Sunday, September 30, 2007

September Wanes!

Fiscal Periods are always a riveting discussion. Today is the last day of September. New startups tend toward simple, and the most understandable fiscal period is monthly. The advantage of tracking revenues and expenses on a monthly basis is that you are familiar with months. If a transaction occurs in the month of September it goes into September’s profit and loss. Landlords, utilities, lenders, and vendors for instance require payment based on the month not on the fiscal period. Today would be the last day of the September Monthly Fiscal period. Monthly basis is weaker when you try to do year over year comparisons, because dates fall on different days. For example if you compare Sunday September 30 this year with Saturday September 30 last year the data is skewed, you are comparing apples to oranges.

If you want to achieve it measure it”, is an oft used clichĂ© that has relevance here. You compare year to year to determine whether the enterprise is moving forward, sideways or backwards. The essential ingredient in measurement is to consistently use the same metric. When the enterprise matures the accounting period is usually one item that is tweaked to better reflect the fundamentals of the business. This enables better year to year comparisons and aids in the ongoing business planning process.

There are a variety of fiscal periods divided into a Jan –Dec calendar year. The most prevalent divide the year into quarters with a 5-4-4, 4-4-5 or 4-5-4 combination of weekly periods. The advantage is that you will be able to compare week 21 of one year with week 21 of another year and they represent the same Monday – Sunday weekly period.

Restaurants weekly periods can also shift. An example would be a cafĂ© in a downtown office building is probably closed on Saturday and Sunday, so a Monday – Sunday fiscal week is perfect. A tourist restaurant which has high weekend traffic would choose a Wednesday – Tuesday fiscal week.

As the sun sets and blends into night, the fiscal periods for many are ending as September Wanes!