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A profit and loss statement is an excellent financial tool that you may use to determine overall profitability during a specific time period. While you may use this tool for personal use, you may also need to prepare a profit and loss when you apply for a loan or for other purposes. These are the essential steps to take to prepare a profit and loss statement.

Gather Records for the Time Period

A profit and loss statement with the help of someone like RMR Wealth Builders, Inc. is an accounting of all income and expenses within a specified period of time, or it may be a projection of anticipated income and expenses. The most common interval statement is 12 months, and this annual period usually runs from January 1 through December 31.

However, there are other intervals and time periods. For example, it may be common for a bank to request a profit and loss statement for the last two calendar years as well as a year-to-date statement. Quarterly statements may also be helpful to review or required. When you are projecting expenses, you should research accurate numbers to base projections on.

Analyze All Sources of Income

Some profit and loss statements itemize the sources of income. Others simply lump the income together. Ensure that your projections of income are as accurate as possible. When dealing with a projection, itemizing the income sources may be more effective and beneficial.

Determine All Operating Expenses

You will also need to complete this step for your expenses. While income is may be listed separately by source or lumped together, it is common to create categories for the expenses. For example, you may lump all of the utility expenses or marketing expenses together in their own categories. This makes it easier for you to analyze the expenses.

Hire a Professional for Assistance

Some people regularly prepare profit and loss statements for their own purposes, or they are able to quickly generate an accurate profit and loss statement when needed. Others find it difficult to complete this type of task on their own. Hiring a professional to prepare these documents is beneficial, and some professionals may also assist you with analysis of the documents.

A profit and loss statement is an excellent financial tool to prepare and analyze before you open a new business, such as a café. It can help you to determine if your business may be profitable or how long it may take for the business to be profitable. The effectiveness of this tool is based on how accurate your projections or estimates are.

Operator Solutions Using Mocafe

Last night, a perfect New England summer night, I was talking about cafe and restaurant management with an old friend, a former executive chef (like me), restaurant owner and major lines food salesman. The topic of passion was how old-school successful operators calculate the hourly success of their business.

One of the tricks old-school operators use is knowing exactly how much money each item sold puts to their bottom line. A good operator can stand in the middle of the shop and point at each item sold and tell you:

That turkey panini puts $3 to my bottom line. That frappe makes me $2 every time one is sold. Thatapple fritter drops a buck in my pocket every time we sell one.

Now they aren’t telling you how much each item sells for; they’re telling you how much profit each item makes.

How many operators today, or, cafe managers, can tell you how much a sale of every item in an hour puts to profit?

How do you calculate this? In future blogposts, I’ll cover calculating food or beverage cost, calculating labor cost, and calculating operating expense and how to calculate each of these factors on a per item level. Basically, it works like this (example):

Item Sell Price – Ingredient Cost – Labor Cost – Operating Expense = Profit, or, “What Goes In Your Pocket”

By the way, neither of us ever shied away from revealing this information to our staffs. In fact, we often shared this information, as doing so 1. taught staff valuable skill toward becoming a more valuable employee and 2. motivated them to upsell customers to more profitable items.

Have you calculated the profit you make from the sale of each item you offer? We’d love to hear your opinion and methods of tracking cafe performance.

Jeff from Mocafe