Breaking Down the Profit and Loss Statement

Breaking Down the Profit and Loss Statement


I’d love to talk to you about
catering today, specifically about how implementing or accelerating your catering revenue channels
can materially impact your overall results. I think the best way to do that would be to
walk through two simple things. First, a profit and loss (P&L) statement. And secondly, looking at how incremental catering
sales can flow through that P&L statement to give you a stronger bottom line. Ultimately, understanding how catering sales
impact your bottom line will help you to build a sustainable strategy for long-term growth
and a healthy business. In a basic P&L statement, you have sales at
the top, followed by costs that are subtracted, leaving you with your profit at the bottom. In a restaurant there are four main types
of costs that either vary with sales or are fixed. Examples of variable costs would be your cost
of goods sold, which is your food, packaging, and discounts. Your labor, which is your hourly team members,
your management, and their benefits. And operating expenses, which are smallwares,
uniforms, utilities, etc. Fixed costs include things like occupancy
expenses, which would be your rent, your common-area maintenance charges, insurance, etc. So an average restaurant in the U.S. does
about a million dollars a year in sales and its P&L would look something like this. You’d see about 32 percent for cost of goods
sold, 32 percent for labor, 12 percent for operating expenses, and occupancy at around
12 percent as well, and a profit of 11 percent. So let’s talk about flow-through profitability. Flow-through is calculated as the percentage
of profit that you gain from adding incremental sales. In our example, if you add three incremental
catering orders per week, at an average of $275 per order, that would impact our example
P&L as follows. Over the course the year, your sales would
increase by $42,900 and your profit would increase by $12,442. Therefore, the flow-through would be 29 percent. And the reason that matters is you’re taking
advantage of the fact that you’re not adding incremental management labor, so your actual
labor costs go down slightly as a percentage of sales. And your occupancy costs stay fixed. So they also go down as a percentage of sales. Therefore, your overall profit increases by
almost seven-tenths of a percent in this particular example. It’s pretty obvious from that P&L exercise
what catering can do for your bottom line in your bank account. But even more importantly, it creates opportunities
for your team: More orders, more hours for your employees to work. It offsets a slow sales day and keeps the
team and everybody active and involved. It creates a much more efficient operation
and can help you utilize your excess capacity. And last but not least, it’s a great way
to market your business by getting in front of new customers off-premises. Thanks for joining me today and happy catering.

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About the Author: Oren Garnes

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