Natural Foods Merchandiser

Calculate success with your profit/loss statement

by Zedrick Clark

One thing I've always admired about natural foods store owners is the ability many have to run successful businesses with very little formal business training. Our passion for helping others got us into this business, but our ability to run our businesses successfully is what keeps us in business.

After working in natural foods for more than 10 years, I felt as though I was ready to go into business myself. I had managed several natural food stores, and worked in sales for more than six years. I also visited many natural food stores to learn what worked and what didn't in merchandising and marketing. But I had never read a profit-and-loss statement, and barely knew what one was.

Many owners may be in business for years before they see a profit-and-loss statement. Even if someone else is taking care of your bookkeeping or accounting, it is vital to understand this tool. It's your gauge for knowing how successful the business is, and it provides great information for setting goals. It can show trends that warn when the business is failing. It can also give you clues about where your business can grow.

The most basic function of a profit-loss statement is to determine your gross profit and net profit. Gross profit is the difference between cost of goods sold and total sales. Gross profit in our industry should be between 35 percent and 45 percent. Net profit is the difference between your gross profit and total expenses. Net profit is the bottom-line dollar amount that the business earns at the end of the day.

A profit-and-loss statement can usually be generated electronically through accounting systems such as QuickBooks or Peachtree. Your accountant can also generate one based on the information you provide. Before modern accounting software, nightly cash-register reports and your check-ledger book or bank statement provided the details used in a P-and-L report.

Usually a profit-and-loss statement begins with your income. Details are helpful here. For example, you can break down each sales category separately to serve your needs. At the very minimum, you should have your taxable and nontaxable items separated. However, I suggest having at least five to six major categories such as food, body care, vitamins, refrigerated, frozen and bulk. Any area that has high labor or very low margins should be tracked to minimize losses.

The next category is the cost of goods sold. This is how much you pay for your products for resale. The breakdown of your cost-of-goods-sold categories should mirror your sales categories. That way you can calculate individual gross margins for each category. If supplies are directly related to your cost of goods sold, such as a deli or bulk food that you pack, they should be listed under cost of goods sold as well.

Again, subtracting the cost of goods sold from your total income will leave you with your gross profit. This is how much money you have made before expenses.

It is extremely important to list all of your expenses. Some of your basic fixed expenses will be utilities, rent and insurance. These are expenses that should remain consistent and that you have limited control over.

It is also important to have your variable expenses listed. These are expenses that you can control in many cases. Some of these would be advertising costs, travel and entertainment, and charitable contributions. By tracking your variable expenses, you have the ability to help your company be more profitable. If the store's gross margin declines for some reason, these expenses can be reduced.

Some of the other standard expenses that will show up on a profit-and-loss statement are labor costs, professional fees and store supplies. These again are expenses that can be reduced when the store's profits are not in line with the owner's goals.

Last but not least, don't forget to create categories for any additional expenses that come through the business such as licenses, dues and subscriptions, and postage and shipping. Interest on loans that you pay, or bad debts you can't collect, should also be added to your profit and loss statement.

Zedrick Clark is the owner of Nature's Food Market in Berlin, Ohio. He also has a natural products consulting company and serves as chairman of the board for the Independent Natural Food Retailers Association.

Sample annual profit and loss report

Ordinary Income/Expense Income

    Freight 313.00
    4401 · Food Sales 101,345.00
    4402 · Body Care Sales 50,987.00
    4403 · Vitamin Sales 423,908.00
    4404 · Sunrider Sales 5,639.00
    4405 · Refrigerated/Frozen Sales 31,567.00
    4406 · Yogurt Sales 5,097.00
    4407 · General Merchandise Sales 10,293.00
    4408 · Book Sales 6,058.00
    4409 · Herbs-Bulk Sales 11,254.00
    4410 · Bulk Food Sales 90,768.00
    4415 · Pet Sales 5,498.00
    4418 · Berlin Natural Bakery 11,087.00
    Total Income 753,814.00

Cost of Goods Sold

    5401 · Purchases - Food 63,943.00
    5402 · Purchases - Body Care 25,934.00
    5403 · Purchases - Vitamins 203,948.00
    5404 · Purchases - Sunrider 2,798.00
    5405 · Purchases - Refrig/Frozen 18,972.00
    5406 · Purchases - Yogurt 3,878.60
    5407 · Purchases - General Merchandise 6,523.00
    5408 · Purchases - Books 4,098.00
    5409 · Purchases - Bulk Herbs 7,264.90
    5410 · Purchases - Bulk
    5411 · Bulk Supplies 4,393.43
    5410 · Purchases - Bulk - Other 71,403.00
    Total 5410 · Purchases - Bulk 75,796.43
    5418 · Purchases - BNB 6,052.00
    Total COGS 495,004.36
    Gross Profit 258,809.64

Expense

    6003 · Outside Labor 567.00
    6004 · Independent Contractors 1,153.00
    6010 · Employee Health Benefit 714.85
    6020 · Inventory Shrinkage
    6022 · Inventory Loss 2,093.00
    6020 · Inventory Shrinkage - Other 1,394.00
    Total 6020 · Inventory Shrinkage 3,487.00
    6030 · Advertising
    6031 · Sampling 403.86
    6032 · Marketing Supplies 3,192.00
    6030 · Advertising - Other 13,918.16
    Total 6030 · Advertising 17,514.02
    6110 · Automobile Expense
    6111 · Mileage 1,173.15
    6110 · Automobile Expense - Other 2,450.85
    Total 6110 · Automobile Expense 3,624.00
    6120 · Bank Service Charges
    6121 · nsf fees 5.00
    6128 · CC service charge 7,042.27
    Total 6120 · Bank Service Charges 7,047.27
    6129 · Loan Interest Expense 360.00
    6140 · Contributions
    6141 · Donations 256.30
    6140 · Contributions - Other 1,233.01
    Total 6140 · Contributions 1,489.31
    6145 · Community Outreach 1,017.03
    6160 · Dues and Subscriptions 577.90
    6170 · Equipment Rental
    6171 · Order Dog Fees 577.00
    6173 · CC Lease 477.62
    6170 · Equipment Rental - Other 1,022.10
    Total 6170 · Equipment Rental 2,076.72
    6180 · Insurance
    6181 · Worker's Comp 1,796.00
    6180 · Insurance - Other 1,689.00
    Total 6180 · Insurance 3,485.00
    6200 · Sales Tax Expense
    6202 · Sales Tax Adjustment -434.92
    6200 · Sales Tax Expense - Other 16.55
    Total 6200 · Sales Tax Expense -418.37
    6241 · Flowers & Cards 404.00
    6250 · Postage and Delivery
    6251 · UPS Freight 674.00
    6252 · Postcards 11.85
    6253 · P.O. Box 24.00
    6254 · Priority Postage 245.00
    6250 · Postage and Delivery - Other 595.54
    Total 6250 · Postage and Delivery 1,550.39
    6270 · Professional Fees
    6285 · Accounting 1,567.00
    6270 · Professional Fees - Other 246.10
    Total 6270 · Professional Fees 1,813.10
    6290 · Rent
    6291 · Office Space Rent 200.00
    6290 · Rent - Other 20,594.00
    Total 6290 · Rent 20,794.00
    6295 · Licenses 198.31
    6300 · Repairs and Maintenance
    6320 · Computer Repairs 321.00
    6330 · Equipment Repairs 1,552.33
    6300 · Repairs and Maintenance - Other 11.56
    Total 6300 · Repairs and Maintenance 1,884.89
    6350 · Travel & Ent
    6360 · Entertainment 333.50
    6370 · Meals 1,008.98
    6380 · Travel 2,872.23
    6350 · Travel & Ent - Other 139.62
    Total 6350 · Travel & Ent 4,354.33
    6400 · Utilities
    6410 · Gas 1,502.97
    6420 · Waste Removal 1,456.00
    6430 · Water 126.00
    6440 · Electric 6,914.71
    6450 · Telephone 4,747.09
    6460 · Internet Service 632.57
    Total 6400 · Utilities 15,379.34
    6560 · Payroll Expenses
    Total 6560 · Payroll Expenses 135,685.00
    6700 · Supplies
    6790 · Office 1,456.00
    6700 · Supplies - Other 3,426.00
    Total 6700 · Supplies 4,882.00
    6900 · Bad debt 24.45
    Total Expense 229,664.54
    Net Ordinary Income 29,145.10
    Net Income 29,145.10

profit & expense

gross profit margins

Natural Foods Merchandiser volume XXVIII/number 6/p. 26,28

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