P&L Analysis – Sept’16

I did take a review on Sept'16 numbers and attach below my comments for tomorrow's call.
Best Regards

ANOTHER DISAPPOINTING MONTH
I have just gone through September’16 P&L analysis. Another totally disappointing month.
I do not have nice words to describe my feelings, but have huge doubts on whether we are managing the business or the business is on its own pathway driven by the boys and girls as the customers are consistently complaining on Facebook. Let’s take a look on some key performance indicators:
Income:
Daily income per month:
May 2016 Jun 2016 Jul 2016 Aug 2016 Sep 2016
6.067,99 4.168,51 2.963,83 2.215,99 1.834,87

This is by no chance a logical trend. We did start highly above any expectations and start downhill as faster as we could (?). Is it strange that daily and weekly sales are dropping so hardly and we do not have any understanding why? Do we talk to the clients to understand where it goes? Have we chosen the worst place in the region? Is our product not accepted? Is it about the price? Do we have any idea of repeating clients vs new clients? Are we strong at lunch time, dinner, weekdays or weekends? How are performing our neighbors? Any answer to clarify where the problem is? How does it perform the avg sales ticket and avg number of tickets per day? I assume those have a strange behavior as well and visible for the management since months ago...
If this cannot sharply raise, I have doubts the place worth 10% of income as rental cost, although I strongly believe location is not the real problem!

Cost of Product sold:
Cost x Income Ratio:
May 2016 Jun 2016 Jul 2016 Aug 2016 Sep 2016
46% 34% 41% 42% 46%

Any reasonable market analysis for this type of business points at a 30% ratio, but we were never able to reach such number. Worse than that, we are month-after-month getting distant from this objective. I do not have any idea of stock levels, but at 46% ratio, better close the business! Moreover, May to Sept Avg Ratio is ranging 41%. This proves high stocks levels are not the case.
This is by far the main cause to transform a good profit into an undesired loss.
How are we managing our purchases and orders? What are the levels of food disposed to the garbage by expiration date and/or residuals on production?
On the first months after opening, I understood we were still adjusting order levels, etc… but it is strange we could not find a balance after several months and also getting it worse and worse. Something MUST radically change here! Quickly.

Payroll Cost and People Management:
Payroll Cost x Income Ratio:
May 2016 Jun 2016 Jul 2016 Aug 2016 Sep 2016
17,7% 28,1% 43,3% 30,4% 33,3%

Although I recognize an effort to bring such ratio below 30% (best on 25%), our current sales level cannot produce any better figures. As long as the restaurant must be open all day long and seven days a week, there is no other alternative rather than raising sales!
I still do not have any idea on how many people are working on the store (KEY ITEM FOR THE EB5 PROJECT!!!), their shifts, salaries and real necessity of each one of them.
On the People Management side, I understood we are training an employee as a Manager for the store that have never occupied such role. I fear this is not going on the right path. The level of young and unexperienced employees (most of them on their first job - as Sabrina told me once) on the store needs certainly someone experienced enough on the management role to guide and direct their performance and specially grant good customer services!
P&L and some key indicators here are just screaming loud and clear that this is not working right! I’m not on the store, but I managed people my whole life and we already had a restaurant….

Other Administrative Expenses:
By analyzing September figures and excluding Payroll, Rental, Advertising and Royalties from the Total Expenses, the resulting number is $7,362 or 13% of income. I cannot say such expenses are not necessary, but again, current sales level do not allow any cent to be spent without a strong reasoning. Out from those $7,362, just $1,000 is regarding to travel expenses, twice the amount spent on Advertising!
In spite of the above, I still find missing on P&L the proper allocation of Depreciation of Fixed Assets and the Amortization of Deferred Assets. By allocating those to P&L, results will be shown even worse.

Leasehold Improvements:
I requested some time ago the logics behind any credit or allowance we might receive from the landlord in exchange for the Leasehold improvements. Shall this be granted that a credit will be given on future rental payments, thus an allocation to reflect that in P&L is also needed.

Based on the above, I urge to create key performance indicators that will serve to manage the business on a daily, weekly and monthly basis. Regardless all my comments above, more important than the key indicators to timely manage the business, it is strongly recommended that we keep regular talks/ meetings until we find the business drivers that could put this business on the right track since this is going far worse than it should.
Alcides

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