How POS Reports Can Lead to Bad Business Decisions

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Reports provided by your point-of-sale (POS) system are designed for accounting/tax purposes, not for optimizing business results. By contrast, business intelligence tools are specifically designed to support decisions to improve your business. Use the right tool for each purpose.

Reports that follow standard accounting practices are obviously critical for accurate bookkeeping, filing taxes, etc. All point-of-sale systems (Square, Clover, Lightspeed, etc.) provide accounting-focused reports in their dashboards.

However, these reports can lead to poor decisions when trying to optimize business results. The differences are significant enough that you should always use a business intelligence tool like Sprk™ for business decisions, and leave the POS reports for the accountants and tax preparers.

Let’s dive into some examples of why this is so important.

Limited Visualizations

POS reports focus on raw data (reports and data exports) instead of visualizations that help identify key insights into your business.

By contrast, this heatmap graph is an example of how a lot of raw data is condensed into a visual representation of when a store is busy. This type of graph can help optimize staffing levels, identify opportunities for promotions, etc. It’s accurate, actionable, and leads to well-informed decisions.

Orders heat map graph that highlights how effective good visualizations can be

Apples-to-Oranges Comparisons

It’s common in accounting-focused reports to compare one calendar month to another, or to compare today’s results to the same date last year. These are not valid comparisons for optimizing results.

Every comparison needs to be “apples-to-apples.” For example, January has 10% more days than February, so comparing January sales to February sales is an invalid comparison. Comparing January sales to last January is also invalid because there will be a different number of Saturdays or Tuesdays in each month depending on the year. Similarly, comparing February sales to the previous February can also be invalid due to a leap year. And a year-over-year comparison of a specific date is rarely useful (except for some holidays) because every date is a different day of the week in the previous year.

A similar issue arises for intraday comparisons. It doesn’t make sense to compare results as of noon today to the entire day of sales yesterday. However, comparing sales as of noon today to sales as of noon yesterday can be very insightful.

Sprk™ ensures that every standard comparison is apples-to-apples. You can compare 4-week periods (always 28 days and always an equal number of Mondays, Tuesdays, etc.) instead of months. Year-over-year comparisons are 364 days for the same reason. You obviously have the option to compare any two periods you choose, but the standard options are designed to prevent misleading comparisons.

Sprk™ even understands holidays, so it’s easy to show Mother’s Day trends even though the dates are different each year. POS reports have no concept of holidays because accounting practices aren’t affected by them.

Trend graph showing Mother's Day sales for the past five years

Inflexible Profitability Analysis

Gross Profit Margin has a specific definition for accounting purposes, but it can be customized in Sprk™ to optimize profit-driven decisions. For example, you may find that Prime Cost is a better representation of cost for decision-making purposes than Cost of Goods Sold — which is what accounting reports use. It’s just another example of how breaking free from accounting-imposed limitations can lead to significantly better business decisions.

Refund Timing Issues

In POS reports, refunds are credited on the day they are issued — which is correct for accounting purposes. In Sprk™, refunds are credited back to the original order date — which results in accurate metrics for decision-making. The difference can be significant.

For example, let’s say a business typically has $1,000 in sales per day plus an occasional catering order. If a catering order for $1,000 occurs on Thursday, the sales for that day are $2,000. So far, the POS and business intelligence reports match.

The original order for $1,000 occurs on Thursday.
The original order for $1,000 occurs on Thursday.

But they diverge if the catering order is canceled/refunded on a later date — the next day (Friday) in this example. According to standard accounting practices, the $1,000 credit is applied to the day the refund occurred, not the day of the original transaction. As a result, POS reports show sales on Thursday of $2,000 and sales on Friday of $0.

POS reports deduct $1,000 from Friday’s sales.

POS reports deduct $1,000 from Friday’s sales.

While this is correct for accounting purposes, you can easily see why this is bad for optimizing business performance. For example, trends showing the average order size will be overstated on Thursdays and understated on Fridays. Also, looking back at past performance, you may be confused about why the business appeared to be closed on Friday.

In Sprk™, the credit for the refund is applied to the original order date so the resulting trend graph (shown below) exactly matches what actually happened. This view enables you to make well-informed decisions based on accurate trend data.

Sprk™ applies the $1,000 credit to the original order date.
Sprk™ applies the $1,000 credit to the original order date.

For businesses with a few low-dollar refunds, these differences may be minor. But for some, it could lead to wildly bad decisions.

Delivery Service Commissions as Revenue

DoorDash, GrubHub, Uber Eats and other delivery services charge a significant commission that typically ranges from 15% to 30%. From an accounting perspective, those commissions are typically considered an operating expense. As such, a $100 delivery order with a 30% commission would count as $100 in Net Sales even though the business only receives $70 for that order.

It’s obvious how this approach can result in a misleading profitability analysis. Because of this, Sprk™ has the option to deduct commissions from Net Sales for each delivery order.

With this change, the Gross Profit Margin by sales channel will show a more accurate picture of which channels are most profitable. You may still decide to use delivery services for the other benefits they offer (like new customer acquisition), but not based on a flawed profitability calculation.

Service Charges as Non-Revenue

Similarly, Sprk™ excludes service charges from Net Sales by default but has the option to include them. This option is valuable if you use service charges as a backdoor way to boost sales (surcharges for employee healthcare, minimum wage requirements, etc.) rather than for tips (a mandatory service charge for large groups).

Next Steps

Accounting-focused reports provided by your POS system are useful and necessary for bookkeeping, taxes and other accounting-related functions. However, it’s incorrect to assume that reports designed for accountants are also optimized for business decisions.

Find a business intelligence tool that is specifically designed to support making well-informed decisions.

Next Up: Capture New Customers: Optimize Your Google Business Profile

All screenshots are taken from Sprk™ using either fictitious data for illustrative purposes or real data used with permission.