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Author: Linda Carter Article source: http://www.kabish.com/. Used with author's permission.
The Julian calendar we use to pass the time every day, every week, every month and every year is the one most commonly used by businesses. Its general availability and familiarity make it a natural selection.
However, the Julian calendar was certainly not devised with the peculiar needs of the apparel and sporting goods retailer in mind. The seasonal, holiday and special event nature of retailing makes the Julian calendar practically useless for accounting periods.
An accounting calendar that ingeniously relates to the business cycles of retailing is invaluable. Our business cycles are those periods of time between the start and end of a sales season. In general, our business cycles end in July and January.
An accounting period is nothing more than an artificial division of a business year, designed to give management information about a unit of time which is manageable. The period should be long enough so that an infrequent or unusual event will not distort the results. Yet it should not be so short that so much information is produced that it can not be properly absorbed and analyzed easily. If you can't get information you need to analyze your business during the Spring season until August, what good is it? On the other hand, it doesn't make sense to produce a daily report that takes all day to analyze and act upon. Therefore, the commonly agreed upon accounting period is a month.
If each accounting period for one business year can be made to correspond to the same period next year, and the next, this provides an invaluable forecast tool for management. For instance, the month of December should have the same number of selling days each year, and it should have the same number of Mondays, Saturdays and Wednesdays. By shifting a few days here and there from one month to another, the result is a neat dovetailing of accounting months that stay the same from year to year. Now you have an accounting calendar that allows you to compare apples to apples, instead of oranges to apples; the 4-5-4 Accounting Calendar. The 1989 4-5-4 Accounting Calendar is shown.
The 4-5-4 Accounting Calendar is just what it says. Each quarter contains a 4-week month, a 5-week month and a 4-week month. Each month begins on a Sunday and ends on a Saturday. Each month has the same number of selling days this year as it did last year and as it will next year. For example, March has 5 perfect weeks every year, 5 Saturdays, 5 Mondays, etc. For holidays that are a set day of the week, such as Thanksgiving, there will always be the identical selling days before and after the holiday, year after year. This makes it much easier for the retailer to compare this year's sales to last year's sales.
The 4-5-4 Calendar is especially suited for use in preparing sales forecasts and operating budgets. Also, since each month ends on a Saturday you will enjoy the convenience of taking physical inventory counts at week end and not having to either subtract or add sales which preceded or followed the physical count to arrive at a clean cut-off. The inventory counts should therefore be more accurate.
The 4-5-4 Accounting Calendar begins with the month of February, which is traditionally the beginning of the Spring merchandising season and which is the most common beginning of year for retailers.
Changing from the traditional Julian calendar to the 4-5-4 Accounting Calendar will make very few differences in the store's procedures. About the only difference is to realize that for the first year, sales comparisons can be made only at the end of each 13-week quarter. The 4-5-4 Accounting Calendar is also recognized by the IRS for income tax reporting purposes. It is referred to by the IRS as the 52-53 Week Year. To adopt the 52-53 Week Year it is necessary to file a statement with the tax return for the first tax year for which the election is made. Your local accountant can take care of this for you.
In spite of the advantages of using the 4-5-4 Accounting Calendar, I regularly find retailers who do not use it; either because they are not familiar with it or think it will be too difficult to change to a new calendar. I strongly advocate it's use by all retailers. Not only does the 4-5-4 calendar make it easier for the retailer to compare his performance to last year but it also makes it easier to make future plans based upon past history. This article was written by Linda Carter, President of The Retail Management Advisors, a retail consulting firm whose mission is to help independent retailers survive and thrive. Linda can be reached at 1-877-206-1299 or l.carter@the-retail-advisor.com. Our web site is http://www.the-retail-advisor.com
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