Most accounting firms close the books for their clients every month. Far fewer turn that close into something the client reads. The P&L goes out as a PDF, the client glances at the bottom line, and the conversation about why the numbers moved never happens.
A good monthly P&L review fixes that. It's quick to prepare, it picks out the handful of changes that matter, and it explains them in plain language. This is the framework we built Monthly Review around. It works just as well in a spreadsheet.
The three comparisons every review needs
Every line on the P&L should be compared in three ways. Each one catches something the others miss.
| Comparison | What it answers | What it catches |
|---|---|---|
| Month-over-month (MoM) this month vs last month | What changed since we last looked? | One-off costs, missed accruals, coding errors, sudden drops in revenue |
| Year-over-year (YoY) this month vs the same month last year | Are we growing, once seasonality is removed? | Real growth or decline in seasonal businesses, where MoM is misleading |
| Trailing twelve months (TTM) sum of the last 12 months | What's the true run-rate? | Trends hidden by noisy months, annual costs booked in a single month |
Show each comparison in dollars and percent. Dollars tell you whether a change matters. Percent tells you whether it's unusual for that account.
A seven-step monthly review
1. Lock the close, then pull the exports
Review only a closed period. Export the Profit & Loss and Balance Sheet from QuickBooks Online or Xero on an accrual basis with one column per month, and keep at least 24 months. That's enough for every YoY and TTM figure. Prior months do get restated, so re-pull the history each month rather than appending to an old file.
2. Map accounts to review sections
Group accounts into consistent sections: revenue, cost of sales, operating expenses and other income and expense. Keep the mapping stable from month to month. When new accounts appear in the chart of accounts, map them before you review anything, so nothing silently falls out of a total.
3. Calculate the variances
For each account and each subtotal (revenue, gross profit, operating expenses, net income), calculate the current month, prior month, MoM $ and %, same month last year, YoY $ and %, and TTM. Express margins in percentage points: a move from 31.7% to 30.6% is −1.1 points.
4. Flag only what's material
This is the step that saves the most time. A line is worth investigating only when it moves by more than a dollar threshold and a percentage threshold. Big accounts with small percentage changes and small accounts with big percentage changes both drop out. We cover how to set the thresholds in Materiality and variance thresholds: how to decide what to flag.
5. Write a note beside every flag
One or two sentences, in plain language, next to the number. Say what happened, whether it's a one-off, and what to expect next month. If you can't explain a flag, that's a question for the client or a possible coding error.
6. Tie it to the balance sheet
Before publishing, check that the balance sheet balances and that current-year earnings agree with the P&L. Then look at cash next to net income. A profitable month with falling cash, or the reverse, usually has a story in receivables, payables or debt that the client should hear.
7. Publish, then archive
Send the review once the close is final, and keep every month's version exactly as it was sent. When numbers are restated later, you can still show what was reported and when.
A worked example
Here's a September review for a fictional services business, Harbor & Pine Co., using a $2,500 materiality threshold and a 20% variance threshold.
| Line | Sep | Aug | MoM $ | MoM % | Flag? |
|---|---|---|---|---|---|
| Total revenue | $148,200 | $142,350 | +$5,850 | +4.1% | No: under 20% |
| Contractors | $48,900 | $46,200 | +$2,700 | +5.8% | No: under 20% |
| Materials | $12,700 | $9,800 | +$2,900 | +29.6% | Yes |
| Professional fees | $9,240 | $3,120 | +$6,120 | +196% | Yes |
| Travel | $1,640 | $2,980 | −$1,340 | −45.0% | No: under $2,500 |
| Gross margin | 30.6% | 31.7% | −1.1 pts | Explained by materials | |
| Net income | $17,670 | $22,025 | −$4,355 | −19.8% | Mostly the two flags |
Out of more than a dozen lines, only two need a note:
- Professional fees +$6,120: "One-off audit preparation for the lender review. We expect this to normalise in October."
- Materials +$2,900: "Restocking ahead of the Q4 order book. This accounts for most of the 1.1-point margin decline."
Travel fell 45%, but at $1,340 it isn't worth the client's attention. Revenue is up 27% on last September, a useful YoY point to include in the summary even though it didn't trigger a flag.
Common mistakes
- Flagging on percent alone. A $40 bank-charge account that doubles fills the report with noise.
- Flagging on dollars alone. Your largest cost lines will trip the threshold every month on normal fluctuation.
- Moving transactions to make months look tidy. If a client invoices in arrears, keep it consistent and say so in the notes. Don't shift invoices between periods.
- Ignoring lines that started at zero. When the prior month was $0 the percentage is undefined. Flag on the dollar amount alone.
- Skipping the balance sheet. Reclasses and corrections often show up as odd P&L movements. Check both statements together.
What to send the client
Clients read the top of a report and skim the rest, so put things in this order:
- Headline numbers: revenue, gross margin, net income and cash, each with MoM and YoY movement.
- Flags with notes: usually two to five items, each explained in a sentence.
- General commentary: three or four sentences on the month as a whole.
- The detail: the full P&L and balance sheet review, for clients who want to dig in.
A PDF works. A client portal works better: the client always knows where to find the latest month, every past month is archived, and your firm's name is on all of it.
Frequently asked questions
What is a monthly P&L review?
A monthly P&L review compares a business's income statement for the month against prior periods, usually last month, the same month last year and the trailing twelve months, to explain what changed and why. Accounting firms typically do it after the month-end close and share the results with the client.
What's the difference between MoM, YoY and TTM?
Month-over-month (MoM) compares this month with last month and catches sudden changes. Year-over-year (YoY) compares with the same month a year ago, which removes seasonality. Trailing twelve months (TTM) adds up the last twelve months to show the underlying run-rate.
How do I decide which variances to investigate?
Flag a line only when it moves by more than a dollar amount (materiality) and by more than a percentage at the same time. A common starting point is a dollar threshold of about 1–2% of monthly revenue and a 20% variance threshold, adjusted per client.
Should gross margin changes be shown in percent or points?
In percentage points. A gross margin moving from 31.7% to 30.6% is a 1.1-point decline. Calling it a 3.5% decline is technically true but confuses most readers.