How Comparison Reporting Can Keep Your Profits on Track
While there are literally hundreds of accounting reports that can help you run your business better, one of the most popular—and greatly underutilized—reports is the comparison report. A comparison report helps you compare how you are actually doing with either a past or expected performance. It makes it crystal clear how far you’re straying from where you want to be so you can make course corrections sooner rather than later.
Compare to Prior Periods
A common comparison report almost anyone can generate is one that compares current period results to prior period results. For example, you can generate an income statement with six columns:
- Current month activity (March 1 to March 31, 2022)
- Prior year month activity (March 1 to March 31, 2021)
- Monthly difference (A – B)
- Year-to-date activity (January 1 to March 31, 2022)
- Prior-year-to-date activity (January 1 to March 31, 2021)
- Year-to-date difference (D – E)
The comparison allows you to see, at a glance, whether your sales or expenses have increased compared to last year. Seeing a monthly comparison is especially important if the business experiences seasonal fluctuations.
You can go one step further to explain the changes in an accounting process called account analysis. Take a look at the components of each number to see what caused the difference. Write your explanation in the notes section of your comparison report.
You may not want to spend management time on the small differences. A good financial dashboard, or simply an Excel spreadsheet, can help you color-code the balances that are more than 10 percent (or any percent you feel is material) off track.
Comparison to Plan or Budget
You can also develop a comparison report that compares current period results to budget. Here you would generate an income statement with these six columns:
- Current month actual activity (March 1 to March 31, 2022)
- Budget for the same period above
- Monthly difference (over)/under (B – A)
- Year-to-date actual activity (January 1 to March 31, 2022)
- Year-to-date budget (January 1 to March 31, 2021)
- Year-to-date difference (over)/under (E – D)
Do the same thing above, color-coding and explaining the comparisons using account analysis. How did your budget details differ from what actually happened? If it’s better, can you do more? If it’s worse, how can you get back on track? Performing a timely comparison analysis helps you find opportunities to embrace so you can make more money or investigate ways to get back on track faster so you don’t lose as much.
Of course, with budget versus actual comparison reports, you do have to create the budget first!
If you’re not already receiving comparison reports, would like help creating a budget, or would simply like to set up a session to better understand comparisons, please feel free to reach out to us at any time!