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Moving FY End to 1/31 from 12/31

Sharon Desser's Profile

We are considering changing our Fiscal Year End from Dec 31 to Jan 31. Can I poll the community for the Pros and Cons?

Answers

Bryan Frey
Title: VP Finance/Corp Controller
Company:
(VP Finance/Corp Controller, ) |

My favorite year-end is July 31 b/c then you miss every major holiday and it's during an otherwise slow summer month (i.e. lots of time for your group to get things done).

Why 1/31 is preferable to calendar year-end:
-Not holiday time for your people
-Not holiday time for salespeople trying to get year-end deals over the line
-Not holiday time for clients who grind to a halt at the year-end holidays, making it really difficult to get those last sales orders over the line
-Your auditors will have more time for you b/c you're not part of the insane rush of year-end and calendar quarter companies for audit and assessment work.
So, for the record, everyone is around and working leading up to Jan 31, and not everyone is around and working near 12/31. So your employees will love it and you will find it easier to get sales done with customers who are actually in the office.

Why 12/31 is preferable:
-Well, most everyone else is on calendar year-end, so there is a nice synchronicity there. It's like everyone being on daylight savings except for Arizona. Who knows what time it is over there? (no offense to Arizona)
-Many of your suppliers work on a straight calendar basis and if you want to align with their cycles, it's a lot easier to share their cycles. Think of corporate benefits renewals and other services.
-This may be directly counter to what i said above, but many of your customers are on the calendar and thus it may actually be easier to squeeze in those final sales if they have budget remaining.

Those are some quick ins and outs. As a CFO I love being off the regular quarterly calendar b/c it makes life easier on a team that already works very hard every day.

Sharon Desser
Title: Director of Finance
Company: sharondesser
(Director of Finance, sharondesser) |

Thank you Bryan. Well said and spot on to the point!

Anonymous
(Sr. Revenue Accountant) |

I concur with the pros that Bryan indicated. My former employer contemplated a year end change and ultimately we decided the pros did not outweigh the cons.

Some cons for us:

Having to administer the change in our accounting system (with small staff) and downstream systems with multiple companies set up.
Create new comparable financial reports.
Update budgets/forecasts
Update commission plans formerly based on traditional quarters
The extra audit work related to adding the additional period (may be minor)
Any state and/or federal paperwork that may need to be updated

(Agent, JKS Solutions, Inc.) |

I am assuming that you are a C-Corp. Generally speaking, a C-Corp can adopt any calendar or fiscal year as its taxable year. However, you may want to check with your Tax Accountant first, to make sure that you are considering all tax implications of this change.

Anonymous
(Controller) |

Our company was acquired by a spin-off division of a multi-billion company and they were on a 1/31 FYE doing the 4-4-5. We were on a 12/31 calendar on monthly basis. If you change, be prepared for some oddities that occur such as period "1" is February - not January. Usually the FYE is the year the business year ends in - but our company calls the fiscal year that just ended 2/2/2014 "2013".

If you change, be prepared to have a short period tax return (one month). Also - be prepared to have a 1-month interim income statement or the month of January makes the prior year a 13 month statement.

If you are on a month-to-month basis and go to a 4-4-5, be prepared to not be able to compare each month on its own basis to prior months. Our FYE 2012 had 6 weeks (12/24/11 to 2/3/2012). Comparing, for example, the 3rd quarter current results to the prior year requires generating internal prior year statements in the new format (August - October).

Be prepared to confuse a lot of people in your organization that don't understand how a fiscal year differs from a calendar year. They will, however, get used to it.

Be prepared to possibly make changes to your general insurance policies where you typically would find the policy year ending the same as your FYE. Having them end at the same time makes allocations/accruals easier.

I could list a dozen more "differences" that do settle down after awhile (2 years out). I'm still not sure there are enough compelling reasons to make a change. You might want to "google" this potential change to see hundreds of stories of companies that made this change. If I had my druthers, I'd keep 12/31 under a month-to-month basis.

Mark

Jack Judd
Title: Retired
Company: Retired
(Retired, Retired) |

If you are a public company, be aware of the disclosure requirements you must make in advance of carrying out your decision on changing year ends.

Kay Flanery
Title: Consultant
Company: JCS Computer Resource Corp.
(Consultant, JCS Computer Resource Corp.) |

Think twice before you attempt this.
- It is alot of work to make the change in the accounting software; to be cost effective, you may not be able to bring transaction history to the new "company".
- It may require IRA approval. Sub-S corps MUST be 12/31 year-end.
- If you were to change, I would keep it on a calendar quarter i.e. 3/31, 6/30, 9/30.
- Only do IF it gives better info based on your business cycle.
- My experience is to ONLY do it if there is a compeling business reason. Convenience to avoid the Year-end rush is NOT a good reason.

Best reason to keep at 12-31 is that January & February are not generally "vacation" months & the weather keeps folks indoors.

I've done the year-end conversion in several accounting problems. It is NOT quick, easy or cheap.

(Agent, JKS Solutions, Inc.) |

Under IRC Section 1378, the taxable year of an S-Corp is the "permitted" year, which is either a 12/31 year end, or "any other ACCOUNTING PERIOD", to the extent that the S-Corp can establish a business purpose for having a different permitted/taxable year.

Topic Expert
Simon Westbrook
Title: CFO
Company: Aargo Inc.
( CFO, Aargo Inc.) |

I have been involved in both and recommend the Dec 31 because it is normal as described above. With "odd" months you get odd quarters and in financial reporting these need a lot of explanation and reminding, especially when the year end difference is more than one month. Having Q1s ended July 31 just goes against expectations. Also think of the transition . When you change year end you will some reported 12 month years ended dec 31 and one thirteen or one month year ended Jan 31, and then 12 month years ended Jan 31. The transition story lives with you for many years.

I think the benefits of a non calendar year end are sold by the auditors because it spreads their workloads. Personally I would stay with Dec 31.

In any case, who has anything better to do in January than a good year end close/audit!

Jeff Stark
Title: Partner
Company: Sensiba San Filippo LLP
(Partner, Sensiba San Filippo LLP) |

The switch to 1/31 has been popping up in my client base. One of the best justifications I heard from one of my clients that sells into data centers is that changes to the data center are locked down from October 10th or so to January 5th for the holiday season. Thus the move to 1/31 allows for them to have some sort of 4th quarter. This would be a compelling business reason to switch year ends and reason to go through the effort.

Theresa Wilt
Title: Consultant - DCAA/ FAR/ CAS Guidance + A..
Company: T W Consulting, Inc.
LinkedIn Profile
(Consultant - DCAA/ FAR/ CAS Guidance + Accounting system setup , T W Consulting, Inc.) |

I vote no. I worked for a company for 15 years with a 1/31 fiscal year end, another with a 3/31, another with 6/30 and another with 9/30 (Govt fiscal year end). Considering all the pros and cons I know and see above, I would still pick 12/31 as my first choice, the cons outweigh the pros of a non-calendar fiscal year end in my opinion without a doubt to me.
If I absolutely had to pick a second choice it would be 6/30. Having a non-calendar year end is like using the metric system in the U.S. or driving on the wrong side of the road.
You will not be in sync with anyone else and will add countless hours to your work effort with constantly having to adjust to the rest of the country who will be on a calendar basis.

(Agent, JKS Solutions, Inc.) |

Your title indicates you are an HR professional, which is great and you are probably coordinating the administrative side of the filings and such, but your outside CPA really should be the one to consult on this and your CFO will definitely need eyes on this decision as everything in accounting from systems through reporting will change and could be for the worse depending on your entity type. I'm not even going to attempt the list of things. Many good points above, and when there is a valid reason, a different year end may be very beneficial, but there is much more to consider.

Sharon Desser
Title: Director of Finance
Company: sharondesser
(Director of Finance, sharondesser) |

Hi Valerie. To be candid, I'm really Accounting through and through; a numbers person to the core. I was asked to take on some HR responsibilities in addendum. Give me ledgers anyday!

Damon Butler
Title: CFO
Company: The Protective Group, Inc.
(CFO, The Protective Group, Inc.) |

Sharon,
I love being on a June year end. Eases the stress on internal staff and external service providers and I believe is cheaper as well. This may not be as true with only a one month offset, but it can't hurt. Your comparisons are your own, so I don't follow some of the issues raised about about comparability, you'll have a stub period of one month and then move on. January year-end is quite common in retailing, I'd consider what your competitors do, especially if you are or plan to be public. Certain companies take real pride in being off cycle, Jefferies in investment banking comes to mine. Their quarter ends a month early and they get significant attention to their results as they are seen as a precursor of what their competitors results may be.

Anonymous
(Manager Corporate Accounting) |

I have worked through a fiscal year change, media company aligning to industry 9/30 change from 12/31.
Cons: All technology you use will need to be custom handled. Finance teams will need to change all templates and will be asked to reconfirm the numbers constantly.
You are better off hiring experienced temporary help to ease off the year end.
Vote: Highly avoidable

John Argo
Title: Consultant
Company: Independent Advisory Services
(Consultant, Independent Advisory Services) |

I'm also in the camp of having a mid-year FYE. I nearly always prefer them. I can get better quality results because of less competition for attention for everyone involved. Scheduling it to the natural business cycle should help narrow the timing choices. One reason I have NOT heard cited (and by the way, the IRS is unlikely to recognize as a good reason to change) is that the window between when you pay out bonuses and when the taxes are due for individuals is wider. It's a small thing but it may be relevant.

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