A fiscal year is the accounting period used by a company to track its financial performance. It is typically 12 months long, but it can be any length of time that is convenient for the company. The fiscal year is important for software companies because it allows them to track their sales and expenses over a specific period of time. This information can be used by customers to make decisions linked to pricing, marketing, and product development for their own businesses.
Fiscal vs calendar: which year to choose?
A company might choose a different fiscal year than the calendar year for a few reasons. One reason is to align the fiscal year with the company’s natural business cycle. Another reason is to take advantage of tax breaks or a company might choose a different fiscal year to make it easier to compare its performance to other companies in the same industry.
The fiscal year for businesses in South Africa
The South African government’s fiscal year runs from 1 of March to the end of February, while some publicly traded companies in align with the calendar year from January 1 to December 31. This adherence to the calendar year is mandated by the South African Companies Act, which requires companies to prepare their financial statements annually within that period. Although companies have the option to change their fiscal year-end, it can only be done once every five years, and the new fiscal year must not exceed 15 months. While exact statistics are unavailable, anecdotal evidence suggests that only a limited number of companies in South Africa opt for a fiscal year-end that deviates from the calendar year.
Software customers and the fiscal year
As a customer, it is important to be aware of software companies’ fiscal year. This is because the company may, for example, be more willing to negotiate discounts or other terms at the end of its fiscal year. What else can you do with this knowledge?
- Negotiate better pricing and contract renewals. According to Gartner’s research on Strategising vendor negotiations to combat inflation, one of the most opportune times to negotiate a contract is during the software vendor’s quarterand/or fiscal year-end date. Software Manufacturers often review their pricing strategies, offer discounts, or adjust contract terms closer to the end of their fiscal year. Being aware of the company’s fiscal year enables you to align your negotiations, contract renewals, and budgeting discussions accordingly, potentially resulting in more favourable pricing or terms.
- Assess the company’s financial stability and viability. Understanding the company’s fiscal year can provide insights into its financial stability and viability. Reviewing financial reports and statements based on the fiscal year can help you assess the company’s financial health, growth trajectory, and overall business performance. This knowledge is crucial for making informed decisions about investing in the software, relying on it for critical processes, or assessing its long-term sustainability.
- Planning and roadmap alignment. If your organisation relies on certain software for strategic initiatives or long-term planning, knowing the company’s fiscal year allows you to align your plans with the software’s development roadmap. It helps you understand when new features or enhancements may become available, enabling better synchronisation between your organisational goals and the software’s capabilities.
- Increase in audit activity generally takes place closer to end of fiscal years. A software audit, or maybe the threat of its outcome, is often used at the end of a fiscal year to force customers into deals. Those deals are beneficial for the vendor, but not always for you as a customer. You might be forced into buying software that you don’t need.
Knowledge is power
Ultimately, understanding the implications of the fiscal year for software customers in South Africa is crucial for effective planning, budgeting, and aligning with software providers. Knowledge of a software company’s fiscal year also influences customer support availability, contract renewals, and pricing structures. It’s also advisable to keep up to date on major vendors’ annual report information. Keeping in mind the publisher’s fiscal year helps software customers in South Africa make informed decisions, maximise the value of their software investment, and stay afloat in an ever-evolving software landscape.