forecasting profit & losses for a start-up business

Pizza Shop Talk The Think Tank
1

Guys, I just don’t get it! and i am requesting some help with this subject.

I am seeking financing to expand my catering business and turning it into a restaurant operation and to continue my current catering operations based out of the restaurant.

I have got to come up with a 12 month & 36 month “forecasted” P&L statement.

How does one accurately forecast something like this? I can determined my fixed costs, break even point, and many other calculations, but it is troubling me on how I can accurately determine how many people I will serve on a monthly basis with no prior history to work backwards from.

This just seems way too speculative with no data to back up the numbers for me to feel comfortable guessing on figures like this. and it boggles my mind how a lending institution can base their decision on pure invented numeric values based on speculation only.

Could some Think Tank members please help me out?

I have most of the proposed menu completed, I am working on my cost analysis with nothing over a 20% cost ratio, I just cannot figure how to forecast daily sales for a business that has not started operations yet.

Thank you in advance.

2

It is called a “guess” and chances are it will be way wrong…

3

What I want to know is how you did you whole menu under 20% food cost? You’re either charging way too much or buying really cheap.

As royster saids its exactly that… just a guess… You can go off how much traffic (foot or cars), how much competition you have, your market population, your break even points etc. What do you need to make to be profitable? <-- Thats your “forecast”.

4

omg, try forecasting a -$100,000 for your first year… Isn’t that an eye opener??

5

Two quick comments:

  1. 20% food cost - to me that shows you’re over charging or you’ve not worked it out correctly (including boxes etc etc). Typically food cost in the pizza market is 25-30% so which ever way you cut it your prices are out of line. As mentioned above you are either using cheaper products than other with the same price OR you are charging more.

  2. Re the business estimates - sure it is finger in the air to some extent BUT YOU should have a rough idea of what sales you believe you can do and this is figure you should use. I would hate for anyone to invest a significant amount of money in a business which they had absolutely no idea what the sale they hope for. What are you hoping for $10k a week, 5k, 20k? And how did you come to this figure? The idea of a business plan is as much for you as a bank. The bank want to see a) that you have thought about the business thoroughly and b) that you (and they) believe there is some money in it (although they normally aren’t that bothered as they will normally have your security so they’ll get your money back). So many people think a business plan is something they have to do JUST FOR THE BANK, when the reality is that its for you to show that the business is viable.

Hope this help.

Wiz

6

Some good spreadsheets and forms:

http://www.michaelhartzell.com/library/ … eadsheets/

7

Thank you for the link, I will look throught the site and grab some templates.

to clear up some of your guesses.

I have planned and opened business for myself others, but we worked with cash. I also started my current catering business with cash , so I have never had to present P&L’s to a lending institution to get a determination if someone was going to lend money or not. I am a little more analytical when it comes to money matters than relying on a forecast with no direct data to back it up. I plan on presenting a P&L to the lender, but what bothers me is no matter what numbers are listed, there is no proof of them being accurate until 12 months after opening when you have the sales/cost data to back them up.
The only way I see any accurate forecast being made is if their is already a business in operation and to go through their day to day ops to derive the numbers.

As for the comment about not including boxes, Boxes are not a “Food-Cost” they are a consumable item and they have a different column in my calculations. when I say food-cost, I am referring to edible products only, not consumables, chemical, or otherwise. The paper products get listed for consumables and added into my the total pricing structure in the end.

As per the 20% cost ratio.
Alright, lets use this standard pricing from a neaby business that will be a competitor of mine, they charge $14.00 for a thin crust 15" pie, I estimate their dough weight at 18 ounces, they use a 62% hydration for their dough. (i got that info from the owner during one of our conversations a few months back) Approx 1 pound of cheese, and I am guessing at about10 fluid ounces of tomato sauce thinned with water from a canned puree.
For each additional topping for that pie, they are charging $1.75 for both meats & veggies.
Sausage weight is under 1-pound, onion use is negligible, and maybe a hadful of canned mushrooms from a #10 can

Now lets look at the typical saus,mush,O pie. Pork butts for sausage are historically less then $1.25/LB for boneless butts. Loaf cheese is around $2.50/LB

So they are getting $19.25 for a 15" thin-crust pie, what would your food-cost percentage be using that $19.75 Price?
I am fairly sure it would be well under 30% and more like darn near 10%-12% cost ratio.

What do you come up with using the prices they are charging for a finished product?

8

Not really sure where the 20% food cost started but your estimate of 10-10% cost on this $19.75 pizza is silly. Using your numbers, just the cheese would be over 12%. The flour sauce and toppings aren’t free.

9

Yup, 10%-12% is wrong, My apologies.

So lets break this down, using the numbers you are currently seeing for you to purchase your product and to figure what this guys food-cost ratio actully is close to, based on your ingredient costs and amounts.and I will list the amounts and prices I am seeing locally for the items I believe he is using.

Lets leave labor-costs for prep out ot the equation, I do know he grinds his own sausage, because I helped him with the recipe about 7-8 years ago, So I am basing this figures at about $1.25/LB for sausage made in house without labor being figured in.

Lets say he is only using 12 ounces of mozz. cheese that is sliced, diced, or shredded in house,
lets keep sausage use at 1/2 pound per 15" pizza for ease of math
Onions; about 6-ounces used, cost per ounce,
Mushrooms canned, Handful per pie (8 ounces maybe??)
18 ounces of dough at a 60% hydration using AD-yeast. and a patent flour at $18.00/50# bag

My E-Sysco window is moving real slow right now and I am getting some errors on it, So i will reply with my cost analysis a little later since I am not an operating business dealing with pizza products right now I canot just grab the latest invoice and look it up

10

We can debate the price of a sausage pizza, or you can take the collected wisdom of the TT (which you requested) as face value. Food cost will likely be in the 25-30% range quoted to you. Depending on how you count paper, condiments, supplies etc it could well be higher. Then there is waste, spoilage, promotional use employee food, mistakes…

I would suggest you plan on 30% in your second year. A little higher than than would be a good idea for the first year.

The rest of it… well, take your best shot. Make some assumptions and multiple forecasts at different levels so you know what to expect from your variable costs like labor as you hit different sales levels. That will also help you to recognize what is going when you get there and perhaps respond more quickly when it becomes clear what is really happening.

11

bodegahwy & Paul nailed it.

Plan on 35+% FC 1st year, improve to 30% 2nd year, IF you’re still there afterwards, shoot for sub 30s.

Lets say he is only using 12 ounces of mozz. cheese that is sliced, diced, or shredded in house,
lets keep sausage use at 1/2 pound per 15" pizza for ease of math
Onions; about 6-ounces used, cost per ounce,
Mushrooms canned, Handful per pie (8 ounces maybe??)
18 ounces of dough at a 60% hydration using AD-yeast. and a patent flour at $18.00/50# bag

Referencing the above quote… Have you ever made 1 pizza? 6 oz of chopped onion??? 1/2 lb of sausage??? 8 ‘canned’ oz of mushrooms??? With all due respect… you’ve never made a commercial pizza. Take a deep breath & go make some pies, then look at numbers, then think about a business plan and P&L forecasts.

12

There really is no reason for you to be a “Richard Cranium” about it, yes I have made pizzas commercially, but it was almost 20 some years ago that is why I am estimating weights and obviously in error on those estimates,

To clarify further, I am not talking about reconciled food cost, I am talking about “Projected Foodcost” as in setting up menu pricing. So bring waste and spoilage into the topic is a moot point,

So lets use your weights & volumetric measurement estimates to figure the cost of the 15" pizza I had previously spelled out served on a pan in house leaving paper products and labor costs out of the equation.
What weights would you use for the dough, sauce, cheese, sausage, onions & shrooms? I’ll post the pricing typical for my area for the same supplier he uses for those products, and we will work backwards from that to estimate his foodcost is for that $19.75 pie, but based on more accurate measurements.

I don’t believe my questions are really all that tough, and I am not asking for anyone to give away their trade secrets.

13

What weights would you use for the dough, sauce, cheese, sausage, onions & shrooms?

dough 16 oz, sauce 7 oz, cheese 11 oz, sausage 6 oz, onions 2 oz, shrooms 2 oz.

Also, yes, you are correct in calculating the food cost of each item for your menu. And yes, the food cost of a 16" pizza is probably about 15-20%, maybe even less if you charge $1.75 for add’tl toppings. However, everyone wants to make sure that you understand your menu calculated cost is not the same as your actual food cost, because of all the factors Bodegahwy listed. Many, many, many folks post hear with questions, without understanding this issue. And please respect the fact that the TT community is hypersensative to anyone losing their investments because they were not prepared.

Also, I would question a menu with nothing over a 20% food cost. I seldom get a salad or a decent sub under 25-30% cost, not to mention wings… And if you tell me you aren’t doing those items, I’d strongly suggest you rethink your menu assortment.

As for estimating daily sales, no one will give you an answer for that one. Even the bank knows your best guess is exactly that…which is why they usually only lend $ based on assets you own. For reference purposes, PMQ publishes their annual pizzeria statistics… thats probably as good an estimate as you can get.

14

WTH is

“Richard Cranium”
???

15

Our cost on a 16" S,M,O pie
Dough .35
Sauce .25
Cheese 1.20
Sausage .70
Mushrooms .20
Onion .10

Menu cost ~$2.80

For us the box would have to be included since we deliver.

You do have to include waste when figure this out though. If you use the price per pound for onions and then throw 20% of the weight away when you peel and chop them, you have to account for that weight in the cost.

Menu cost is an import tool in evaluating pricing. But… in your post, you asked about a performa P&L. For that use, you need to use a more practical true food cost forcast. You have been given several suggestions about what that should be. Those suggestions were accurate. Do with them what you will.

16

Perfect, that is exactly what I was hoping to see, Now I have some more accurate measuraments to work from.
Thank you very much!!

And with the addition of Bodegahwy listing his actual cost I will be able to to a cost comparison between my region and his region if he is using similar measurements

You do have to include waste when figure this out though. If you use the price per pound for onions and then throw 20% of the weight away when you peel and chop them, you have to account for that weight in the cost.

I actually list my onions as only a 70% yield due to some employee’s having sub-par knife skills, and incidental waste such as those unusable onions I find in every 50# bag.
And you bring up a very valid point that many people who are first getting into foodservice do not realize, all items have a “Yield Factor” that they need to account for. When I am basing my pricing on raw materials, I rarely use 100% as my yield, I take my pricing, calculate the waste due to prep and refigure my actual cost per-pound to reflect inherent waste.
I also tend to overestimate my waste percentage calculations a little more than some, But I have never had a foodcost ratio surprise me after reconciliation for that very reason, I usually nail my end of month projections within a percent or two.

I do not mean to offend anyone, but this is not my first rodeo.
Several of you are treating me like I am some guy right off the turnip truck that has never seen a commercial kitchen before. I may have less experience in pizza than most here, but my overall commercial culinary history is rather expansive.

17

Gotrocks, the “tone” is most of your posts suggests to me that you think you do not need TT’s help…If you disagree, best to ignore it and move on or sooner or later you will join a group of posters whose questions do not get answers…

18

No, that is not the case. and I apologize to everyone if they got that impression from my writings.
But when I get replies like this;

Referencing the above quote… Have you ever made 1 pizza? 6 oz of chopped onion??? 1/2 lb of sausage??? 8 ‘canned’ oz of mushrooms??? With all due respect… you’ve never made a commercial pizza.

It can tun someones atttitude from cheerful to defensive real quick.
This topic went way off track when I got attacked for stating I am planning a low cost percentage,
I have been working on my forecasts and I got caught up in foodcost calculations becuase more than one replier addressed the percentages.

19

Think Tank is like a “brainstorming” session…Amongst the bad ideas will be a few “gems”…Spend a few days reading through the archives and you will have answers to most of your questions without even asking them…Good luck…

20

I have been doing that, and I have found nothing about forecasting, that is when I decided to join becuase everyone here seemed so knowledgable and I was hoping I could both learn and be able to add to the discusion from my past experiences.

Maybe I am looking at this forum from the wrong angle, I got the impression it was a forum where pizza professionals are tossing idea’s back and forth to help themselves and other to further their success.
Did I guess it wrong? Is this more of a social club forum for people in the pizza industry instead? If so, I will resing my membership and look elsewhere.