The year-over-year P&L Statement Variance Report is the most straightforward of business tool for confirming that your hard work and sacrifice are worth the effort. More importantly, it will quickly tell you whether your efforts have improved your business this year over last.
If your business sales are highly consistent year-over-year and month-to-month, the year-over-year 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 year than last.
Your first pass through the year-over-year P&L Statement results is to look for relative data consistency between the current month and year with the same period in the previous year. 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 this year compared to last year.
If you can’t explain the variance in results for this year versus the previous year, 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 last year’s profit results.
The following are the three key points to remember in your assessment of the “actual versus same previous period” P&L report:
- 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 previous period?
- 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 year-over-year variance report is the most straightforward of these foundational business tools to confirm that your hard work and sacrifice are worth the effort. More importantly, it will quickly tell you whether your efforts have made your business better this year over last or not.