The fiscal year – why is it important when it comes to your software?

All is quiet on New Year’s Day, at least according to U2. But when you have worked in the software industry long enough, you probably know two things: 1) New Year’s Day is not always the 1st of January and 2) the month before New Year’s Day is the month when many software vendors sell most of their software. It can even be that the sales team is sitting in front of their computer in the office on the 31st of December, instead of celebrating with their loved ones, because the client promised to sign and send that large multi-million enterprise deal before midnight.

A calendar year starts on the 1st of January and ends on the 31st of December. A fiscal year though can start on any day. So, what is a fiscal year? A fiscal year is an accounting year that, unlike the calendar year, doesn’t necessarily end on December 31st. A fiscal year is essentially a customized 12-month period used for accounting purposes. The calendar year is used as the fiscal year by about 65% of publicly traded companies in the United States. So 35% of the companies, at least in the US, have chosen to change their fiscal year from the calendar year. Adobe, Microsoft, Oracle and VMware being some of them.

Why would a company have a fiscal year that is different from the calendar year?

  • A company wants to end its year on a high, which looks better for investors and will have a positive impact on share prices.
  • The business is seasonal, and a company wants to align the accounting period to their business. For example, retailers and travel companies.
  • For tax reasons. This can be very different between countries.
  • To align with their customers. Take as example a company that relies heavily on the U.S. government. The U.S. government’s year ends on September 30.
  • The start date of a company or the date a company goes public. If you start your company in September, you might want to end your fiscal year in September as well.
  • Maybe a not so obvious reason: the availability of people. For accountants January, February and March are the busiest months of the year, so they are in high demand and maybe even unavailable. Executives and other key people might enjoy a Christmas holiday in December.

Why is it useful to know this as a customer?

It’s good to know when a company’s fiscal year ends if you are planning to do business with them. Usually it’s a good moment to get a discount because all the sales managers want to reach their financial targets.

What can be the downside from a (software) customer perspective? An audit. A software audit, or maybe the threat of its outcome, is often used at the end of a fiscal year to force customers into deals. Those deals are beneficial for the vendor, but not always for you as a customer. You might be forced into buying software that you don’t need, like cloud-based products, or into license types you don’t want, like subscriptions. Especially the traditional software vendors want to grow their cloud and subscription-based revenues. Keep that in mind when your account manager gives you a call.

Software publishers and their fiscal year

The following table gives an overview of software publishers we encounter on a daily basis and their fiscal year information. There are also some private companies listed of which no details on their fiscal year are available.

This article was published on 10-07-2019