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Seasonal business -- Best ways to separate out ramp-up costs to launch?

I work in a business that is fairly seasonal, where about 75% of our revenues come in during a six month period.  We essentially operate on a fiscal year of September to the following August (to line up with the school year, as we are an educational services business), even though we report our financials on a calendar year basis.

Each May through August, we incur significant expenses related to ramp-up (seasonal employee recruiting, customer marketing, logistical arrangements) related to our "launch" of the new year which starts in September.

The business cycle works like this:

SEP   New school year launched, significant costs, some revenues
OCT  Significant costs, significant revenues
NOV  Significant costs, significant revenues
DEC   Significant costs, significant revenues
JAN   Significant costs, significant revenues
FEB   Significant costs, moderate revenues
MAR  Moderate costs, moderate revenues
APR   Moderate costs, moderate revenues
MAY  Moderate costs, low revenues   (Plus ramp-up costs for next school year also incurred)
JUN    Low costs, low revenues    (Plus significant ramp-up costs for next school year also incurred)
JUL     Low costs, low revenues    (Plus significant ramp-up costs for next school year also incurred)
AUG   Low costs, low revenues    (Plus significant ramp-up costs for next school year also incurred) 

Two questions:

1)  From a management reporting perspective, what is a good way to separate out ramp-up costs on the P&L, to separate "next school year" launch costs out of the last few months of "current school year" operations in those months of May through August? 

2)  From a GAAP perspective, what is permitted here?  Right now it is not too big of a GAAP issue since we technically close our books on a calendar year basis.



Adam Jacobson
Title: President
Company: Red Three Consulting
(President, Red Three Consulting) |

I can't give you the official "GAAP" answer (although I do believe that some of your expenses should be officially marked as prepaid until they the corresponding revenues come in later in the year - we've done similar things for certain clients who have destinct product launches throughout the year).
But, is there a way in your financial system to specify another field - project, activity, even a new cost center, which might help you specify the year of the given expense? Then you could have separate P &Ls for each year. Generally, we do this kind of thing for individual products/projects but there's no reason your project can't be the 2011-2012 school year.

Rick Ubinger
Title: Co-Owner & CFO
Company: Acuity Finishing
(Co-Owner & CFO, Acuity Finishing) |

I work with an educational services business with the same issues you raise. First, I converted the financial reporting from a calender year basis to a school year basis to match the natural business cycle while maintaining the calendar year basis for tax. Then, we segregated the direct costs of sales from the monthly fixed costs and developed a process to match the direct costs incurred with revenues earned. Finally, we created a monthly cash flow projection to ensure adequate liquidity was available to operate the business.


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