As a business owner, you are likely aware that there are two primary options for setting your company’s fiscal year: the calendar year and the fiscal year. Both options have their advantages and disadvantages, and it is important to understand the differences between the two in order to make an informed decision about which option is best for your business.

The Calendar Year

The calendar year is the most commonly used fiscal year and is the period from January 1st to December 31st. This fiscal year is used by many businesses in the United States. One of the benefits of using the calendar year is that it is easy to track and align with tax season. Additionally, it is often the preferred fiscal year for businesses with simple accounting processes, as it is straightforward and easy to understand.

The Fiscal Year

On the other hand, the fiscal year is a 12-month period that begins on a date other than January 1st. For example, a fiscal year could begin on October 1st and end on September 30th. This fiscal year option is often used by businesses whose busiest periods do not align with the calendar year. The fiscal year can also be beneficial for companies that want to separate financial reports from calendar year-end tax returns. Additionally, certain industries, such as agriculture, may find that their fiscal year naturally aligns with their crop cycle.

Choosing a Schedule For Your Business

When deciding between the calendar year and the fiscal year, there are several factors to consider. One of the most important factors to consider is tax planning. For businesses with seasonal fluctuations or complex accounting practices, a fiscal year may offer tax advantages that are not available under the calendar year. However, if your business operates on a simple accounting system, the benefits of using a fiscal year may not outweigh the added complexity.

Another factor to consider is cash flow. For businesses that operate on a seasonal cycle, using a fiscal year can help smooth out cash flow and provide a more accurate picture of financial performance. However, for businesses that do not have significant seasonal fluctuations, using the calendar year may be sufficient.

It is also important to consider industry standards and reporting requirements. Depending on your industry, certain financial reports may need to be submitted on a specific fiscal year cycle. Additionally, if your business is publicly traded or has investors, they may have expectations around the fiscal year that you choose.

Contact SD Associates, P.C. Today!

Understanding the differences between the calendar year and the fiscal year is important for making informed decisions about your business’s financial strategy. Whether you choose to use the calendar year or the fiscal year, it is important to consider factors such as tax planning, cash flow, and industry standards when making your decision. Consulting with a financial advisor or accountant can be an important step in ensuring that you make the right decision for your business.  Contact SD Associates, P.C. today at (215) 517-5600 to learn how we can help you elevate your business!