Using the P&L for Business Decision Making
,Now, let’s look at how Lisa can use the figures to see how she is doing compared to similar businesses.
First, we need to find out what the averages are for similar retail businesses. Using benchmarking tools mentioned at www.BizStats.com, here are the percentages for similar small businesses.
Average Profitability & Expense Percentages for U.S. Small Businesses
Looking at the bottom line, Net Income, Lisa’s Candle Shop is below the industry average of 17.06 percent, but considering that this is a new business that’s really not bad. She needs to improve her Cost of Goods Sold. The industry average is 53.4 percent and Lisa’s is 60 percent.
Salaries and Wages are considerably higher. The industry average is 4.95 percent and Lisa’s Candle Shop is 14.8 percent. That is a drop from January’s 17.4 percent though, and given that this is a new store that is just building its sales volume, it’s not surprising for that to be out of whack.
After Lisa is open for a few more months, if the downward trend doesn’t continue she may want to cut her salary and wage expenses. That’s a personal decision based on the service she wants to offer her customers. Lisa needs to determine whether she needs all the salespeople she currently has on staff.
BIZ TIPS
Benchmarking your P&L to industry averages is a quick way to see how your business operations compare to other similar companies. When you see a significant difference, take a look at your numbers and see if you can figure out the reason. You don’t have to match the industry averages, but if your business is not doing as well as you would like, the differences might give you clues as to what is going wrong and what areas you need to work on to improve your profitability. If you’re doing better than industry averages, you can feel great about your success. You still may find areas where you could improve your profitability even more.
The store’s rent is slightly below the industry average of 4.24 percent. Lisa’s Candle Shop’s rent is 3.1 percent of sales.
Tracking these small details can mean a lot to long-term profitability and success. Companies that don’t pay attention to these details are the ones most likely destined to fail.
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