"Fiscal year" simply means a 12-month period during which finances are tracked. When the fiscal year begins depends on the individual firm it applies to. The fiscal year might begin and end at any time; each firm chooses when to begin its fiscal year. Governments use the term for tax purposes and their own budgeting, too, defining when their fiscal year begins. The fiscal year may closely match the calendar year, or start at a completely different time.
Businesses and Individuals
Retail businesses frequently begin their fiscal year in late January. Holiday sales make December a busy month, and holiday celebrations make the end of December an inconvenient time to put in extra hours calculating financial reports. Sales tend to calm down after the holiday rush, making January an optimal time for this task. The same strategy of beginning the financial year after a period of calm works for other businesses too, of course. A landscaping business would likely begin its fiscal year the winter, for instance. A small business owner might start his business's fiscal year after the date when he files taxes, for the sake of simplicity. Individuals' fiscal year generally begins on the date when taxes are due, although an individual can file taxes and start her fiscal year early.
Nonprofit organizations -- which include publicly-funded schools, universities and hospitals -- frequently start their fiscal year on July 1. This is no coincidence; they often begin their fiscal year when their main funder -- often the state -- begins its fiscal year, as Charles K. Coe says in "Nonprofit Financial Management." Alternatively, schools might begin their fiscal year at the beginning of the school year, in the late summer or early autumn. Either system allows for continuity in spending throughout the school year -- financial decisions made before the start of the year maintain effect through the duration of that year, instead of abruptly changing in January. Schools can measure student performance against spending measures more easily with this system, too. Schools can track how grants and state funding affected their programs throughout the school year, for instance.
The U.S. federal government begins its fiscal year on October 1, and ends the fiscal year on September 30. Congress reviews proposals for discretionary government spending before the start of each fiscal year. These regulations govern any spending that must undergo an annual review process. Such spending might include defense, homeland security, energy and education funding, for instance. The president creates a budget for each fiscal year, which Congress reviews, deciding whether or not to approve each item on the budget. States determine their own fiscal years, which don't necessarily match that of the federal government. Many states have a fiscal year beginning on July 1.
Monitoring financial success over the period of the fiscal year helps organizations to understand how well they are doing financially. By tracking changes in success rates from year to year, they will have a firmer grasp of whether they are learning to manage their finances better, or worse. They can then try to pinpoint decisions that led to successes and losses over the past fiscal year, and make projections about how the organization will perform in the coming year. Further, they can devise the next year's budget, report their financial status to stakeholders, have clear financial calculations that help them attain funding, and be prepared to pay taxes.
- Investopedia: Fiscal Year End
- Senate: Fiscal Year
- Congressional Research Service; The Congressional Appropriations Process; Sandy Streeter; June 2011
- "Nonprofit Financial Management"; Charles K. Coe; 2011
- IRS: Publication 509
- Roll of dollars image by Mykola Velychko from Fotolia.com