Time is one of the most precious resources we have and we don’t want to waste it searching through unending reports to identify the issues that require our attention. We waste time and we might just miss some critical threats and great opportunities. This is the first of a series that will show you how quickly identify the issues that required your attention.
In order to use your time effectively you need to eliminate time spent on issues that don’t require your attention. Eliminate the noise and focus on deviations from your expectations. The first step is to understand your norms so that the deviations from the norm stand out.
A great way to look at your income statement is by month. This allows you to understand the patterns that set your expectations. Understanding the normal flow of revenues and expenses and the relationships between them over time allows you to quickly spot deviations at a glance in this report. Let’s look at the report below.
I’ve exported a QuickBooks report to Excel and inserted a row for cost of goods sold as a percentage of sales. We would expect cost of goods sold to correlate closely with sales. Our annual average percentage was 59% but July and October were well below average and December was significantly higher. You need to know why. If it doesn’t make sense any number of very bad things could be wrong. You have to understand your business each day to anticipate issues in time to secure the desired result.
Now let’s looks look farther down the income statement to expenses.
As you can see there are a number of items that are consistent from month to month. The have no correlation with revenues, at least in the short term. Again, what you are looking for here are things that don’t make sense to you. You might see rent expense twice normal in one month with no rent recorded the following month. Someone entered the wrong month for a rent payment. Get it corrected and review and updated report.
After reviewing this report for a month or two it will only take you a few minutes to identify issues shown on your income statement that require your attention.
Robert Guild designs specialized reports and automated analysis tools for QuickBooks clients to make decisions they can trust. He is a member of Intuit DeveloperNet and an Advanced Certified QuickBooks ProAdvisor. Visit www.ReportsUWant.com to see pre-designed analysis tools ready to buy or contact him about developing applications for your specific needs at rguild@ReportsUWant.com. You can also follow him on twitter at QBPro
