by Patricia M. Johnson, CMC and Richard F. Outcalt, CMC
Are your profits hiding in plain sight? Here's how to discover them.
Use "buckets" to cluster them and consider "what if...?"
The typical accounting package lists expenses in alphabetical order. From Advertising, to Auto Expenses, then Bank Charges, and so on. Lines and lines of separate expense items, all detailed to the penny. How useful is that?!
Is this designed to inform? Or, to confuse and confound? No wonder few retailers will spend much "quality time" with their financial statements.
But, there IS a simple trick that will let you make sense of all that data: simply re-organize the individual expenses on your P&L into 5 "buckets" of expenses.
That simple step transforms all that accounting data into management information. At The ROI, we call this process the PROFIT Finder!
What "buckets" to use?
Variable expenses are a percent of sales, so their dollar amount varies each month as sales increase or decrease. The major variable expense for retailers is Selling Expenses.
Selling Expenses - Variable expense
Examples: Store payroll, including taxes and benefits; Advertising; Bags & boxes; Special events; etc.
Fixed expenses have essentially the same dollar amount each month on average, no matter what sales are. There are 4 categories of fixed expenses:
Occupancy Expenses - Fixed expense, essentially flat $ amount each month
Examples: Rent; Utilities; Maintenance; Security; CAM charges; etc.
Administrative Expenses - Fixed expense, essentially flat $ amount each month
Examples: Management salaries (Owner; General Manager; Buyer) including taxes and benefits; Support staff/services (bookkeeping; IT; warehouse; marketing); Interest on borrowed money; Professional services (legal, accounting); Training; Travel; All other expenses not included elsewhere.
Taxes - Federal, State, Local taxes not included elsewhere.
Depreciation/Amortization - Fixed expense, essentially flat $ amount each month.
These are non-cash expenses, and must be kept separate in order to project the Cash Flow.
Whether you are analyzing your expenses, or projecting a "What would happen if I...?" scenario for your business, it is more useful and insightful to group all the line-item expenses into 5 major categories, or "buckets".
By grouping expenses into these "buckets", you immediately turn your P&L data into management information. Now, it becomes easy to:
-- monitor expenses
-- make comparisons to prior years
-- quickly spot which buckets of expenses are increasing.
Very quickly, you know where to focus to control expenses...and improve profits!
One-Time Set Up - Works Forever!
Best of all, setting up your P&L to include these buckets only needs to be done once. Once set up, it just cranks out the numbers in a way you actually can use.
It's easy! Go here to sign up. Immediately get online access to the WIP for Cannabis Retailers.
Just $24.95 per month! The WIP makes it easy and fast for cannabis retailers to manage and control inventory!
This retail financial how-to article is by Pat Johnson and Dick Outcalt, Co-Founders of The Retail Owners Institute® and CannabisRetailBiz.com.
Much more self-help, how-to information on retail profits, inventory control, and cash flow management can be found at The ROI. See "Who's Behind This?"
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