Does your Profit and Loss statement tell your center’s true story?

I know, I know; talking about financial reports makes you yawn.  You are probably thinking, ‘This is why I have an accountant,’ and you aren’t wrong.   But, in my experience, most bowling center Profit and Loss (P&L) statements are a mess and, in some cases, useless.

You may also be thinking, ‘Who cares! Only my accountant needs them,’ but here is where you are wrong.  Your financial statements are one of the most important tools you and your management team should be using each month to evaluate your business.  These statements tell a part of the story that you cannot get from anywhere else.  The purpose of the P&L statement is to show a company's revenues and expenditures over a specified period, usually over one fiscal year. The P&L statement becomes highly relevant if you are looking to take out a loan for improvements, refinancing existing loans, or when it comes to your exit strategy.  Poorly created financials — especially your P&L — can cost you big when it comes to evaluating the worth of your business.

There are many types of financial reports, and they all have their purpose, but the P&L statement is the one that is most important to you, your management team, and potential buyers of your center.  The P&L has four main sections:

1.     Revenue

2.     COGS (Cost of Goods Sold)

3.     Expenses

4.     Other Income & Expenses

Revenue

This section could be retitled “Sales” because revenues from direct sales should be the only figures you see here.  The following list is an example of what should be listed in this section:

·      League Bowling

·      Open Bowling

·      Tournaments

·      Parties & Events

·      Shoe Rental

·      Locker Rental

·      Food & Non-Alcoholic Beverages

·      Alcohol & Beer

·      Arcade (if owned)

·      Pro Shop (if you operate it)

·      Other Merchandise

Your center may have additional ancillary sales such as laser tag, volleyball, or miniature golf, and those would also be added in this section. 

As you can see in the example above, bowling revenue is broken down into four major categories.  This is important because you should be tracking these revenue streams separately rather than just lumping them together as “Bowling.”  These broken-out figures will help you in your monthly evaluations.  They tell a much better story.  Potential buyers want to see these breakdowns as well.

Now let’s quickly discuss things we should not see in this section:

·      Sales Tax Collected

·      Lottery/Pull Tab Sales

·      ATM Fees

·      Gaming Revenue

·      Arcade Commissions (if not owned)

·      Rental Income

·      Any other income not generated from direct sales

These income streams are going to come into play in the “Other Revenue & Expenses” section.  When it comes to evaluating your performance, these types of revenue tend to skew things such as Cost Of Goods Sold percentages. 

COGS (Cost of Goods Sold)

This category of expenses is meant to breakout the cost of consumable goods and physical merchandise sold.  Some expenses to include here are:

·      Food & Non-Alcoholic Beverages

·      Alcohol & Beer

·      Party Supplies

·      Arcade (redemption merchandise, if owned)

·      Pro Shop

·      Other Merchandise

Here are some expenses we have seen placed in this category that should not be:

·      Wages of any kind

·      Taxes of any kind

·      Promotions

·      Supplies

These expenses come into play in the next section.  By limiting your COGS to the above-mentioned expenses, you are in a much better place to evaluate your sales prices as well as alert you to possible theft or over-pouring in the case of liquor.

 Expenses

I could write an entire article on this alone but here is the Cliff Notes version:

This section is reserved for expenses directly related to the operation of your business that do not fit into the COGS category.  The main expenses are:

*Wages                                               *Licenses

*Taxes                                                *Maintenance

*Utilities                                             *Rent/Mortgage

You should try to categorize these expenses as broadly as possible while still being somewhat descriptive.  For instance:  you do not need to list all your utilities individually.  Rather there should just be the broad category of Utilities You should keep track of each one individually as subcategories that can be seen on a different report, such as a Detailed Expense report.

There are a few expenses that should not be placed in this category such as depreciation, amortization, and interest expenses.  These expenses should fall into the next and final category.

Other Income and Expenses

This category is the catch-all for income and expenses that do not fit into the categories above.  This is where you would account for income streams such as:

·      Lottery Commission

·      Arcade Commission

·      Gaming Commission

·      Rental Income

·      ATM Fee Income

This is also where you would add expenses such as depreciation, amortization, and interest.

When the dust settles, you are left with your net income or loss.

There are some owners and accountants who will disagree with how this statement is laid out, and that’s okay.  It all comes down to interpretation.  This layout, in my opinion, allows you to best evaluate your business.  It tells the best story of how your business operates.  It will allow you to make informed decisions about pricing, expense reductions, and the value of your business when it comes time to sell.

Stay tuned for my next article in this series about how to use your P & L statement to make informed decisions to improve your business.  If you have questions about this article, you can contact me at firstframebowling.com.