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Monthly Profit and Loss Statement: Are You Reviewing It Closely Enough?

No one has to tell you that understanding the ins and outs of your business on a daily basis is critically important. That can be easier said than done, however, as on a daily basis, you are busy doing those things an owner, manager, and/or chef must do to keep things running. But once a month, your bookkeeper gives you that all-important snapshot of your business – your Profit and Loss Statement (P&L). The P&L is a statement of the health of your hospitality business, but what are you looking for? Sure it has the data, but are you reviewing it closely enough and using the P&L as a tool to ensure that the data make you better, smarter, and, ultimately, more profitable?

Diving deep
One of the first things I do when I engage with a restaurant for any kind of work is to look carefully at the last month’s, last quarter’s, and last year’s P&L. This deep dive often provides me with the insights I need to get a proper conversation going and, ultimately, to ensure that my work affects areas of the business that are most important. Such a dive often helps to prioritize the issues to be addressed.

Case in point
On a recent P&L, the business had lost some money in a previous month where it before had been fairly profitable month to month. By comparing the line items in the P&L’s, I was able to discern the fact that food purchases for that month were almost 30 percent more than the usual amount for any given month, as well as for that same month the previous year. In addition, in that same month, the labor costs showed an increase of about $8K over the previous month, at about the same sales volume. Furthermore, the labor the previous month was actually almost $5K more than the previous, again with similar sales, and that much more than the same period the previous year. The business conducts monthly inventories, and the inventory for that month did not show an increase. What to do? What would you do? To be sure, if the issues are not addressed, then what is preventing the problems that caused these issues from happening again?

Line by line…
A P&L can tell you how healthy – or unhealthy – your business is. Be sure to look into each and every line and see if why it happened makes sense, then make plans to make each line better, when possible. In the case of my client, I asked the owner to look at each and every single invoice for every purchase made for that money-losing month. When he did, he realized, among other things, that his purchasing manager (his GM) was not performing some tasks that the owner assumed were being done. Namely, out of convenience, produce and meats were all being purchased from the primary vendor, though the owner had negotiated pricing from a meat vendor and a produce vendor. So not only was the business paying more, but it was compromising the quality expected. At that point, the client also realized that the amount of the higher priced proteins was increasing with each week’s purchases. As a result of this close examination of the P&L, each invoice is now logged with a check of the inventory. As for the increases in labor, it was uncovered that more staff were scheduled than needed.

Bottom line:
The P&L can help hone your business to be better and help you catch small issues before they become large ones.
Let me know, as always, if you want or need any help, and stay cool this summer!

About the Author

Henry Pertman is Director, Hospitality Consulting at CohnReznick, located in the firm’s Baltimore, Md. office. He can be contacted at 410-783-4900 or henry.pertman@cohnreznick.com.

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