In this article, we unlock some secrets to strategic financial planning for your retail business. We explain why choosing the right year end is more than a calendar decision; it’s a strategic move that can significantly impact your bottom line.
Read on to discover the strategic advantages of aligning the year end with peak profit periods to gain a cash flow advantage and to enable informed decision-making. In a competitive retail landscape, even marginal gains matter—why not rethink your year end with insights from the Menzies Retail team.
Are you thinking outside of the norm?
What year end should a Retail company have? Sounds like a simple question, and in some ways it is, but all too often companies don’t consider the implications of the choice they make and why a different year end might be better. When it comes to accounting year ends, most UK companies tend to fall into one of three categories.
- They choose a 31 December year end, so it ties up with the calendar year.
- They choose a 31 March year end as it broadly ties up with the UK tax year.
- They are automatically given a year end which is 12 months from their incorporation date and never change it.
What to consider when ‘choosing’ a year end
Whilst some companies do make ‘active choices’, it is all too rare that businesses give it the appropriate thought and yet it can have a major impact. When strategically selecting a year end, there are various things that should be taken into consideration:
When does my balance sheet look strongest?
Whilst an annual set of accounts will show 12 months of trade, a balance sheet is a snapshot at a point in time. Suppliers, finance providers and credit rating agencies are amongst those entities which will base an assessment of your business on that snapshot in time so businesses who are concerned about that assessment should be considering at what point in the year does my balance sheet look the healthiest and using that as a factor in their decision. When does my cash position look the strongest? When are our stock levels at their lowest point?
When do I need to pay my corporation tax?
Unless you are making high profits, most UK businesses pay their corporation tax 9 months and 1 day after their year-end. As well as factoring in when you have the cashflow to pay your tax, you should also consider when you make your profits.
What time of year do I make the most profit?
Many seasonal retail businesses make the majority of their profits at the end of the year, mainly to Xmas and increasingly due to Black Friday. With a 31 December year end you are making profits in month 12 of your financial year and are paying tax on those profits nine months after you make them. With say a 31 October year end, you wouldn’t be paying tax on your Xmas profits for nearly 20 months creating a big cash flow advantage.
More time for adjustments
If you are reliant on Xmas trade and have a 31 December year end, you won’t know if you are going to have a good financial year until month 12 of your year. Having Xmas early on in your financial year means you know if it is looking like a good year or a bad year early and have many months to forward plan and make adjustments.
There are plenty of other factors to consider. A 31 December year end can often mean stock counts on New Year’s Eve or New Year’s Day which can be more difficult to organise. Also consider, when is the best time for your annual audit or for your AGM? Does that coincide with the year-end you have chosen?
Determining the appropriate year end for a retail company is a crucial decision that goes beyond mere calendar alignment. When contemplating the ideal year-end, factors such as the strength of the balance sheet, timing of cash flows, and considerations related to tax payments should be carefully weighed. A thoughtful selection of the year end can provide a substantial cash flow advantage, allowing companies to defer tax payments and make informed decisions based on early indicators of financial performance.
The Menzies Retail team are ready to assist, providing personalised advice based on individual circumstances. In a climate where any gain is valuable, a thoughtful reconsideration of the financial year end could unlock strategic advantages and contribute to the long-term success of the business.