Customizing Your Profit and Loss Statement to Improve Financial Outcomes (Part 3)

Customizing your Profit and Loss Statement puts meaningful financial information AT your fingertips.

Many think that financials reports like the Profit and Loss Statement are strictly for tax purposes, but they are actually valuable business tools.

The key to making the most of these reports is to customize them to your business.

financial reports should provide value to you, and help you make key strategy + business decisions.

If your Profit + Loss, or Income Statement, isn't providing you with meaningful and valuable information about your food business (without having to do side calculations or dig for additional data) you're working with what I call "Basic" financial reports in need of a revamp.

In the previous posts, I described the types of information your report should be providing, and how to know if your Profit and Loss Statement needs a revamp in the Revenue and Cost of Goods Sold sections.

This week we’re discussing Operating Expenses.

Signs that the operating expense Section
of your P&L Needs a Revamp

Sign #1 - Your operating expenses are a simple list of expenses in alphabetical order with no sub-categories.

Everyone’s expense list will be alphabetical, but glance through to see if the categories used actually help you understand your spending and/or your business performance. For example, have you been investing in online ads, or an outside consultant? Can you clearly see that expense? Are you able to tell if that expense if having the desired financial impact?  

Sign #2 - Your operating expenses are an extensive list of expenses, many of which are similar to one another.

I’ve said this before and I’ll say it again, too much information is about as helpful as not enough. 
What we’re striving for here is “meaningful detail” - just enough detail to provide valuable insights and information to make decisions.  

Sign #3 - You are not able to tell what specific expenses fall into each expense category.

This can present in many different ways, but usually accompanies Sign #1. 
For example, Imagine that the bulk of your expenses fall into a category called Office and Administrative Expenses, that could mean anything!  And could include expenses like rent, payroll, subscriptions, supplies, you name it.  

Steps to Take to Revamp Your Operating expenses

Just like with COGS, we want to strike a meaningful balance, or said in another way, just enough detail to provide you with valuable information to make decisions.  Too much detail can hinder your ability to gain valuable insights from this section of your report.

Step 1: Ask yourself what expense categories would best represent how you spend money in your business,

Here are some common categories to get you started…

• Advertising & Marketing

• Merchant Fees

• Office Supplies & Software

• Operating Expenses

• Outside Services

• Payroll

• Repairs & Maintenance

• Travel

Remember, the categories you choose should make sense for your business based on what you spend money on, and your goals.

Step 2: Think about and what specific information or spending details would be helpful to see for each main spending category you’ve chosen.

Here are some thoughts to get you started…

• Maybe payroll costs are something that you want detailed so that you can see wages vs. mileage reimbursement, vs. payroll taxes (I think that’s a great idea) 

• Perhaps you’re planning to do online ad spend - would seeing ad spend separate from other marketing expenses be helpful? Maybe you’ve hired an agency and want to see their fees separate from ad spend. Or perhaps you do a lot of printing and mailers that you want to track the costs of?

• You probably don’t need each of your insurances types separated under Operating Expenses, but if that’s a major expense for you business it could be helpful to see Insurances as a sub-category.

The goal here is to have a list that is meaningful, and will allow you to easily see changes in a category month to month that could hurt or benefit your business.

how to implement these changes

Once you’ve worked through each section of your Profit and Loss Statement and documented the changes, pull all of the info together in a draft P&L and then share it with your Bookkeeper. Talk them through why you’re requesting the changes and why particular information is important to you. The more they know the more than can be of service!

If you do your own bookkeeping, having a fully flushed out sample of the P&L that you want to create will help you stay on track when implementing the changes.

CFO Office Hours: Get help if you need it

Not sure exactly which buttons to click to implement your changes?
Maybe you’ve got some questions about the structure that you’ve developed for your revamped P&L?

CFO Office Hours is a great place to get one-on-one guidance from Sarah.
Click here to see upcoming sessions and reserve your pass.