Consider an Expense to Revenue Ratios Report for Spending Decisions

An idea for more easily monitoring spending (expenses) and making more timely decisions about future spending is using a rolling expense to revenue ratio report.  Create a report that will show the current quarter’s expenses to revenue ratios for your expenses.  On the report, also present for the previous four quarters, the expense to revenue ratios.  Include an average of those four previous quarter ratios on the report.

Now use the report to determine how the current ratios (the just concluded quarter) compare to previous quarters.  The comparison should alert you to those expense to revenue ratios that are unexpectedly increasing, decreasing, or staying the same.  Think about the unexpected changes, or lack of change, as to the causes, the implications, and what actions (decisions) might need to be taken.

Such a report can be fairly easily created in the accounting system QuickBooks using the profit & loss standard report that is modified to show the percentage of income for each line item.  This report can easily be exported to Excel.    Create similar reports for the previous quarters and export those to a different worksheet in the same Excel file.  Be sure that all line items, including line items with zero activity in some quarters, are included in the QuickBooks profit & loss reports.  Using Excel's special paste feature allows copying and pasting so that current and previous expense to revenue ratios line up on one worksheet, from which comparisons can be made to previous quarters.

As a new quarter ends, update the saved Excel file with the new quarter’s data.

Rather than using traditional budgets, for quarters and longer periods, numbers which can quickly become irrelevant as conditions change, consider the rolling expense to revenue ratios report described above as a substitute for monitoring expenses.  The process should be easier.  Better decisions might be made in a more timely fashion.