How many days again??
Thirty days hath September. April, June, and . . . Morgan Spurlock (google it). Or those dudes from the band Humble Pie (likely even a more obscure reference). While those Romans were pretty brilliant in coming up with a calendar, they failed to think through its usefulness to restaurants.
Their utter thoughtlessness aside, setting up your accounting periods on a monthly basis is, in a word, stupid. Well, not really stupid, more like, uh, dumb. Okay, that’s too harsh. But there’s some really good reasons to go to a four-week period over a monthly period. Comparability is the biggest one.
October has thirty-one days to it. Always has, always will, unless somebody comes up with a better plan. So why go to a twenty-eight day accounting period, when October 2008 has thirty one days, and so will October 2009 (hey, optimism in keeping your doors open - nice!)? November always has thirty days. The only weird one is February, and that only happens every time we elect a new president. Pretty thoughtful of the Romans to help remind us about that, because otherwise we’d never know. You can compare months nearly as easily as anything else, right?
Well, sort of. October 2008 has four Sundays, Mondays, Tuesdays, Saturdays, and five Wednesdays, Thursdays, and Fridays. That’s important because rare is the establishment whose sales do not fluctuate based on what day of the week it is. My local Fuddruckers, a customize-your-own-burger place, has a Tuesday kids-eat-free special. It’s not because they’re generous. It’s because they want to get more business. Tuesdays are slow. Looking ahead to October 2009, there are only four Wednesdays and a fifth Saturday.
So when you compare your October 2009 sales with October 2008, and sales are eleven percent higher next October from this one, part of it may be due to that extra Saturday, when foot traffic is usually greater.
Using a four-week accounting period solves this problem. Each of the seven days gets included four times. Every year, every period. So when you’re comparing, let’s say, Sunday October 5 2008 through Saturday November 1, 2008 against Sunday October 4, 2009 through Saturday October 31, 2009, you’re comparing the same seven days times four inclusions for each period. And it takes the fluctuation of sales over the course of each week out of the mix.
With four weeks to each accounting period, you’ll want to have thirteen of them each year to create a semblance of a calendar year. Of course, all you calculus majors are going, “yeah but 28 days times 13 periods equals 364, and there are three-hundred sixty five days each year.” Don’t worry, Uncle Adam’s got you covered. That one day shortage every year (adding an additional day every fourth or leap year) gets factored in as a fifth week at your discretion every six years. To keep comparisons the same, you can multiply the single five-week period that occurs in that sixth year by 80% (4 weeks/five weeks), to effectively pro-rate that period. It then approximates a four-week accounting period.
So, the next time you’re looking at that ‘Puppies & Kitties in Love’ calendar and you see thirty or thirty-one days staring back at you, you can smile knowing that, in your world, in ways that really matter, there are only twenty-eight of them.
Tags: accounting, Periods, Restaurant