Need Help Reading Your P&L
Looking at a Profit and Loss (P&L) can be some people’s idea of hell and for other people it is not an issue. The following is a guide with some tips that we look out for to help you analyse the data so you can make informed business decisions. Some of the following will be easy for some people, so just pick and choose what is important to you:
The following is a rough summary of what the P&L of a hospitality business should look like. I have used generic values to highlight how much you should be spending. We will go into more details of each section below:
Gross Revenue: £100,000.00
Net Revenue (100%): £83,333.33
GP at 75% - COGS at 25%: £20,833.33
Payroll at 30%: £25,000.00
Fixed Overheads (Rent) at 10%: £8,333.33
Other Variable Costs at 25%: £20,833.33
Total spent: £74,999.99
EBITDA/Profit = 10% = £8,333.34
VAT - Gross and Net
VAT in the UK is currently at 20%. This means when you sell something in your bar or restaurant it usually has VAT included in the price. VAT is not always applied to cold or take-away food. But having a menu price at a sit down restaurant of a burger & chips at £9.99 means the following:
Gross Price: £9.99
Net Price: £8.32
This means that you as a business will only be entitled to £8.33 and you will owe £1.66 to HMRC. This figure will ultimately change as you will also purchase things that have VAT on them (e.g. the greaseproof paper the burger is served in) and so the figure of £1.66 will usually come down.
Net price can be calculated from the Gross price by dividing by 1.2 (If everything has VAT on it).
On a P&L the “Top Line” revenue means the Gross revenue.
TOP TIP: ONLY SPEAK ABOUT NET REVENUE AS THIS IS THE ONLY MONEY YOU ARE ENTITLED TO
COGS & GP:
Cost Of Goods (COGS) and GP (Gross Profit) is one of the major talking points on a P&L. The reason for this is that it is something you as a business has complete control of. The GP target for any restaurant/bar should be 75% of NET proice but this can always be higher/lower based on the offering. The COGS are the opposite of the GP and so the target is 25% of NET price.
e.g. Burger example
Gross Price: £9.99
Net Price: £8.32
COGS value to make the burger: £2.08 (25% Cost of Sale or COGS)
GP is the profit made on the burger is: £8.32 - £2.08 = £6.24 (75% GP)
There are two main way to change the COGS or GP values. You can either charge more for the dish or reduce what you spend to make the dish.
1) Increase the price to £12.99 from £9.99
Net Price becomes £10.83
COGS value stays the same: £2.08 (COGS percentage value decreases to 19.21%)
GP increases to 80.79%
2) Gross price stays at £9.99 and so Net price stays at £8.32
We lower the COGS value to make the burger: £1.50 (COGS percentage value decreases to 18.03%)
GP increases to 81.97%
Payroll:
Depending on the offering, a hospitality business’s payroll can differ massively. Some businesses can achieve a very low payroll percentage (to our knowledge Cote brasserie famously had a 15-20% payroll figure). But it should be around the 25% mark. This is important on a P&L because like the COGS it is something you have complete control over. You can always employ less people but whether this would impact sales or customer service is the major juggling act we all face.
Fixed Overhead:
This is usually something you have very little impact over. It includes things such as rent, service charges, rates etc. These are usually known well in advance and rarely change.
Variable Costs:
This is a “catch-all” term that encompasses everything else in the business that isnt a fixed cost, payroll or COGS. It is usually split into sections with expenditure of a similar nature being grouped together. Evaluating these costs can be time consuming but often where big/easy wins can be made. The following are some examples of things that fall into variable costs and how to reduce them:
Electricity, Gas & Water - Simply try and use as little as possible
Equipment & Site repairs - Things will always break. Make sure all equipment is fixed within warranty or take a contract with a company to reduce costs.
Consumables, Glassware & Crockery - Reduce without effecting service
Telephone & Mobile Telephone - Should fixed throughout the year
Uniforms - Track and if you use too much then take deposits from staff
Insurance - Shop around for quotes
Marketing - Spend more on social media ads to drive business or cut back to save costs
Laundry - Not always an essential cost
Cleaning & waste disposal - I would recommend using the council for your rubbish as if anyone complains then its the council they would complain to.
Travel - Reduce to £0 where possoble
Accountancy / Bookkeeping - Shop around but changing can be a very tough time so try to get right from the start.
EBITDA/Profit
EBITDA stands for “Earnings before interest, taxes, depreciation, and amortization”. It essentially means the business profit and will probably be the first figure you look at. A business is rated on on their EBITDA value. Obviously the higher the value the better.