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Follow the Leader

Business owners and entrepreneurs often look at the prior year and/or our favorite, rolling 12 data. While neither is bad per se, they are frequently not indicative of what’s happening more recently. We like to look at a rolling three or quarter view of the business. Why? Because recent decisions made by the organization, for example, price increases, will show up on the rolling three but not be picked up yet on the rolling 12. It can also show you a broader picture of what is happening in the market. The rolling 12 may look good, but a recent decline in sales or cost increase may indicate a potential slowdown for the business.

When working with our clients, we enjoy showing them rolling three trends for revenue, labor efficiency, contribution margin, and profit. Continued profitability on a rolling 3 shows the company’s current run rate of stacking good months on top of good months. We’ll see people get excited after crushing it one month only to give it all back the very next. So next time you’re doing analysis, create a P&L view encompassing the rolling three and compare the current trend to the same time last year. You may be surprised that you are doing better (or worse) than what your trailing 12 says.


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