Why are you so short? I want to be your friend, but right now you are a bully. You see, I owe a lot at the end of the month: lease, phone bills, and the like. But as a business owner I only had 28 days – your precious lovely February days to earn it. And to make matters worse, I am in a process of increasing receivables and slowly collecting. Yes Ms. February, you are stern and reward some, but take away from others. Ms. 28 you are alluring, maybe more so than all the other boring months out there… 31. I mean ask Tinder, it makes a difference.
The beginning of the year is generally tough for small businesses: The holiday season has left us with physical, mental, and financial hangovers. The work cycle and sales cycle is slow from all the holiday revelry. Yes there are exceptions… Maybe you are a retailer cashing your checks from December sales, oh you love her then? Well guess what – even law firms don’t like you!
Law firms distribute cash to partners based on partners and guess what? Typical Q1 – February influenced results are invariably little to no profit. You see – it is not just your landlord and bank looking for interest – there are added payroll taxes that hit hard at the beginning of the year. Oh what a difference a day makes the saying goes. The difference between 28 and 31 days is measurably about 10%.
And so we have additional payroll taxes, holiday hangovers, and less time to accomplish things. You hear about people complaining about daylight savings time? Well my beef is with you, Misses. But really – I know we will make up in the long run. Maybe we are just having a silly argument and regardless of who is right or wrong, I want to seek understanding.
Griping about a short month is a strange complaint, but it is a parable of business cycles that must be planned for. Q1 is tough for a lot of small businesses that barely have up to date accounting, let alone an FP&A team (financial planning and analysis). Slow months must be planned for in terms of cash flow and borrowing costs. And even if you do not have debt, you always want capital to be working most efficiency. February, I did not really mean everything I said back there, it is just, that you are a bit different from the other months and I need to pay better attention to you.
Other resources from John Gillingham:
Learn Accounting: http://accountingplay.com/
My Innovative Accounting Books: Amazon Kindle