Most American taxpayers live and breathe and have their being in the universe of the calendar year.
Therefore, the fourth quarter is, for most people, the period from October 1st to December 31st, or what we call here in shorthand EOY (end-of-year).
If this was a horse race we’d be “in the stretch,” the home stretch leading to the finish line.
Whew!
When my wife and I started this business in mid-2017 we had no idea what the 20’s were going to bring.
Global pandemic? I’m not even sure I remembered what the Spanish Flu of 1918 was in 2019.
The cherry-on-top of this whole pandemic business is how politically divisive it ended up being.
Your biological framework doesn’t give two squirts about how you voted in 2020, but there you go.
We didn’t get the flying cars I was looking forward to when I was a young boy back in the 60’s, but we have an excess of information at our fingertips at least.
This can be a beautiful thing, but like anything else prone to extremes it can be dangerous, too.
But…where was I? Oh yeah, the fourth quarter.
This is a special time of year. Don’t believe me?
Walk into a Home Depot in mid-September, and observe all the Halloween decorations.
Yes, they have the Christmas stuff out now. For the past couple of weeks, in fact.
Just in case you haven’t noticed yet.
This is infuriating and even depressing for some, but in the wonderful world of commerce it’s really not all that terribly surprising.
If marketing analysis tells a company that people will buy their crap 2 months earlier than they really need to, they’re going to respond by making it available.
We live in a world of “just-in-time” inventory practices, which dictate what you’re able to actually get your grubby mitts on when you go to the store at any one time.
If other people are buying it, creating a supply chain trend, you can find it on the shelf too.
Assuming they ordered enough of it, and/or actually stocked the shelf when the goods came in.
It’s a special time of year for so many businesses because it’s the highest grossing quarter, that’s the main point here.
The types of businesses that sell things that can be given to others, or celebrate the holiday milestones.
Here’s some more very good news for millions of small businesses, though: if you don’t suffer from winter slow-downs (at least very much), or your revenue is steady or predictable in scale of increase, you have a golden opportunity for tracking and planning.
The Fourth Quarter Can be Estimated
I think that fiscal quarters are important for at least two major reasons, and one possible additional reason, depending on your circumstances:
- Payroll tax reporting. No matter how often you’re required to PAY your employer payroll taxes, you report them by filing Form 941 on a quarterly basis.
- Financial reporting. More and more, underwriters and loan originators are requiring quarterly reports of their self-employed and flow-through entity lenders.
I think this provides an added incentive to track quarterly as well as monthly. After all, seasons are three months long, and so are quarters. There’s no accident that qualification for the employee retention credit was contingent on matching quarters from previous years.
- Extra bonus reason: if you invest with an eye on receiving dividends as a legitimate income source, quarters are critical. Want to know why? All companies begin their ex-dividend calendar based on criteria other than the regular calendar, meaning if you spread your investments for dividend payouts in January, February, and March you’re receiving money from somebody all year.
Corporate investing notwithstanding, if you have been in business for a couple of years at a minimum, and understand your fourth quarter trends from prior years you can mathematically predict where you ought to be by the end of December.
Straight line method would simply be multiplying months one through nine by 1.333 to forecast the entire year, or just dividing by three to forecast the fourth quarter. Therefore, if you can analyze your percentage of either revenue upswing or downswing based on prior years, you have your final quantitative factor.
Is this important? It certainly is for those we work with, real estate investors. There is an understandable slowdown in both inventory and closings, especially in December, though of course it never completely dries up.
Knowing where you might be in two months would be valuable today, wouldn’t you say? Unless you’re independently wealthy, and the individual deals won’t make or break you, this could forecast just exactly how holly jolly a Christmas you can expect to have.
This, ladies and gentlemen, is why a deeper level of understanding of your entire business financial situation, beyond the mere generation of financial reports, can be critical to your well-being, your potential growth, and of course taxes and their relationship to your bottom-line profit.
This is what we do, and why we love doing it.
In the meantime, have a most happy Halloween, and don’t let the zombies get you!