Few operators take the time to better understand both revenue projections as well as variable and fixed expenses so they can see what contributes or detracts from store profitability.
A profit and loss (P&L) analysis provides a simple yet effective way of managing both revenue and expenses. When conducting a P&L analysis, small tweaks can bring big rewards. Here’s how to get started:
Set Goal Setting Target Scenarios: Most operators have little sense how a sales increase or decrease of 30% impacts their bottom line. By looking at a variety of revenue scenarios and their corresponding expenses, an operator is better armed to manage their store.
Know the Key Drivers: Identify the key drivers in your operation and manage these with a fine-toothed comb. In the foodservice industry, those three drivers are food, paper and labor. Failure to manage those three and the remaining expenses are immaterial.
Understand Variable Vs. Fixed: Under different revenue scenarios, expenses will either be fixed in nature (i.e., rent) or variable based on the volume of the store (i.e., utilities increasing with added hours/equipment). Lowering your fixed expenses combined with managing the growth of the variable expenses, is critical to improving profitability.
Overcome Barriers to Growth: Sometimes, employees will resist growth because they are neither motivated by incentives nor have the desire to work harder servicing more customers. “War-gaming” different scenarios will provide the operator with ways to motivate their staff to embrace growth, not resist it.
Manage Line-By-Line: Each line item should be “scrubbed” to look for opportunities. One of my favorites is trash removal. This expense item is determined by a.) size of the container; and b.) the frequency of the pickup. If you want to reduce your expense in this line item, train your employees to break down every box, can, etc. and reduce either the size of the container or the frequency of pickup.
For more P&L advice check out the slideshow below:
John Matthews is the president and CEO of Gray Cat Enterprises and is responsible for the management of all consulting activities for the firm, which include retail consulting for multiunit operations; interim executive management; and project management. Prior to founding his own company in 2004, Matthews held senior management positions as president of Jimmy John’s Gourmet Sandwiches and as VP of marketing, merchandising, facilities, corporate communications, and real estate at Clark Retail Enterprises, Inc. Additionally, Matthews worked for nine years in marketing management as the national marketing director of the Little Caesars Pizza Corporation.