A Deeper Dive Into Your P&L

The response from last weeks post about how to set-up your Profit and Loss (P&L) statement using Controllable Expenses and Non-Controllable Expenses, seemed to be very popular. One reader however asked it I could explain the top of the P&L in more depth, meaning Sales and Cost of Sales. So this week I want to go through the top line - Sales.

It might seem pretty obvious how you would report sales. Your customers give you money in the form of a debit or credit card, or cash, or Apple Pay, etc. and that’s your sales for the day. But for a brewery, you typically are selling much more than just beer and you want to be able to control what you sell. In order to do that you need to divide up what you are selling into categories. Much of this will make a bit more sense next week when I go into cost of sales, but for the time being let’s just look at those categories.

Obviously you are selling Beer, so that’s your first category. You are probably selling hats and tee shirts as well, so that is another category - Merchandise. At Colorado Boy we are also a pizzeria that sells Food, and also Wine. But we also sell sodas, coffee and tea, which are categorized as Beverages. If I sold hard spirits I would also have a category of Liquor. If I had a billiard room where people could rent time on Pool Tables, I would probably add a category called Billiards. You get the idea.

The top section of our P&L is laid out like this.

SALES

Beer $

Wine $

Food $

Bev. $

Merch. $

Total Sales

To get these numbers, our point of sales system just codes each item we sell by one of the categories. At the end of the day it gives us a report on the sales for each category. This gets transferred to our Daily Sales Report and into Quickbooks for our accounting.

Sales Breakdown From Point of Sales

What about when you buy someone a beer, how do you account for that? Our reports show a Gross Sales and a Net Sales. The Gross Sales includes what we gave away. So if a beer is wrung up and we want to buy it for the customer because it is their birthday, we go into the Point of Sales system and write-off the amount owed. We don’t pull off the beer, we just zero out the amount owed so the customer doesn’t have to pay for it.

This is important. We still want to know what the beer sales are as if we had collected the money for the beer we gave away. This will become apparent when we figure cost of sales next week, but essentially there is no way to get an accurate figure on cost of sales without having a sales figure that includes what we gave away.

The net sales figure is for our daily deposits. If we sold $3,953.10 that night, we want to be depositing into the bank that much as well, or there could be a small over/short by a few pennies. Net sales are sales that we get paid for.

Now let me throw you for a loop. What about Gift Certificates? This may seem confusing but gift certificates are not sales. Follow me here. If a customer comes in and buys a $50 gift certificate, they aren’t buying beer, wine, food, etc. They are buying the right to purchase items in the future. You don’t know how they are going to spend that $50. It could all be on beer, or some spent on each category.

Instead you do this; use categories called Gift Certificate Sales and Gift Certificates Redeemed. This does not show up on your P&L because it is neither a sale ( Know I just called it a sale) nor and expense. It shows up on the balance sheet. Don’t worry, your bookkeeper will set this up and explain it, but basically that $50 is an asset as it goes into your bank account. But it is also a liability because it is owed when redeemed. However you are not paying sales tax on this money until it is redeemed! It just sits in your bank account. This type of thing is really big business for companies like Starbucks. That’s because you can be holding a huge amount of money that you collect for gift certificates that you aren’t paying any taxes on until the certificate is redeemed. Think about Starbucks. How many gift cards are out there that get discarded when there is still a balance on them? It’s reported that as much as 3 to 6% of cards don’t ever get redeemed. This can add up to 3 billion annually. Wow.

I know this all sounds complicated, but all you need to know is to divide what you sell according to what categories you want to track. You also want to track what you give away so you can account for it when figuring out your cost of sales (next week we dive deep into this), and if you sell gift cards, ask your bookkeeper to set that up for you so that you can properly track the cards you sell and when they are redeemed.

All you want to do is make beer and not deal with this, but within your first week this will all be second nature, and will help you be as profitable as possible so you have more cash to buy more brew toys.