My Simple P&L Review Process

The more reps you get, the easier this becomes

Author

Brian Beers
August 08, 2023

Analyzing a P&L doesn't need to be complicated

The more reps you get, the easier this becomes

This P&L is for a single auto repair franchise that we own. (1 of 32)

We have 7 major expense categories:

  1. Direct Labor (mechanics)

  2. Indirect Labor (managers)

  3. Shop Operations

  4. Sales Related

  5. Labor Related

  6. Occupancy

  7. Administration

By grouping into buckets, it's easier to shrink the P&L. This allows quicker comparison by time range & location.

Each expense category has 4 to 7 sub-accounts that we can drill down. For example:

  • Direct Labor has wages, payroll taxes, workers comp & PTO

  • Sales Related has royalties, credit card fees, local advertising, & fleet discounts

  • Labor Related has health insurance, 401k contributions, uniforms, & training

Our goal is 15% net margin. Our best stores are 20-25% while the worst stores lose money.

The simple model:

+ 100% Sales
- 23% COGS
- 62% Expenses
= 15% Net Profit

In March, we nailed it:

  • Sales: $104k (nearly a store record)

  • COGS: 20.4% (2.6% better than the model)

  • Expenses: 61.6% (0.4% better than the model)

  • Net: 18% (3% better = 2.6% COGS + 0.4% expenses)

We only had a 6% net margin in June, 9% off.

  • Sales: $80k

  • COGS: 22.7% (right on target)

  • Expenses: 71.5% (9.5% higher than target)

Many of our expenses are fixed. Employees have guaranteed wages. The rent, insurance, and utilities don't change much monthly. "Sales related" (primarily royalties) goes up & down with sales.

The more you sell, the more you dilute your fixed costs, driving them lower as a percentage of sales.

  • $65k - 81%

  • $80k - 71% ⬇️ 

  • $84k - 69% ⬇️

  • $104k - 61% ⬇️

For this store to hit 15% net, we need a minimum of $100k per month in sales. Anything less, we have virtually no chance.

April shows what happens if you don't sell enough. COGS was good, but expenses didn't change much

On the flip side, here's a pro-forma @ $125k & $150k monthly sales.

Expenses diluted further, leaving us with a net margin of 20% & 23%

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Cheers!
Brian Beers