Getting Better Information from Your Basic Reports

A tremendous way to use leverage in a wealth strategy is with reporting.

As I've shared before, reporting is often underutilized in a wealth strategy because it is perceived as too complicated or too confusing.

The Balance Sheet and Profit & Loss Statement (also referred to as the Income Statement), are basic reports included in every accounting software.

These reports are necessary when it comes to tax planning and tax returns, but they aren't very helpful when it comes to analyzing your business and investments.

The challenge many business owners and investors have is, they don't have proper reporting in place yet so these basic reports are their only option.

If this is the situation you are in, here is how you can get better information from these basic reports: Make comparisons and understand the trends

Make the Comparison Here's an example.

Let's say a Profit & Loss Statement for the year shows net income of $500,000.

Is this good or bad?

On its own, it's not very helpful. But comparing it to other information can make it more helpful.

For example, if the Profit & Loss Statement from the prior year shows net income of $100,000, then $500,000 looks really good.

If, however, the Profit & Loss Statement from the prior year shows income of $1 million, then $500,000 no longer looks as good.

Net income is a good number to compare at a quick glance, but it is just a starting point. From there, you should drill down into the specific income and expense items that make up net income.

This helps identify if any particular items of income and expense are contributing more or less to the net income difference.

For example, has gross income changed or have expenses changed or is it a combination of both? What type of income has changed?

What specific expenses have changed? In our example of going from $100,000 of income to $500,000, the comparison will tell us that gross income increased - but what type of income was it? Was it a one-time thing - like the sale of an asset - or was it income from a specific product or service? If it was from a specific product or service, which one was it and what is driving the increase? Knowing what is driving the increase is great information to have to apply in your wealth strategy.

When I'm reviewing the reporting for my business and investments, I never look at a Profit & Loss Statement without comparing it to the prior year (or prior month or prior quarter).

Understand the Trends In addition to making the comparisons, you can also study the trends to get helpful information for your wealth strategy from these basic reports.

There are many different trends that can be studied from the basic reports included in most accounting software.

While the default Profit & Loss Statement is typically set to provide the year-to-date net income, there is usually a standard option to modify the report to give you more information.

One of the standard modification options usually includes an option to show the results by month. This means that in addition to seeing the total net income for the year, you also see each month and how it contributes to the total for the year.

This option is a simple one, but can provide some great information for your wealth strategy.

For example, does income stay steady each month or does it spike in certain months? Do these trends hold true in prior years? What trends do you see and do you understand them?

This type of month-to-month comparison can also help identify when expenses start to creep up. It's easy to get complacent with spending which can result in more expenses and less net income. However, sometimes the increase is so gradual, it may go unnoticed if not for reviewing the reports in this manner.

Other standard modifications include showing the results by customer, by product, or by property. Each of these variations can help identify different trends.

Start Your Reporting Now If your reporting is not in place yet, modifying the standard basic reports included in your accounting software is a good place to start.

When you combine the comparisons with the trends, there is a lot of information you can get from these basic reports.

This may sound like a lot of work but it can actually be quite simple. Most accounting software allow for these modifications as a standard option. Using these standard modifications can make generating the reports very easy.

Once you have the reports, review them to identify and understand why the numbers changed and use that information in your wealth strategy.


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A tremendous way to use leverage in a wealth strategy is with reporting.
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