“If you’re not growing, you’re dying.” The first time I heard this phrase I was fresh out of college, and I knew EVERYTHING. I did not like this phrase. I felt that I had done all of my growing and I was ready to put my knowledge to use. Boy was I wrong! I now use this phrase all the time and in all aspects of my life.
If you are not striving to be better, you will soon be obsolete. In our personal lives, it might be harder to measure growth because so much of it is more of a feeling than a number. In business however, we can measure growth by looking at numbers and financial trends.
At Mackey Advisors, one of our favorite tools to measure growth is trailing or rolling twelve months. Looking at rolling 12 month financial trends is a great tool to see how your business is REALLY doing.
But what is rolling 12 months? It is a timeframe of the past 12 months used for reporting financial information. A company’s trailing 12 months (TTM) is a representation of its financial performance for any 12-month period, not just fiscal or calendar year end.
Why look at your business on rolling 12 month basis versus actual values? Most businesses are cyclical, meaning that there are months where you are busier than other months. For example, if your business is a school supply store, then you are more likely to be busy in July and August than you are in December and January. The following chart measures your actual revenue. At first glance it may look like your revenue has declined between August and September, but this may or may not be the case. The next chart, which measures on trailing 12 months, takes the seasonality out of the values. Using this tool you can really see where you are heading.
Although you can see the data is choppy, it is hard to pick out any trends as to where the data is going.
Now you can easily see that your monthly key indicator is climbing (a good thing in the case of revenue) or staying flat or falling (both not so good things for revenue).
There are many indicators that are good to track on a trailing 12 months. Examples include:
- Net income
- Return to owner
- Gross profit
Now, I want to ask you…”Are you growing or dying?”