Profitability Analysis Checklist

Confirm with the client whether this is a single-quarter, trailing-twelve-months, or annual review, and whether segmentation is by product line, location, or customer cohort. Mismatched scope is the most common cause of rework — pin this down before pulling any data.

Export the working trial balance, P&L (current period plus two prior comparatives), and balance sheet from QuickBooks Online, Xero, or Sage Intacct. Confirm the period is locked — analyzing an open period guarantees the numbers will shift under you.

Tie A/R aging, A/P aging, inventory, fixed-asset roll-forward, and loan balances to the GL. Untied sub-ledgers signal an incomplete close — pause the analysis and flag with the client's bookkeeper before proceeding.

Pull at least eight quarters of revenue to separate seasonality from genuine trend. Note any month with a single customer concentration above 20% of revenue — that's a risk callout for the findings memo.

Use class tracking, location tracking, or item-level reports in QBO/Xero to break revenue into the dimensions the client manages by. If the COA is the only dimension and it isn't usable, note it as a recommendation rather than fighting the data.

Calculate variance to budget and to prior-year actual at the segment level. Flag variances above 5% of segment revenue or $25K absolute, whichever is smaller, for follow-up in the cost review.

Decompose gross margin into price, volume, and input-cost components. For inventory businesses, confirm the COGS method (FIFO, weighted-average) hasn't changed mid-period — a method change masquerades as a margin shift.

Walk the OpEx accounts and tag each as fixed (rent, salaries, software subscriptions) or variable (commissions, merchant fees, freight). The fixed/variable split feeds the breakeven analysis later in the engagement.

Pull legal settlements, severance, asset write-downs, PPP forgiveness, ERC adjustments, and any one-time professional-services spikes into a normalization schedule. Run-rate profitability without normalization is the most-cited error in client findings memos.

Compute current-period and prior-period margins on both reported and normalized bases. Show both — the reported number is what the client sees on the P&L; the normalized number is the conversation.

Use RMA Annual Statement Studies, BizMiner, or IBISWorld for the client's NAICS code and revenue band. Cite the source and the size band in the memo — an unsourced benchmark is the first thing a CEO will challenge.

For any margin moving more than 200 basis points period-over-period, identify the underlying driver in the GL. Document whether the cause is structural (pricing, mix, vendor change) or one-time (refund, prepay timing).

Build a one-row-per-variance workpaper: account, period-over-period dollar change, driver, supporting transactions, and recommended action. This becomes the appendix to the findings memo.

For each major SKU or service line, confirm price covers fully-loaded unit cost plus target margin. Service businesses commonly underprice senior-staff hours when the bill rate hasn't moved with comp inflation.

Compute breakeven volume using the fixed/variable split from the OpEx review. Flag any product line operating below breakeven — these are the candidates for either a price increase or a sunset decision.

Pull the credit-memo and discount accounts. Quantify discount as a percent of gross revenue and compare to prior year — creeping discounts are a silent margin killer that the P&L hides because the topline still grows.

Pull capex over the trailing 24 months from the fixed-asset roll-forward. Compare actual incremental EBITDA to the original investment thesis — if the client doesn't have a thesis on file, that's a finding in itself.

Check interest rate, amortization, and any DSCR or fixed-charge-coverage covenants against current performance. Covenant breach risk is a profitability issue masquerading as a balance-sheet issue.

Compute DSO, DPO, and DIO for the period, and compare to prior year. A profitable P&L with deteriorating cash conversion usually means revenue quality is slipping — book without underlying receivables behavior is a yellow flag.

Lead with three to five named levers, each with estimated annualized impact in dollars and a clear owner. Avoid generic recommendations — "reduce overhead" doesn't move; "renegotiate the merchant-services contract for an estimated $18K annual savings" does.

Partner walks every lever, challenges the math, and confirms the normalization adjustments. Address review notes before the client meeting — sending a memo with open partner notes erodes credibility fast.

Walk the client through the memo live, capture decisions on each lever, and confirm next-quarter follow-up scope. Lock the working files in the client portal (TaxDome, SmartVault, ShareFile) and archive workpapers per firm retention policy.