by Malcolm Simister
Most business’s management and board reports show financial numbers for the current month and year-to-date (YTD) but I think it more useful to show them for the current month and a rolling 12 months.
Why? Firstly, YTD in month one is just month one. It adds nothing to the current month and YTD in month two doesn’t add much more.
Secondly, while year-to-date enables managers to track performance against budget for the year, almost certainly the budget is out-of-date, even in the early months of a financial year, so the comparison is, effectively, apples with oranges. (Hands up if you think you’ve got an accurate budget for the current financial year or had one for your previous financial year. Not many hands, I’m guessing).
Thirdly, and more positively, especially in seasonal businesses, showing a rolling 12 months evens out the seasonality so readers of the financial statements can more easily see the underlying trend.
Fourthly, each month, readers see 12 months’ numbers so they get used to seeing the true size of their business rather than having the picture obscured during most of the year.
Lastly, I don’t know of any business (not even schools or universities) that operate strictly within financial years; business is continuous, the last day of the financial year being much like any other (end of year sales are just marketing gimmicks) so why not reflect that in the financial statements rather than imposing the artificial notion of financial year end?
These days, accounting and reporting applications can report across financial year ends so do yourself a favour and report the numbers for your business as it is managed – on a continuous basis. Then, managers can make better decisions because they receive better information. Here’s hoping.