Financial years don’t exist!

Financial years are one of the great business myths. They don’t really exist but financial statements, budgets, forecasts and even business plans are constrained by them. This doesn’t reflect reality and can mislead.

Legally, we have to prepare annual reports and file annual tax returns. That’s compliance but isn’t how businesses operate. Very few businesses, if any (including schools), cease on the last day of the financial year and sell off assets, retrench staff and cancel contracts and then start again the next day. The last day of the financial year is just like any other – business is continuous.

So, rather than the usual current month and year-to-date management reports, why not reflect reality and report, say, current month within the context of the last ‘rolling’ 6/12/18/24 months and similarly for forecasts, whatever makes sense for your business? You would see underlying trends more easily enabling you to assess business performance more readily, logically leading to better decisions.

Your accountants may not thank me for making this suggestion as it will force them to change well-established traditions but don’t let the tail wag the dog. You’re their customer. It’s what is best for you that matters!


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