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Preparing a Proper Profit and Loss Statement for Your Bar
One of the most fundamental elements of succeeding in business is the ability to record and analyze business performance, especially against forecasts, budgets and past performances. This is done by consistently and accurately entering accounts receivable and payable information, liabilities and other financials. Using the right business accounting software, you can then generate various, specifically targeted reports on demand and take appropriate administrative and operational management to increase profitability, eliminate waste and identify reasons for lost profits. One of the most critical important reports is the "Profit and Loss Statement."
When prepared on solid data, a Profit and Loss Statement, or
"P & L," can be one of the most helpful reports a bar or restaurant owner can have in their business toolkit. In order to have useable, effective reports, certain criteria MUST be met, which we will examine in this article.
When considering the preparation of your P & L, or any financial reports for that matter, special care needs to be taken that they are prepared and generated properly. The first step is to purchase or harness existing business accounting software that meets the needs of your business. Obviously, a larger operation with several units would require a completely different solution than a smaller bar, restaurant or nightclub. A central accounting office is typically a better solution for those larger operations.
For most operations, Quickbooks® by Intuit, is a well-known business accounting resource that is commonly used. It has a user-friendly interface and many help tools to assist the user. In addition, there are many other business accounting software tools as well.
Also, more unique to Food & Beverage operations, most of today's Point-of-Sale, or "POS," systems have built-in or upgradable modules that allow for report generation and Accounts Receivable, Accounts Payable and even Payroll functions. Many operations choose to outsource their payroll and tax accounting. Again, meet with your ownership and management team and identify which solution may best fit your needs. DO NOT WAIT to make changes if you realize you do NOT have a good solution in place.
If your bar or restaurant's data is entered incorrectly or inconsistently, it will not be useful. Prices and material costs need to be updated regularly and accurately. The same system should be used at regular intervals. This is important for calculating Food and Beverage Cost and/or Cost of Goods Sold. Manager and operations reporting should be mandatory at regular intervals.
Also, remember that the data your are compiling is mission-critical. Employees that have a stake in what data is entered or do not understand why the data is being compiled or more likely to misrepresent it or contaminate it. Employees that order and sell products should not be the same employees who inventory it. Checks and balances should be used as a rule and systems that require more than one person's review (such as in transferring goods or payroll) should be implemented. Only trusted and qualified staff should be charged with entering and compiling data that will be used in your reporting.
Strive to make sure the data is as pure as possible. The most subtle to the most outrageous fluctuations in reports are often the cause of data-entry mistakes or willful altering by staff.
Depending on the size of your operation, you Profit and Loss Statement may be as few as one or as many as several pages long. You will need to decide if your business is a "cash-basis" or "accrual-basis" business. Cash-basis accounting means that your record the transactions in your books when the money actually changes hands. Many sole-proprietors elect to go this route. It works well for bars, because it tracks cash well. It also has its drawbacks. Accrual-basis is used by many companies with inventories who deal in lines of credit, wherein they present a business with goods or services and bill at a later date. This method is good for inventory-based businesses, but is has its cons as well. Make sure to speak to your accountant to see which basis model works best for your business.
The Profit and Loss Statement is organized by cost categories based on a company "Chart of Accounts." It is often presented in a table-format, which makes it easier to read, interpret and scrutinize.
First, all Income is calculated from all receipts from the sales of food and beverage. Discounts, refunds and other sources of income, such as vending and gaming are considered at this time.
Then, the Cost of Goods Sold are calculated by category and are further broken down for analysis. This includes everything used in preparing food and beverage for sale. For instance, when considering the preparation of a cocktail, you must break the entire product down and cost it out. So, you start with a standard vessel/glass/cup, ice, a standard portion of liquor/beer/wine/non-alcohol beverage, a portioned amount of mixer(s), a cocktail napkin, stir-stick and a garnishment. These all must be taken into account. This is also why standard recipes and sizes are critical to maintaining a desired cost per good. Most bar and restaurant supplies, paper goods and disposables will fall into this category. Many establishments also include chemicals and cleaners in the "Cost of Goods Sold." You may choose to consider and include other vendor, equipment and production costs in your markups and costs. For instance, simple things like vendor fuel surcharges and deposits or major hidden things, such as finance charges and interest on equipment leases, may be offset within the operation. But BE CAREFUL and BE CONSISTENT! How you break down your P & L will depend on your type of operation and how you choose to manage it. Make sure to consult your accountant when designing your "Chart of Accounts" in order to make sure financial systems are connected and flowing properly as they should.
Next on the "P & L," all expenses are entered/calculated by line item and relevance to the operation. This is where you will see payroll, wages and labor figures by department, taxes, insurances, leases, utilities, professional services, rentals, repairs, etc.
Reporting should be easy to read and understand and security access levels should be set in that data and reports are easily available whenever needed by a corresponding member of management. An owner or operations manager will need access to different reports than a shift supervisor.
Management and Accounting Operations should be located in a office-setting that is off-limits and hard to access by employees who needn't be there. Reports should never be disseminated to those who don't need them and managers should be held responsible for their security.
Management should be able to access reports as needed and be able to ask questions to those staffers who have prepared them.
Set meetings and review reporting with ownership and management teams regularly to identify when your are hitting your numbers and meeting your goals. Reports will help you identify waste, deviation from budgets, high cost percentages and unacceptable labor costs. There is a wealth of information of literally every aspect of your bar or restaurant operation that is contained within these valuable reports, especially your Profit & Loss Statement! Comparing and examining various periods against one another will help you get a grip on expenses and allow you to see where you're not reaching your fullest profit potentials.
Have the courage and business sense the make sound decisions based on the reports when you are sure the data is correct. Always investigate and vet any deviations in the reports before you make sweeping changes. Trying to continue as if nothing is wrong or just "winging it" are the biggest mistakes you can make as a bar owner or operator. Fixing things that aren't broke costs money, too.
If you have questions about this article, feel free to contact us.
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