At several points in the process of selling a business, we will very likely request a 12-month rolling profit and loss statement from the seller when we are valuing a business to take it to market, updating a business listing’s financials, or at the request of a potential buyer. For sellers, it important to know exactly what a rolling 12-month profit and loss statement is, how to get it, and why we need it.
What is a 12-Month Rolling Profit and Loss Statement?
Normally when people are looking at a business’s profit and loss statements, they pull data that is the last full year of profit and loss or often profit and loss year-to-date. Really only in business sales do we need to utilize a 12-month rolling profit and loss statement. A rolling profit and loss is just the last full 12 months (wherever you are at in the year) of the business’s profit and loss. The months used should be completed and reconciled before being included in the rolling profit and loss statement, to ensure accuracy.
How do you get a 12-Month Rolling Profit and Loss Statement?
If you use QuickBooks, a rolling profit and loss is easy to create, you just need to produce a report with custom dates reflecting the most recent complete (reconciled) 12 months. So, for example, if it is July 2022, and your books are current as of June 2022, you would pull a profit and loss statement dated July 1, 2021 to June 30, 2022. That way we have a full 12 months of financial data to work with. If you do not do your own books in-house, you will need to request this custom report from your bookkeeper or accountant each time it is required by your business broker.
Why is a 12-Month Rolling Profit and Loss Important?
A rolling profit and loss is necessary because we need to know what the business has done in a full 12 month period. We want to use a 12-month rolling statement because businesses can be very seasonal, especially in tourist areas that are heavily hospitality-based, so a partial profit and loss statement, a year-to-date profit and loss, or an annualized profit and loss statement won’t be an accurate full picture of the business’s performance.
For a business buyer, it is really important to be able to see the complete financials, because taking the first six months of the year and multiplying it by 2 to get an idea of a full year’s performance is just sloppy and inaccurate. That’s why we really shy away from using any business financials that are “annualized” in that way. There could be big payments in the beginning of the year (like insurance premiums), or most of the business’s sales revenue comes in the summer months. So, those variables are why a rolling 12-month profit and loss statement is the best financial document we can provide if we don’t have recent tax returns.