IGNORE THE CALENDAR YEAR
The “year” defines the amount of time it takes the Earth to make a full orbit around the sun. During this lengthy journey, we experience four seasons, 12 months, 365 days, 8,760 hours and 525,600 minutes. But what does our planet’s trek around the sun have to do with the accounting rhythm of your organization? The correct answer is “nothing.”
Frequently I hear businesses talk about their annual budget or the year’s sales goal. Many bonuses and incentives are based on annual targets, but there is no direct connection between a sales goal and the amount of time it takes our planet to travel 92.96 million miles.
The easiest explanation for the annual accounting rhythms is the government’s need to collect taxes. Historically, governments collected taxes based on an organization’s profitability for the calendar year. Therefore, most companies adopted the annual calendar for targets and reporting. I believe the time has come for most organizations to break from the planet’s orbital rhythm and adopt a rhythm that makes more sense – the weekly accounting calendar.
THINK BY WEEK
The reasons for the move to a weekly rhythm are many, but let’s start by acknowledging another most common timeframe used for company accounting and planning – the month.
At first glance, the month looks like an ideal length of time to track. But unfortunately, the month is a poor time increment. Some months have 28 days, while other have 30 or 31 days. (Even more confusing, every four years we have a month with 29 days.) Some months have four weeks and other have five weeks. Also, the number of work days is inconsistent from month to month.
The month has too much variability to make it a consistent measure.
In a weekly accounting rhythm, every week is exactly the same (excluding holidays.) From a behavioral and psychological standpoint, it’s also a measure that every human being understands and can grasp.
For example, ask any of your team members what they did last weekend or what they have planned for next weekend and they can likely answer quickly. But ask a team member what they were doing last June 23 or what is their plan for November 8 and they’ll look at you like a deer in headlights. This is particularly true for any business that requires timesheets. Ask an employee to complete a missing timesheet from six weeks ago, and you’re likely to get an incomplete and inaccurate record of that week.
TIGHTER RHYTHM FOR BETTER RESULTS
The weekly rhythm also allows you to keep a tight pulse on your organization. Too frequently, we wait until the end of the month (or even worse, the end of the year) to measure our performance only to be surprised at a shortfall we didn’t see coming. But watching a week unfold in real time allows quicker adjustments.
It also avoids the tendency to put things off until the end of the month.
Incentives also improve when implemented by week. Giving an annual bonus for something that happened 10 months ago has very little impact on behavior, but a weekly bonus is beneficial because it is awarded closer to the time of the behavior we want to encourage.
NOW IS THE TIME
Many readers are thinking that it would be overly time-consuming to close your books 52 weeks a year. But from a technical standpoint, it’s never been easier to collect and reconcile data on a weekly basis. Banking and credit card statements can be digested on a daily basis. And internal systems can easily be calibrated to a weekly rhythm. Why wait until the end of the month to send an invoice when you can send it now?
You still must file your taxes on a calendar year basis, of course, but your accountant will no doubt be thrilled that your data will be completed and reconciled the first week of January. So, don’t wait for another journey around the sun to adjust your company’s accounting rhythm to a more sensible approach – the weekly accounting rhythm.