Welcome to the first installment of my series “Where’s My Money Going?”. I’m using strategic management and looking into why my profitability at Noe Valley Bakery has gone down since June 2015 and I’m sharing my process with you in the hopes that it will help you increase your business profits as well. This series will show your how to Analyze Your P&L and become a successful food business owner.
I have to confess that telling you about this is making me feel very vulnerable. It isn’t easy to tell other people about your business finances and then describe it in detail. I know my clients feel alone when facing “money leaks”.
Ok, now that I’ve told you how I feel. What do I do first in my business to tackle my problem? How do I figure out the difference between what was happening in the first half of 2015 and what is happening now? The answer starts with having the ability to analyze your P&L.
First, I’m going to dig in and do an in depth comparison of a profitable month with one that isn’t.
In my case, I’m going to compare the P&L’s from May 2015 and September 2015. On the surface the months look quite similar, same gross sales and each had a holiday in them (Mother’s Day and Rosh Hashanah). But May had a nice profit and September was break even- something’s very different between the two months.
Here’s the comparison of expenses with their percentage of total sales for the months:
Cost of Sales 20.1% Cost of Sales 26.0%
Retail Labor 14.1% Retail Labor 14.3%
Bakery Labor 18.0% Bakery Labor 19.2%
Expenses 25.2% Expenses 27.6%
What this comparison shows me is that my problem is not in just one part of my business but it is a “creep” in every aspect of the business. This “creep” in expenses amounts to 9.7% of sales…aka ALL OF OUR PROFITS!
Now that I know what the problem is and that it is throughout my business, the next question is what specifically is causing the problem and why? Why is my cost of sales 6% higher in September? Why are my expenses 2.4% higher? And do you know what I found from looking at my financials?
I don’t have enough detail to answer my questions…me, can you believe it?
I need to do some work on my financial statements to give myself more information so I can fix the problem.
Stay tuned for my next blog post on how I am going to give myself the details I need to fix the problems and continuing to explain the importance of being able to analyze your P&L