Moving FY End to 1/31 from 12/31

I concur with the pros that Bryan indicated. My former employer contemplated a year end change and ultimately we decided the pros did not outweigh the cons.

Some cons for us:

Having to administer the change in our accounting system (with small staff) and downstream systems with multiple companies set up.
Create new comparable financial reports.
Update budgets/forecasts
Update commission plans formerly based on traditional quarters
The extra audit work related to adding the additional period (may be minor)
Any state and/or federal paperwork that may need to be updated

I am assuming that you are a C-Corp. Generally speaking, a C-Corp can adopt any calendar or fiscal year as its taxable year. However, you may want to check with your Tax Accountant first, to make sure that you are considering all tax implications of this change.

Our company was acquired by a spin-off division of a multi-billion company and they were on a 1/31 FYE doing the 4-4-5. We were on a 12/31 calendar on monthly basis. If you change, be prepared for some oddities that occur such as period "1" is February - not January. Usually the FYE is the year the business year ends in - but our company calls the fiscal year that just ended 2/2/2014 "2013".

If you change, be prepared to have a short period tax return (one month). Also - be prepared to have a 1-month interim income statement or the month of January makes the prior year a 13 month statement.

If you are on a month-to-month basis and go to a 4-4-5, be prepared to not be able to compare each month on its own basis to prior months. Our FYE 2012 had 6 weeks (12/24/11 to 2/3/2012). Comparing, for example, the 3rd quarter current results to the prior year requires generating internal prior year statements in the new format (August - October).

Be prepared to confuse a lot of people in your organization that don't understand how a fiscal year differs from a calendar year. They will, however, get used to it.

Be prepared to possibly make changes to your general insurance policies where you typically would find the policy year ending the same as your FYE. Having them end at the same time makes allocations/accruals easier.

I could list a dozen more "differences" that do settle down after awhile (2 years out). I'm still not sure there are enough compelling reasons to make a change. You might want to "google" this potential change to see hundreds of stories of companies that made this change. If I had my druthers, I'd keep 12/31 under a month-to-month basis.

Mark

If you are a public company, be aware of the disclosure requirements you must make in advance of carrying out your decision on changing year ends.

I have been involved in both and recommend the Dec 31 because it is normal as described above. With "odd" months you get odd quarters and in financial reporting these need a lot of explanation and reminding, especially when the year end difference is more than one month. Having Q1s ended July 31 just goes against expectations. Also think of the transition . When you change year end you will some reported 12 month years ended dec 31 and one thirteen or one month year ended Jan 31, and then 12 month years ended Jan 31. The transition story lives with you for many years.

I think the benefits of a non calendar year end are sold by the auditors because it spreads their workloads. Personally I would stay with Dec 31.

In any case, who has anything better to do in January than a good year end close/audit!

The switch to 1/31 has been popping up in my client base. One of the best justifications I heard from one of my clients that sells into data centers is that changes to the data center are locked down from October 10th or so to January 5th for the holiday season. Thus the move to 1/31 allows for them to have some sort of 4th quarter. This would be a compelling business reason to switch year ends and reason to go through the effort.

I vote no. I worked for a company for 15 years with a 1/31 fiscal year end, another with a 3/31, another with 6/30 and another with 9/30 (Govt fiscal year end). Considering all the pros and cons I know and see above, I would still pick 12/31 as my first choice, the cons outweigh the pros of a non-calendar fiscal year end in my opinion without a doubt to me.
If I absolutely had to pick a second choice it would be 6/30. Having a non-calendar year end is like using the metric system in the U.S. or driving on the wrong side of the road.
You will not be in sync with anyone else and will add countless hours to your work effort with constantly having to adjust to the rest of the country who will be on a calendar basis.

Sharon,
I love being on a June year end. Eases the stress on internal staff and external service providers and I believe is cheaper as well. This may not be as true with only a one month offset, but it can't hurt. Your comparisons are your own, so I don't follow some of the issues raised about about comparability, you'll have a stub period of one month and then move on. January year-end is quite common in retailing, I'd consider what your competitors do, especially if you are or plan to be public. Certain companies take real pride in being off cycle, Jefferies in investment banking comes to mine. Their quarter ends a month early and they get significant attention to their results as they are seen as a precursor of what their competitors results may be.

I have worked through a fiscal year change, media company aligning to industry 9/30 change from 12/31.
Cons: All technology you use will need to be custom handled. Finance teams will need to change all templates and will be asked to reconfirm the numbers constantly.
You are better off hiring experienced temporary help to ease off the year end.
Vote: Highly avoidable