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Should You Move to a Non Standard Fiscal Year?
Ciao, everyone. Ya boy writes this while sipping a crispy Peroni on the shores of Sorento, Italia.
JK. I was drinking coffee while I wrote this. Quick tangent - it’s impossible to find a coffee shop that opens before like 11am around here. Do the Italians understand the market opportunity they are sacrificing? Why do they refuse to meet customers where and when they’d like to be served? McKinsey needs to do a case study. It’s 8AM. Now please take my Euros.
Staring at the towering peak of Mount Vesuvius, I couldn’t help but think… of non standard fiscal years.
I recently interviewed Couchbase’s CFO, Greg Henry. Having listened to a number of the company’s earning calls, I asked about the rationale behind their non-standard fiscal year:
“So I joined Couchbase in late 2016 and one of my first things was to move us from a calendar 12/31 to a 1/31 fiscal year. The benefits I saw back then, and I still see them today in particular, is it's really difficult for the sales org to close deals between the US Thanksgiving and then the new year timeframe with many people on holiday and taking time off. So that's always a challenging time. So we just want to take that out of that. The majority of companies at that time were on 12/31, so we wanted to have that sort of offset so that if the day we went public, we'd have the opportunity to sort of have a little bit more clear airspace from an earnings perspective.
And then, I'd be lying if I didn't say that, selfishly, we don't have to do the big mid-year close July 4th. So it offers the finance community a little bit of a break around some of the holidays versus my historic career being a 12/31 working through Christmas to New Year's and July 4th. So there was a little bit of that, but mostly for the sales team.”
It’s also better from a “budget availability” perspective when you are selling software:
“Absolutely, because the opportunity is, a lot of the companies that are our customers have 12/31 year ends so budgets are changing over from year to year, so there is this sort of budget flush concept at 12/31 you can take advantage of, or new budgets open in January for their new fiscal years, and so you could actually get deals done in January, which then for us is in our fiscal year. So yes, there's benefits to that.”
And finally, it helps with mobilizing the troops for sales kickoff:
“I mean, it works great for us because we finish in January, we get our sales kickoff in February, we’re off and running… We literally do our sales kickoff the first week or first full week in February. That's very difficult to do in January because you still have people coming back from holidays at various times. And so again, it's just worked out very well for us and we get everybody energized, excited about the year, comp plans ready, and the field goes off and starts their year”
So to recap:
It helps the sales team manage deal cycles around Christmas and New Year holidays
If your customer’s are on 12/31 year ends, their budgets reset, opening up more dollars
Your finance and accounting teams avoid the mid year July 4th close
You get more airspace for earnings announcements since it’s less crowded
It helps position the company for a more timely sales kickoff
To go a level further, I took a look at the 109 companies we track on a weekly basis to see if they were leaning into this strategy. Here’s what I found:
The majority (62%) are on standard December year ends
Includes the likes of DataDog, Cloudflare, Palantir, Airbnb, Hubspot
The second most popular year end is January (23%)
Includes the likes of Salesforce, Crowdstrike, Mongo DB, Snowflake, Samsara
And then it falls off:
June (5%): Aspen Technology, Bill.com, Paylocity, Atlassian, Affirm
March (4%): Doximity, Dynatrace, 8x8, Lightspeed POS
July (4%): Guidewire, Intuit, Palo Alto, Zscaler
April represents (2%): C3.ai, Elastic
May represents (1%): Oracle
November (1%): Adobe
No one ends the year in February, August, September, or October
Are there any other benefits of a non standard fiscal year? Sound off in the comments.
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