Let’s learn a quick and easy trick to do some analysis in QuickBooks. A vertical analysis can be used for a number of purposes, but is mainly used to gauge expenses and cost of goods sold as a percentage of income.
Below you will see a column for % of Income. This type of statement is called a common size statement, and is used to do vertical analysis. That’s just a fancy way of saying we are going to compare our accounts as a % of income.
If you do this for one month, it may help you determine things like “is my spending in line with my industry?”
If you do this for repetitive months, and years, you can compare this over time to determine things like revenue trends… EX: my marketing spend increased to 8% for this period, and my sales increased by 25% as a result.
Business is a numbers game fronted by faces and personalities. Being able to quantify things that you see every day as you work hard to grow is critically important.
Many entrepreneurs have a lot of their data in their minds, but minds play tricks, and rationalization can cause numbers to feel a bit different in your mind than they do on paper. This is why you need accounting. It’s not for the tax man…. it’s for YOU.
You can run the above statement by click on the Customize button, and going to the additional columns and adding % of Income. Try doing this for a period of the last year, and let’s see how it looks.
PS – make sure your books are up to date and closed before you do this. If you need help, CALL US. 🙂
PPS – we purposely did not include the Balance Sheet today. We will cover that bad boy in a future post.
PPPS – Go a step further and make sure you close and lock your books in the preferences area so you don’t accidentally change information this report is based on!