THE MAGIC OF SYSTEMIZING
|In this article, not only am I going to show you how you can learn to read a restaurant profit/loss statement like a boss, but I have created a restaurant profit/loss template that you will absolutely LOVE and can use for your own bar/restaurant to manage your finances. It has everything you need to track your costs, including month-by-month AND year-to-date, which means it is a 12-month profit/loss template all built into one. With formulas. And pretty colors.|
Now, for those of you new to me and Bar Patrol and my style of doing things, I’m obsessed with systemizing. Like seriously obsessed. I systemize everything in my business, as well as help other bar and restaurant owners systemize their businesses, but I also find myself fantasizing about it in other areas of my life as well.
Coaching basketball. My kids’ homework. Paying my bills. Just about anything that requires effort and organization.
Ask my wife…
“If you mention the word ‘systemize’ one more time in this house,” she told me the other day, “I’m going to kick you right in the balls.”
Which is comical, because she’s actually better at it than me. Systemizing, not kicking people in the balls. Although, really, she probably has me on both accounts.
Despite my obsession, there is no denying that systemizing your business breeds gigantic results, from finances to inventory management to your staff to marketing to check lists and job duties.
Ok, I’m just going to shout it out: SYSTEMIZING IS AMAZING!!! It gives you a clear vision of what you’re doing on a daily basis, it provides everyone with job duties, it saves you hours of time and it prevents your business and life from spiraling into disarray.
Which finally brings us to the profit/loss statement you came here to learn about. The truth is, I get enough comments and requests about where to find a good profit/loss template that I finally created one myself. An awesome one, designed specifically for bars and restaurants.
In addition to showing all 12 months of the year in one template, this template also gives you your prime cost for the month, which you rarely find on restaurant profit/loss templates, for reasons I can’t quite contemplate.
If you want to check it out for yourself, you can click on the Resource tab up top, or you can click here and I will take you to the Resource page myself. There you will find the profit/loss template along with other goodies. The template is $19.99 because I had to take lots of time and effort to create it and I know that you might like to work for free, but I’m a selfish capitalist who likes the idea of feeding his kids and buying them shoes. Believe me though, it’s worth the 20 bucks.
Ok, let’s get to why you came here. Finally.
HOW TO READ A RESTAURANT PROFIT LOSS STATEMENT
HOW OFTEN SHOULD I RUN A PROFIT/LOSS REPORT?
The profit/loss report is most commonly run on a monthly basis, but if you are one of those mega-on-top-of-things types of owners, you could choose to run one once per week, or if you are a mega-lazy-apathetic-and-don’t-give-a-shit-about-your-business type of owner, you could run one it once per year. I don’t recommend it, but it’s your choice.
Running a weekly profit/loss is best, but most owners and managers have a thousand chainsaws to juggle, so I recommend monthly, as it gives you a good overview of your business. For weekly analysis we use the Weekly Sales & Prime Cost Report, as well as the Weekly Cash Flow Template, which you can also find on the Resource page.
THE SECTIONS OF A PROFIT/LOSS STATEMENT
The profit/loss is broken down into three main sections:
- Revenue (money coming in)
- COGS, or Cost of Goods Sold (money going out)
- Expenses (also money going out)
The result of those three will determine if you made a profit or loss and will show up at the bottom after everything has been added (and subtracted) together. It’s important to understand that these three sections tell a story about what’s going on in your business, beyond just numbers showing up in columns and rows.
Hiding in the middle of this statement are the reasons WHY your profit or loss is what it is, and that’s what you need to be analyzing.
THE PROFIT/LOSS BREAKDOWN
So let’s break down the three main sections in detail. In the first section we’re talking about Revenue, or all the money coming in.
SALES – As I’ve mentioned, this is money coming in. A lot of places will only have two categories: Food and Bar, but the more you break it down, the easier it is to spot problem areas, and when you can spot problem areas, you can fix them. Take a look at our sales breakdown.
In this example it’s broken down as Food and Non-Alcoholic drinks, then four categories of bar products, then Retail and Miscellaneous to cover everything else. It’s your business, so you can break it down however you want, but the more detailed your profit/loss statement is, the easier it is to compare it to the standards you have set so you can see if you’re meeting those standards.
In this example, the current period is February and the year-to-date shows all the numbers for the entire year, which in this case is only two months worth.
Where do you get all these numbers? From your POS system of course. If you only have a cash register, you would most likely have limited categories, unless it’s one hell of a cash register. From your POS sales report, you will enter all of your sales for the month for each category. In this example you can see that sales for the month totaled $101,281 and year-to-date (YTD) sales are $213,449. The percentage column shows the percentage of overall sales for each category (i.e. 31.7% of their total sales came from food).
COST OF GOODS SOLD (COGS) – Again, this is money going out, or money you spend on the products you are selling. Yes, they are expenses, but they are separate from the Expenses section, which focus on operating expenses. These are expenses on the products you buy and sell.
As you can see, the COGS categories match the Sales categories so we can get cost percentages and compare them to industry standards, which I have listed to the right of each category so you can compare them right on the spot. We also need to remember that industry averages can vary based on the style of restaurant, but this will give you a benchmark to see how far your ship is out of whack. Check it out:
In this snapshot we can look at both the current month and the YTD to see how we compare to the industry averages. This is only two months worth of data (Jan & Feb) so the YTD is somewhat similar, but let’s take a look.
The industry average for food is 28 – 32%, and based on this report, we’re running consistently at 35%. A little steep. We either need to order less, raise our prices, cut down on waste or find new vendors to get better prices. But you can see the YTD percentage for food is at 28.5% so for the two months overall, we’re doing fine. That’s why it’s so vital to have the YTD on your profit/loss statement, so you can see how you’re doing OVERALL, and not freak out from one bad month.
For Non-Alcoholic, the industry average is 10 – 15% and in February our percentage was 7.4% and the overall is at 10.2%, so all good there.
You can go right down the list here and see how each category compares to the industry averages so you can make adjustments on spending, ordering, pricing and tracking your products.
LABOR EXPENSES – Labor includes the money paid out to management, employee wages paid by the hour, and employee benefits. Labor is the first expense we look at on the profit/loss statement, because now that we have sales and COGS taken care of, once we enter our labor, we can view our Prime Cost, which is one of the most important metrics to track.
Many profit/loss templates don’t include the prime cost calculation, which is a shame because all the information is right there in front of us, so why not calculate it?
What is prime cost exactly? In a nutshell, it’s the money you spend on your COGS + Labor. To get a prime cost percentage, all you need to do is divide that total by your sales. As you can see in this next example, the prime cost industry average is right around 60 – 65%.
Take a look:
If you look at the green bar, you can see where the prime cost is determined. In this example, February’s prime cost is at nearly 70%, about 5 – 10% higher than it should be. But, once again you’ll notice that the YTD prime cost is at 63.3% so we’re doing fine in the big picture.
Going back up and looking at the labor categories, you can see we again have standards to the right so we can compare how we’re doing compared to industry averages for Management, Hourly Staff and Employee Benefits. All three of those are within a reasonable amount compared to the standards, so we know labor is ok for now, though we are always looking to improve it still.
OPERATING EXPENSES – The final section of the profit/loss statement holds the operating expenses. Here we have both controllable (another name for variable costs, in general) and uncontrollable (sort of like fixed costs).
Now, this template we’re looking at is what’s called a summary profit/loss statement which groups a lot of detailed expenses into broader categories. For instance, Music & Entertainment could be broken down to Bands, Karaoke, DJ, etc. For that, you would need a more detailed profit/loss statement. Again, I always preach details, so the more detailed you get on your expenses the better, but you also don’t want to create so much work for yourself that you end up slacking off and not even completing your profit/loss statement each month.
I created this template to be that happy-medium because many of the average mid-sized bar/restaurants don’t even use a profit/loss statement, so for people like that, I want them to actually fill it out each month without getting too overwhelmed or dreading it.
Here are the expenses as they are tracked in this template:
This is another area where controllable and non-controllable expenses could be broken down in a lot more detail, but that’s up to you. In this example we have six main controllable expenses and a miscellaneous to lump in the rest.
For non-controllable expenses we have occupancy costs, equipment leases and miscellaneous. You can also see on the right that the industry standard for occupancy cost percentage is 8 – 10%, which means we are right where we want to be at 9.7% YTD.
And of course the most important metric on the entire profit/loss statement is actual profit you make (or don’t make) and profit percentage before taxes. You can see that the industry average for profit percentage before taxes is 3 – 6%. WTF!!?Ridiculous, isn’t it? The average bar/restaurant is making 3 – 6% profit. But of course you’re not average are you? You’re going to use this as inspiration to view your problem areas and pump up that profit.
In this example, this business is at 6.4% profit, which isn’t bad by industry standards, but that’s including all the bars and restaurants that go out of business because they lose their shirt. In order to increase those profits, you need to get busy finding ways to increase sales and control expenses, which is another topic for another day.
Before we go, here is a snapshot of the entire profit/loss template:
If you’re still not doing your monthly profit/loss statement, or you’re doing it but you’re doing it half-ass, I HIGHLY suggest you get on top of your business so you can identify those problem areas.
If you want this 12-month template, you can download it here on the resource page.
But whatever you do, whether you use the one we use or another one, make sure you’re using SOMETHING to track your sales, COGS and expenses each month.
See you next time.