Blog Article

Profit & Loss Comparisons: See the Bigger Picture, Make Better Decisions

A single month of numbers rarely tells you much. Payroll weeks, year-end bonuses, and a slow winter can all make one month look better or worse than the business really is. Comparing periods against each other is what gives those numbers meaning, and shows you where to act.

Hello, welcome, and thank you for joining. My name is Jenn Shaw and I am the owner of All Accounting. We are an accounting firm that specializes in construction companies that are typically doing $500,000 to $10 million in revenue. We like to dive into certain topics to get you to the place that you want to go. Finances sometimes are a jumbled mess and it can be really confusing, so we like to take some time to help you understand it, because when you know your numbers, you can own your future. I'd like to talk to you today about profit and loss comparisons.

Profit and loss comparisons are a great opportunity for you to reflect on what you have going on in your books. A lot of times there are reports that are sent your way, and sometimes a stagnant amount of numbers can be beneficial, but when you compare them to this or that, you really get more context of what is actually happening within your business.

Some ways to do that are through time frames. Looking at year over year is really going to help you see seasonality, especially with construction companies. Wintertime in most of the country, or at least in our Pacific Northwest, has died down, so you don't have a lot of work going on in the winter, but more in the spring, summer, and a little bit of the fall. When you're looking year to year, you can bring all of that together with the seasonality of it. I also really love to see this past month of June compared to last year's June, because you can see it face to face. Each line item: did you increase your revenue from last year? Did you consolidate some of your expenses and help your projects so that you have less cost? Really drilling in to see last year versus this year.

When you look at quarter to quarter, that is going to show you more of the momentum. You've changed this thing in your business, has it actually helped? In construction, sometimes it is a little easier to see from year to year, but it's really just the analysis of not sticking to one stagnant month, and instead choosing a time period and looking at different things. And of course, if you can get a little broader, if you can do a quarter at a time or a year at a time and look at the previous year or the previous quarters, it will remove some of the wonkiness that happens naturally within a business. If you have a lot of data, let's say you've been in business for 10 years, that's wonderful, because then you can really get the trends and flows of what happens over time.

I think of it a lot of times like the stock market. You don't want to look at it on a daily basis, because things can swing back and forth. The same thing happens with your financials. You could have a payroll week, so there are going to be a lot more nuances in there. Or maybe you threw out some bonuses at the end of the year that inflated December for expenses. So look at a time frame instead of just one singular item of "did I do good this month or not?" It really brings that context in.

We've talked about this before, but I also love common sizing. Common sizing is looking at each line item as a percentage of revenue. This helps again with the seasonality of things. Even though one month maybe you did $500,000 in revenue, let's say that was June, and in January you did $100,000 in revenue. Okay, well obviously June must have been a really great month. But it may not have been. When we apply common sizing, it gets rid of just numbers as a whole and turns them into comparable items, to really help you with the context of choosing what this one looks like over that one.

Some things to look at to help you explain what actually happened within your profit and loss, and the seasonality of things, start with reviewing your gross margin and making sure this is all tied in together. So what is gross margin? This is going to be your direct expenses and sales. This is direct labor. It's not your administration and the office doing invoicing. It is that laborer who is constructing that wall to help you build the structure. Your materials, again, direct materials: it's the lumber that goes into that wall. It's not the office supplies to house things there. So look at your gross margin on a regular basis and make sure that you are estimating and invoicing as best you can.

Overhead load is where you're going to look at your administration and overhead expenses. This is your overall insurance that you may have, or your overall administration labor, the rent that you have for storing your construction items. Looking at those separately is really important.

As you compare things, you will also be able to make better owner decisions. If you're looking at your profit and loss and you can see that last year's net income was $500,000 and this year's net income is $1.5 million, well, we need to start doing some planning. We need to look at: are you making enough tax payments for your federal or state estimated taxes? Can you pay off some debt? Do you need to reinvest the money? Without these numbers and without the comparison, we don't want to just do what we did last year, or do what we did last month, because things are constantly evolving and changing with what you have going on in your business. So it's really taking your numbers, looking at them, comparing, and always analyzing that stuff.

I will jump ahead into the last little spiel. If this is still confusing, or if you don't even want to do it and you just want someone to help look at those numbers and really dial things in, we are happy to help. We are taking on clients. We love to deep dive and explain these things and make them more manageable for you. Our contact is below, and I really hope you have a great week. I hope you can take some of this information and play around with your own numbers, or again, if you just want some help on the other side, we are here to do that. Again, my name is Jenn with All Accounting, and we'll see you next week.

A profit and loss comparison means reviewing your P&L against another time period rather than reading it on its own. Comparing this June to last June, this quarter to last quarter, or this year to last year gives your numbers context. A single month can be distorted by a payroll week or year-end bonuses, but a comparison shows you what is actually changing in the business.

Why is one month of numbers not enough?

Because a stagnant page of numbers has no context. Reports land in your inbox, and a lone month can be useful, but it does not tell you whether things are getting better or worse. It only tells you what happened.

Think of it like the stock market. You do not want to judge it on a daily basis, because things swing back and forth. Your financials behave the same way. A payroll week adds nuance to one period. Bonuses paid out at the end of the year inflate December expenses. Looking at a time frame instead of one item stops you from asking the narrow question (did I do well this month?) and lets you ask the useful one (what is the trend, and what changed?).

What time periods should you compare?

Pick a period that matches the question you are trying to answer.

Year over year

This is the one that exposes seasonality, which matters enormously in construction. Across most of the country, and certainly in the Pacific Northwest, winter work dies down while spring, summer, and part of fall carry the load. Comparing full years brings that rhythm into view instead of hiding it.

The same-month comparison is just as valuable: this June against last June. Line by line, you can see it face to face. Did revenue grow? Did you consolidate expenses or tighten up your projects so costs came down? That is a real comparison, not a guess.

Quarter over quarter

Quarters show momentum. You changed something in the business. Did it actually work? A quarter is long enough to smooth out the noise and short enough to tell you whether a decision is paying off.

Longer periods for cleaner trends

Broader windows strip out the wonkiness that occurs naturally in any business. If you have been operating for ten years, that history is an asset. Compare a quarter or a year against the ones before it and the trends and flows become obvious.

How does common sizing improve a comparison?

Common sizing means viewing each line item as a percentage of revenue instead of a raw dollar figure. It is what makes two very different months genuinely comparable.

Say June brought in $500,000 in revenue and January brought in $100,000. June was obviously the better month, right? Maybe not. Once each line is expressed as a percentage of revenue, the raw size of the month stops dominating the picture and you can see how efficiently each period actually ran. We covered this in more depth in our post on common size reporting.

Which numbers should you focus on?

Two areas explain most of what your P&L is telling you.

Gross margin

Gross margin covers your direct expenses against sales. Direct means tied to the job: the laborer building the wall, and the lumber that goes into it. It does not include the administrative side, like the office staff doing invoicing or the supplies that keep the office running. Review gross margin regularly, and use it to check that you are estimating and invoicing as well as you can.

Overhead load

Overhead is the other half: administration and overhead expenses. Your general insurance, your administrative labor, the rent on the yard or space where you store construction materials. Looking at overhead separately from direct costs is what keeps the two from blurring together and hiding a problem.

How do comparisons lead to better decisions?

They tell you when the ground has shifted. Suppose last year's net income was $500,000 and this year's is $1.5 million. That is the moment planning starts. Are your federal and state estimated tax payments keeping up? Should you pay down debt? Should you reinvest?

Without the comparison, the default is to repeat last year or last month. Business does not sit still, so repeating the past is rarely the right answer. Comparisons also pair well with looking forward: once you know what changed, a 12-month rolling forecast helps you plan the next move. Any comparison is only as trustworthy as the books behind it, which is why regular reconciliations matter.

Key takeaways

A single month lacks context. Comparisons against another period are what give your numbers meaning.
Year over year exposes seasonality, which is critical for construction and trade businesses.
Quarter over quarter shows whether a change you made is actually working.
Common sizing turns each line into a percentage of revenue so different-sized periods can be compared fairly.
Watch gross margin (direct labor and materials) and overhead load (administration) separately.
Big swings in net income are a signal to plan taxes, debt, and reinvestment rather than repeat last year.

Frequently asked questions

What is a profit and loss comparison?

It is a review of your profit and loss statement against another time period, such as this June versus last June, this quarter versus last quarter, or this year versus last year. The comparison provides context that a single period cannot.

Should I compare month to month or year over year?

Year over year is usually more revealing for construction, because it accounts for seasonality. Comparing the same month across two years (this June to last June) is a strong way to see line-by-line change without seasonal distortion.

What is common sizing on a P&L?

Common sizing expresses each line item as a percentage of revenue. It lets you compare a $500,000 month against a $100,000 month meaningfully, because you are measuring efficiency rather than raw size.

What is the difference between gross margin and overhead?

Gross margin covers direct costs tied to the job, like the laborer building a wall and the lumber in it. Overhead covers administration and general costs, like office staff, insurance, and rent. Reviewing them separately keeps a problem in one from hiding inside the other.

Why does my P&L swing so much month to month?

Normal business timing. A payroll week, year-end bonuses, or a seasonal slowdown can all distort a single month. Comparing time frames instead of judging one month in isolation smooths that out.

Want someone to dial these numbers in with you?

If this still feels confusing, or you simply do not want to do it yourself, we are happy to help. We are taking on clients and we love to deep dive into these numbers and make them manageable for you. Reviewing your P&L and turning it into decisions is part of our Virtual CFO service. Reach out to All Accounting and we will take a look with you.

Know your numbers. Own your future.