Is December The Only Month When Your Financial Data Makes Sense?

You know what your revenues were last year. That’s a number that sticks in your mind.

Let’s say, hypothetically, that your revenues for 2008 were $600,000.

As the months have passed this year you’ve likely been thinking about how your year might end up. You’ve wondered if it would be up or down compared to last year.

As each month passed you tried to extrapolate to an annual figure to determine if you were on track. You’ve looked at the total, year to date, and then estimate what would happen before the year ended.

If, at the halfway point, you were at $300,000 then you assumed you were on track to equal last year. Unfortunately, that method of projecting doesn’t usually work. It fails to account for seasonality and other factors that might impact your annual total.

Fast forward to December…

Now you’re figuring out if you’re going to best last year. Suddenly the numbers make sense. At least they make sense for the moment. January 1 we’ll start over and then we go back to estimating and extrapolating.

Wouldn’t it be nice if the numbers made sense all year long?

They can.

What you need to do is keep up with your revenues on a rolling twelve month basis. Create a report that shows you what’s happened for the past 12 months. Do it each month.

At the end of January, for instance, you’ll look at a total running from February 1, 2009 through January 31, 2010. That will show your annual revenues rolling along as you go through the year. If your shooting to do better than $600,ooo for the year, you’ll know where you stand every month.

You can use this rolling twelve month total (some call it a trailing twelve month or TTM) for numbers other than revenues. You can use it for expenses, profits, consultations, new clients, closed files, etc. You can even graph the monthly numbers so you’ll be able to visually recognize trends.

Trailing twelve month graphs give you a quick feel for your business and you can figure out how you’re doing every month of the year.

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