Other than its literal meaning, the end of the year will mean a lot of work for business owners. In fact, the first thing that business owners often think about during this period is how to settle their taxes. This period usually means that business owners and accountants are much busier because of the current year’s books and also planning for the financial activity for the next year. This article will explain why defining the fiscal year for your own business has many advantages. If you think that the books take up too much time and resources and the handling of which is not sustainable, you can always choose to purchase certain ERP solutions such as QuickBooks.
What Exactly is a Fiscal Year?
A fiscal year is any 12-month period of time. However, what makes a fiscal year different from a calendar year is that it does not necessarily, and typically does not end on December 31. Usually the end of a fiscal year collides with the ending quarter of a calendar year. The fiscal year is important because it is needed for the purposes of accounting. If your business is seasonal, it can be very helpful if the accounting is for a period of time that is different from the calendar year. In fact, if your business peaks over summer for example, you might want to do the year-end financial statements on September 30. Businesses that are busy during the holiday season might find it hard to do up their financial statements on December 31.
Fiscal Year and Tax Year
It is also important to note that there are key differences between the tax year and the fiscal year. A tax year is the period of time which the IRS uses to calculate taxes that a business owes them. However, most business owners treat their tax year as the calendar year. What this means is that the fiscal year will most likely be different from your tax year. Essentially, a fiscal year is the period of time that your business uses to form financial reports.
Once you have made the financial statements for the past year, the next step is to plan for the future. It is important to ask some crucial questions, such as what kind of goals you want to accomplish and how exactly your business will move in that direction. When setting your financial goals, it is always wise to be extremely specific about what kind of goals you are talking about. On the other hand, you also need to be able to quantify these goals and its effects. You can always use a metric that is understood by you and your employees to ensure that everyone is onboard. Lastly, it is crucial to be realistic and practical when setting these goals. A good way to do so would be to set a timeline for your business to follow. The bottom line is that there are many opportunities for you to capture at the end of each year, whether it is the tax or fiscal year. All it takes is the right mindset and the motivation to reach the goals you have set.