What I Discovered in This Month’s Statements

Some people read gossip magazines.

Some binge reality TV.
Me? I get my drama straight from financial statements.

And let me tell you, they have been telling on you.
Sometimes it's innocent: “Hey, your sales are up 20%, awesome!”
Sometimes it's suspicious: “You have had a ‘client meeting’ at the same drive-through every day this month… but you told me you were on a diet… hmmm.”

If you know how to read between the lines, you can spot patterns, weird behavior, risks, and opportunities before your client even realizes they are there.

Here is how I flip through a set of statements like they are the latest issue of my favorite gossip mag.

1. Horizontal Analysis a.k.a The Yearbook Comparison

Compare this year to last year and see what has changed.
Revenue jumped from $500K to $600K. That is a 20% increase, killing it!

But payroll is up 35% and travel expenses doubled. Sales are up (love that for you) but… where are you going and why was I not invited?

2. Vertical Analysis a.k.a Who's Taking All Your Money

Look at each expense as a percentage of total revenue.
COGS went from 40% to 60%, which could mean something is off.

Maybe supplier prices jumped, a shipment had to be replaced, or a “limited-time” sale was not so limited?

And if there was a big sale, why did no one tell me so I could grab a deal too?

3. Ratios a.k.a. The Relationship Status Report

Quick calculations tell me how healthy a business really is.

Current Ratio: Can the business pay its short-term bills? (Above 1 = good, below 1 = 🚩)
Debt-to-Equity: How much of the business is funded by debt? (High = risky leverage)
Gross and Net Profit Margins: Are sales actually profitable? Or are you paying customers to take your product at this point?
AR and Inventory Turnover: Do you have cash stuck in unpaid invoices or slow-moving stock?

4. Cross-Statement Analysis a.k.a. Spotting the Plot Holes

Check if the income statement, balance sheet, and cash flow statement are telling the same story.

Sales are up, profit is flat, cash is down… so we are working harder for the same money and have less of it in the bank? Shoot. 

If you want the full tea on your clients or your own business, these are the tools that will spill it.

They turn a stack of financial statements into a gossip magazine and tell you what is really happening.

Want the downloadable version? Click here to grab it,  plus even more bookkeeping goodness.