It’s July 1st. Congratulations on making it through another financial year! It’s like Christmas for businesses, except instead of presents, you receive the gift of stress and panic for the entire month of June. That raises the question – why does the financial year matter so much?
Why July?
If you’ve ever wondered why the financial year doesn’t coincide with the calendar year, it’s because all the politicians would go on holidays in December and weren’t around to organise the budget. While this feels like the setup to an easy slam dunk on politicians, this is probably for the best, as accountants and business owners everywhere don’t have to ring in the new year by labouring over a P&L. Plus it means that businesses that boom during the holidays don’t have to close their books halfway through their most profitable period.
Not everyone thought this far ahead though, as the majority of countries still use the calendar year to mark the end of their reporting period.
Around the world
Many countries have different fiscal periods, the weirdest of which is the UK, whose financial year begins on the 6th of April for individual finances. And that’s not even the strangest part – for UK-based companies, the fiscal year is dependent on when the company was registered. Once a company is created, its financial year starts on the 1st of the following month. If this sounds confusing, it’s because it is. Not to worry though – the government allows you to either extend or shorten a financial year so that you can land on an end date of your choosing, so most companies in the UK choose to end their accounting period in either March or December.
Why is it so important?
No matter which illogical date it falls on, the closing of a financial period is an important time for all companies. For one, it allows you to fully assess your performance across a 12-month period, and easily do year-on-year comparisons to find trends and patterns. You’re also able to finalise your tax obligations, and perform a stocktake to determine the value of your inventory and assets.
Running a business forces you to wear many different hats, and when you’re so focused on keeping the wheels turning, it’s easy to forget to take a step back every now and then and look at the big picture. A new financial year gives you the opportunity to do just that – while everyone is using this week to recover from the race against the clock, take a moment to review your goals, set some new ones, and start the new financial year off on the right foot.