Understanding your company's performance is vital to making informed decisions in today's competitive business landscape. One effective method to comprehend the volatility and seasonality of your business is by running trailing 12-month numbers. This simple yet robust technique can revolutionize how you perceive your business, empowering you to steer your business decisions confidently.
What are Trailing 12-Month Numbers?
Trailing 12-month numbers provide a snapshot of a company's financial performance over the past 12 months. This method involves compiling data from the previous 12 months into one comprehensive figure, offering a more reliable measure of business performance than focusing on monthly or quarterly numbers alone. This method is especially beneficial for businesses that experience high volatility or significant seasonal fluctuations.
The Importance of Total Trailing 12-Month Numbers:
The total trailing 12-month number is obtained by summing up the data from the previous 12 months. It provides a more comprehensive view of your business's performance, accounting for the inevitable peaks and troughs throughout the year. This approach eliminates the confusion that can arise from calculating a trailing 12-month average, which can often be misleading when compared with current monthly numbers.
Implementing Trailing 12-Month Metrics:
To implement trailing 12-month numbers in your business analysis, start by collecting data from the past 12 months. This data can be in revenue, profit, or any other metric relevant to your business. Once collected, add these numbers to arrive at the total trailing 12-month figure.
As the months progress, keep adding the data for the current month and roll off the data for the corresponding month in the previous year. This rolling method ensures that your analysis always covers the most recent 12-month period, providing up-to-date insights into your business performance.
Understanding Business Volatility through Trailing 12-Month Numbers:
Trailing 12-month numbers can be particularly useful for businesses experiencing high volatility. Such businesses may see wild spikes in sales for a week or two, followed by several weeks of low or no sales. This volatility can make interpreting whether the business is performing adequately challenging.
By implementing trailing 12-month numbers, you can see the bigger picture, smoothing out these volatile periods and accurately reflecting the business's overall performance. This method allows for more informed decision-making, considering the full range of the business's seasonal and cyclical variations.
Trailing 12-month numbers can provide insights into your company's performance in a business environment marked by volatility and uncertainty. By focusing on this cumulative number rather than getting entangled in a trailing 12-month average, you can better understand your business's true performance. This simple yet effective approach can revolutionize your business understanding, empowering you to make more informed decisions that drive your business forward.
If you want to learn more about Practice Freedom, check out https://www.markhendersonleary.com/podcasts/prf107.
Subscribe now to get valuable tools, nuggets from real clients, and resources to help you take control of your business (and life). Plus, you’ll get the opportunity to join in on important conversations with entrepreneurial leaders just like you.
