The Profit & Loss Forecast report is the one for monitoring trends. It will show you actual results for completed months of the year and the budget for the remainder – and a projection of where you’re likely to be at the end of the financial year.



What should you look for in the Profit & Loss Forecast?

The beauty of this report lies in seeing each month side by side. This helps you see how each income and expense line is changing over time. It’s easy to compare to the previous month or to the projection for the next month.

Some of us have seasonal fluctuations in our businesses, some are very steady all the year round. Some expenses will vary from month to month (heating costs for example) but others, like rent, should be fairly stable.

Use this report to understand the trends and cycles of your business. A small decline in revenue in one month may not be a major cause for concern but if it’s ongoing, it’s time to take action and do something to remedy it.

Don’t forget that there’s also an audit side to this report. Look out for numbers that are unusually high or low compared to the preceding or following months. This could indicate either an error in an accounting entry or a potential fraud (such as someone processing fake invoices or payroll). You’ll not only improve the integrity of your data but you’ll make it much harder for someone to steal from you.

The Invisible Accountant-Profit & Loss Forecast Blog



What’s the Additional Information section?

You’ll find 2 important KPIs here every month:

  • Your Debt Ratio compares your total debt to your total assets. A value of less than 100% indicates that you have more assets than liabilities (and that’s a good thing!).
  • The Working Capital Ratio compares short-term assets to short-term debt. Be aware that this is the opposite to the way the Debt ratio is calculated – you want to see something above 100% here. Anything less can be an indicator of potential cashflow issues. The exceptions to this tend to be cash-based businesses like retail or hospitality. They collect sales in cash, or something close to cash. Usually they can get generous terms from their suppliers so they can sell the stock before they have to pay for it. The suppliers effectively fund the growth of the business.