Always look at your thirteen-month rolling average P&L numbers to prevent shortsighted behavior. When comparing figures, compare your current month to the rolling average of the last twelve months, including the current month. Comparisons of actual to your rolling average will give you a much clearer picture of where you truly stand.
Overview
If your business sales are highly inconsistent year-over-year and month-to-month, the rolling thirteen-month average variance comparison of your monthly profit and loss statement is a powerful tool. What makes it an excellent business assessment tool is how it helps you quickly see what areas of your business are performing better and worse this month than what you have averaged for the past thirteen months.
Your first pass through the rolling thirteen average compared to your P&L results is to look for relative data consistency between the current month and year with the rolling monthly average. Here, you are looking for significant variances. If the difference is significant and can’t be readily explained, you likely have a data entry error. Again, significant variances by significant sources of revenue and expense should be relatively easy to explain based on observed changes in the business over the past year.
If you can’t explain the variance in results for the current month versus your rolling monthly average, you have discovered another area where corrective action must be taken. Again, any corrective action involves identifying what is to be done, who is responsible for accomplishing it, and when it needs to be completed. Follow-through on each assigned corrective action is essential to avoid falling short of your rolling monthly average.
The following are the three key points to remember in your assessment of the “actual versus rolling average” P&L results:
- Did the actual COGS percent of revenue remain consistent? or
- Did the COGS percent of sales go higher or lower for the given review period than the rolling average?
- If the percent changes aren’t consistent with your changes in sales, then your COGS expenses aren’t as variable as they need to be.
The rolling thirteen-month variance report is another straightforward business tool to confirm that your hard work and sacrifice are worth the effort. More importantly, it will readily tell you whether your efforts have made your business better this month over the previous thirteen months.