Fiscal vs. Annual Planning

Annual, or calendar, planning means preparing financial reports and forecasts to cover a calendar year, such as 2011. Fiscal planning means selecting a 365-day period, such as Sept. 1, 2010, through Aug. 31, 2011. While a firm technically could record historical financial accounts over one period but make future plans and forecasts over another, it is simpler and more common to use a consistent "financial year."

1. Pros of Fiscal
   
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     A business that experiences seasonal demand may find fiscal planning more suitable. This is because the time it receives revenue from sales and the time it spends money to make the relevant products will be distinct and could even be in different calendar years. Selecting a suitable fiscal year makes it easier both to assign specific expenses to specific sales and to apply the lessons learned from one "cycle" for future planning.
   Cons of Fiscal
   
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     Using a fiscal year may make it more difficult to compare performance with other companies in a similar line of business that use either a different fiscal year or use the calendar year. This may be a particular problem for companies that deal in seasonal industries and want to see how well they performed against rivals over a particular season, or want to take account of their likely competition in a forthcoming season.
   Pros of Annual/Calendar
   
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     A sole proprietor may find the calendar year system simpler, as this usually allows him to calculate business profits or losses on the same time basis as calculating other elements of his personal income for tax purposes. Indeed, a sole proprietor or partnership usually has to specifically justify using a fiscal year to the IRS.
     A business that employs staff usually has to file annual wage reports for tax purposes on a calendar year basis. Using the calendar year for all financial records on forecasts thus streamlines the process.
   Cons of Annual/Calendar
   
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     Because January 1 through December 31 is inherently the most popular choice of a financial year, businesses that use external accountants may find it more difficult to get a quick service at a favorable price if they use the calendar year system.

Enyinnaya Nnamdi
Sloane Business Management Consultants
CEO
info_sloanebizconsultants@yahoo.com