Is a 4-4-5 Calendar Right for Your Business?

At Coveted Financial, many of our Chicago area clients are bringing a sharper focus to their accounting and business planning with a 4-4-5 calendar. What is a 4-4-5 calendar?

As children, we all learned to decipher the standard Gregorian calendar with a mnemonic, first published in the 1500’s: “Thirty days hath September, April June and November. All the rest have 31, except February, the different one. It has 28 days clear, and 29 in each leap year.”

This is not a problem for most people. However, as a business owner, executive or accountant, you are not most people. You need to record monthly income, track expenses and budget for payroll. You need to close and update your books on an orderly schedule. And you need to compare business periods to analyze results, spot trends and determine how you can improve.

Analysis of monthly sales or wages can be complicated by the random sequence of four- and five-week months. The same goes for comparing quarterly results. In one calendar year, a quarter may have 90, 91 or 92 days.

Another problem with running a business by the standard calendar is the month end, when results have to be updated and reported. In 2019, one month ends on a Monday, two on Tuesday, one on Wednesday, three on Thursday, one on Friday, two on Saturday and two on Sunday.

Finally, with four-week and five-week months both occurring and ending at random, the task of budgeting for material flows, payroll and other recurring expenses becomes more complicated.

For many Chicago clients of Coveted Financial…especially those in retail and manufacturing…the solution to these accounting and business planning issues is the 4-4-5 calendar. The chart below shows a few important differences in the standard calendar and the 4-4-5 calendar.

The first thing you will notice is that instead of the number of days in the month going up and down at random, there is an orderly repeating pattern of 28, 28 and 35 days. There are eight four-week months and four five-week months, making it easier to compare periods. And the 28-28-35 pattern repeats four times, so there are an equal number of days for comparing each quarter.

For payroll, utilities and other expense planning, the number of weeks is also more stable, with 4-4-5 repeating four times, again allowing a more meaningful comparison of weeks, months and quarters.

A principal advantage of the 4-4-5 calendar is that all twelve months can end on the same day, in this example on Saturday. This is very useful in retail or in manufacturing, where timely analysis of weekly sales, production flows or wages can be critical to efficient management of cash flows, inventories and lines of credit.

What are the disadvantages of the 4-4-5 calendar? First, the 5-week months have to be compared to each other or broken down in to weekly comparison with the 4-week months. Second, the 4-4-5 calendar has only 364 days, so every five or six years, a 53rd week is necessary, which can complicate long range forecasting or year-to-year comparison.

Even with a few disadvantages, the 4-4-5 calendar is a powerful way to sharpen your budgeting and forecasting. For more information on how the 4-4-5 calendar can improve your business planning, contact us today!