P&L Report gives insight into health of business
At Proto’s Pizzeria Napoletana, the Profit and Loss report is more than a lengthy chart with boring numbers. The P&L is an important topic in quarterly meetings with general managers.
Pam Proto, founder of the six-location company, says she and the managers use the P&L, which summarizes sales and expenses, to see how the Colorado and Idaho restaurants are performing compared to the same period the previous year. “We take first quarter 2011 and we compare it to first quarter 2010, and we say, ‘We did less in sales, but why did we spend more on cheese?’ ” she says. “It’s very transparent. We all talk about it. Everyone has certain things they have to accomplish, and they are rewarded when they accomplish these things.”
The P&L is a financial statement your bookkeeper or accountant sends you, along with other reports such as daily sales figures or weekly snapshots. Some accounting experts refer to the P&L as the income statement, and many recommend examining it monthly. The important thing, they agree, is that as a restaurant owner you examine the P&L, understand what it says about the health of your business, and then do something with the information.
“It really tells a story of your business,” says Alex Coppersmith, chief financial officer of the San Francisco-based Bacchus Management Group, parent company for four Pizza Antica restaurants and several other restaurants. “It gives you a glimpse of not just what’s happening today, but what’s happening over a week, a month, a year.”
That glimpse tells you whether your business really is making any money. “So many people think, ‘If I have money in the bank, I am making money’,” says Barbara Ann Barschak, CPA and restaurant and hospitality partner at the accounting firm Katz Cassidy in Los Angeles. “The P&L will help them manage their business. It will tell them if they are pricing their menu properly, if their portions are right, if they are overstaffed.”
The P&L shows sales, and how much those sales cost your business. Sales encompass food and beverage, merchandise such as t-shirts and gift cards. Costs include food, labor and operating expenses. Each has its own subcategories. For example, Barschak says, labor
includes not only wages, but workers’ compensation insurance, uniforms, payroll processing, payroll taxes and, for some, health insurance. Operating expenses include everything from marketing and utilities to oven repair.
Make sure the P&L is timely. Barschak suggests getting the P&L around the tenth of the month, showing revenues and expenses for the previous month. Compare the figures to how your business did in past months. Also use other restaurants as a benchmark. You can get these industry standards from the National Restaurant Association, friends and peers in other restaurants, or an accountant who specializes in foodservice.
Most restaurants have food costs of about 30 percent of revenues, and for pizzerias that figure is lower. Labor should be no more than
33 percent, and rent should be seven to 10 percent, Barschak estimates. Credit card processing could take up two-and-a-half percent. Marketing might be two percent.
The more information you have on the P&L, the better. “It is very important that business owners are aware of how much money they are actually making, and not just hyper focused on sales figures,” says Kevin Suto, CEO of Zachary’s Chicago Pizza Inc., with three locations in California. “If your sales are consistent, yet your profit is down, the P&L will show you where you have incurred higher expenses.”
Proto says when food costs went up, she renegotiated with vendors. Managers came up with ways to save electricity and to schedule less staff during certain shifts. “The economy helped us be better at what we do. It really made us look at our costs,” she says.
Coppersmith agrees that collaboration is important. “Let the chef know the food costs were 23 percent and the industry norm is 20, and last year you had 19 to 20,” he says. “As an owner you don’t need to worry about it by yourself. Go to the dining room manager and say, ‘We are having issues with labor costs, do we have more waiters than last year?’”
Also speak with your accountant. Theodore D. Derma, CPA, audit manager for the accounting firm R. J. Augustine and Associates in Schaumburg, Illinois, says sometimes restaurant owners panic because one month went badly. An accountant can offer some perspective. “A client will say, ‘I am losing money this month. What’s going on?’ and we say, ‘You just spent 20 grand on a liquor license, it was similar to last year,’” he says. Sometimes he suggests small changes, such as using a scale to weigh cheese before it goes on the pizza.
Don’t look at the P&L as a list of things to cut. The P&L might also suggest you should raise prices,
develop new marketing tactics, or revamp your menu, says Suto. “These decisions are difficult ones,” he says. Or you might need to just stay put. “If sales and profits are strong or up, the P&L is telling you to keep doing what you are doing.”
What’s important is the bottom line, literally the last figure on the chart, the net profit. “If you are doing three percent after taxes,” says Derma, “you are doing a good job.”
Should you create your own profit and loss statement or hire a bookkeeper or accountant? Daniel V. Augustine, CPA, director of accounting for R. J. Augustine and Associates in Schaumburg, Illinois, says there is reasonably priced software available that enables business owners to draw up their own charts, including P&L, balance sheets, and cash flow statements.
“The software makes financial information available to owners almost on a daily basis,” he says.
However, he says, the pizzeria owner’s main task is to sell pizzas. “You don’t want to micro-manage the profit and loss detail on a daily basis.” A full or part-time bookkeeper can generate these reports, or you can hire an accounting firm that sends you the reports, and discusses them with you, on a regular basis.
If you do want to create the P&L yourself, you’ll have to pull the sales information from your point of sale system and the expenses information from your invoices, credit card statements, and bank statements. Software such as QuickBooks can help.
Nora Caley is a freelance writer based in Colorado and is a frequent contributor to Pizza Today.