Understanding the fiscal cycle is important for finance professionals who play a role in budgeting, forecasting, reporting, and compliance.
Key Phases of the Fiscal Cycle
While terminology may vary by organization or jurisdiction, the fiscal cycle typically includes the following phases:
1. Planning and Budget Development
This phase begins months before the fiscal year starts. Departments forecast revenues and expenses, identify priorities, and prepare budget requests.
Key activities:
- Revenue forecasting
- Needs assessments
- Strategic planning
- Budget instructions issued to departments
2. Budget Adoption
Once the proposed budget is compiled, it goes through a formal review and approval process by governing bodies such as a city council, school board, or nonprofit board of directors.
Key activities:
- Public hearings or stakeholder input
- Amendments and revisions
- Official budget adoption by votes
3. Implementation and Execution
Once adopted, the budget becomes the legal framework for spending. Departments begin executing the budget by allocating funds, managing contracts, and making purchases.
Key activities:
- Monitoring spending vs. budget
- Cash flow management
- Compliance with appropriations
4. Monitoring and Reporting
Throughout the year, organizations monitor financial performance, provide periodic reporting, and ensure that spending aligns with the adopted budget.
Key activities:
- Monthly or quarterly financial reports
- Mid-year adjustments
- Communication with leadership and stakeholders
5. Audit and Evaluation
After the fiscal year ends, financial activities are audited, evaluated, and reported. Insights from this phase inform the planning stage of the next fiscal cycle.
Key activities:
- Year-end close
- Financial statement preparation
- External audits
- Post-mortem analysis and feedback
Fiscal Year vs. Fiscal Cycle
It’s important to note the distinction between a fiscal year and the fiscal cycle:
- A fiscal year is the 12-month accounting period an organization uses for budgeting and reporting (ex., July 1–June 30).
- The fiscal cycle refers to the full process of budgeting, executing, and evaluating finances during that period and beyond.
What’s important here?
The fiscal cycle is the backbone of responsible financial management in the public and nonprofit sectors. It provides a structured framework for planning, executing, monitoring, and evaluating how funds are used.
Understanding each phase of the cycle helps organizations stay compliant, operate more efficiently, and make better long-term decisions.
