are coming up in 2020 that would help your business grow and thrive, getting set up now will help you get ahead and take advantage of the full year of benefits and growth. 

Why you should not start a business in Q4

The cons to starting a business in the fourth quarter are legitimate, but can be mitigated with the proper planning and dedication on your part.

Beating out the competition

At the same time that consumers are spending more money, businesses are competing fiercely for sales. Marketing efforts are at an all-time high and customers' attention spans are at an all-time low as they're pulled in different directions to take advantage of the best deals.

Knowing your demographics and what appeals to them will help you stand out when the market seems flooded with competition. Focus your efforts and brand voice on creating genuinely valuable connections with your customers and leads. By doing so, you'll create a higher rate of satisfaction and increase the likelihood that your customers will return to you throughout the coming year.

Skewed data

For many businesses, Q4 is their busiest time of year. While this can be great news for a startup launching at the end of the calendar year, it can also cause some issues when it comes to financial reporting and quarterly analysis.

Part of checking in on the performance level of your business involves diligently comparing your sales, revenue and liability over the course of the fiscal year. If you start out at the busiest, most lucrative time of year, it can result in an inflated view of profits going forward. With nothing to compare these reports to, you can end up overshooting your budget by expecting higher profit margins than what will become the norm in other quarters.

Distracted consumers

While holiday shoppers are zoned in on spending this season, B2B startups may not have the same experience. If your business success will hinge on the attention of corporate employees or executives, you might get more "out of office" emails than enthusiastic demo calls. 

Between vacation time, end-of-year retreats and workshops, and year-end reporting demands, your B2B clients may not be ready for everything your business brings to the table. Similarly, if your clients are bound by a corporate fiscal year budget cycle, budget for your services may not be available until the year turns over. 

Caveat: If you set up your LLC now, you can get ahead for early 2020 and begin prospecting then. The important thing will be to watch your industry and understand the headspace your consumers are in before you launch.

How to decide if you should start a business

To counteract the cons and embrace the pros of starting a business in the fourth quarter, double-down on your market research. Your business plan should reflect the comparable sales and profits of your competitors, and your budget should anticipate a drop off in sales going into the new year.

Proper planning is important in all startups but is crucial for the success of a business launching in Q4. Make sure to account for dips in sales, and don't be afraid to embrace your own quarterly system and fiscal year for more advantageous tax reporting and financial analysis. Arming yourself with solid marketing plans can boost your sales and set you up for success as you carry on into the new year with your business.
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