Does Your Business Need A Trailing 12-month Statement Of Profit And Loss?
Business consultants and coaches commonly advise small business owners to use a “trailing 12-month” statement of profit and loss (P&L) to get more value from their financial data. This more detailed version of the P&L is not available by default in most small business bookkeeping and accounting systems like Quickbooks and Xero. Generating this type of report requires some extra effort, usually on the part of a bookkeeper or accountant, to design and populate.
The question these business owners commonly ask: is the extra effort worth it?
The short answer is: usually. Financial statements, including the P&L and balance sheet, traditionally report business activity for the prior month and/or year-to-date. A trailing 12-month or “TTM” P&L displays monthly financial results, presented side-by-side, for the prior 12 months, regardless of the calendar year. The advantage of having such a robust data set is that it combines historical analysis (for example, profitability in May this year versus May last year) with ongoing trends relevant to current and future results (for example, recent cost increases over the last quarter).
Almost any business can benefit from having a more complete set of information. Seasonal businesses especially benefit from a TTM P&L. Without a full 12 months of data, one can only guess exactly how well a business is doing during a particularly strong or weak time of year. Tax planning is one area where these reports will not be as helpful. Tax liabilities are calculated solely according to results that occur in the taxable year, which for most small businesses is January 1-December 31. For purposes of planning and preparing tax returns, year-to-date financial reports are more useful.
Opportunities for Improvement
As with all business decisions, owners and managers must balance the benefits of TTM P&L reports with their associated costs. These costs are not limited to the added financial cost of paying someone to design and populate this report on a regular basis. Entrepreneurs also need to factor in the time required to read and interpret these reports. Are you at a place where you need more information or more education when it comes to financial reporting?
Firm Numbers offers bookkeeping and accounting packages that provide TTM P&L’s on request at no additional cost to all clients. Financial coaching and guidance are also available to entrepreneurs seeking help to interpret and apply their numbers to management decisions. You can schedule a free consultation to see how your business can benefit from higher quality, more robust financial reporting.
Firm Numbers is dedicated to helping pull entrepreneurs out of decision-making based on emotion and get the necessary data to objectively run their business. Book a free consultation online to find out how our bookkeeping and accounting packages can help you be the boss, not the bookkeeper.
