Fish And Chip Shop Profit
Projecting fish and chip shop profit can be difficult, especially if you are opening your first fish and chip shop. Fish and chip shop insurance can take out the big risks involved including fire and other catastrophic accidents, public liability legal action or major food loss due to freezer failure. Leaving you to deal only with the day to day normal bills and typical waste and loss margins.
How can you predict how many people will want to buy fish and chips from your shop next week? The short answer is that you can’t. But you can project the number of sales you absolutely need and then work hard to exceed that. Projecting expenses is relatively simple, since there is historical data available. The toughest part is projecting sales. There are however simple equations that will help you set prices and project minimum and maximum income.
Write down all your monthly bills that are the same each month. For example rent, payroll and of course your chip shop insurance payments. Everything that will be the same every month. Add all of these together and note the result at the top of your list of expenses.
Write down other monthly expenses that may vary, but are relatively unrelated to the volume of sales. These will include your utilities. Almost all utility companies will allow fixed cost payments every month. Naturally these be slightly impacted by more cooking/seasonality behind the scenes, but you can ask them to factor this in. For the remainder of your projections express minimum and maximum costs. If this is your first year in business, it may be easier if you could get a hold of a previous tenants bills. Estimate the highest bill possible and the lowest bill possible for each of these and work out an average.
Add together the cost of cleaning supplies and other incidental items that will be used each month. Add this into the other two types of costs.
Costs that Vary by Amount of Production
Purchases of raw food, drinks and the packaging you serve it in should roughly correspond to the amount of food sold. This will never be and exact science as there will always be some waste. Still, you can get a rough estimate of how much these supplies cost and match it with profit. For example a certain weight of fish adds up to a certain number of servings, but you should figure for about ten percent waste. It’s the same thing with paper cups, plastic and all other sundries you give away to the customer.
Minimum Monthly Sales
This formula will indicate the least amount you can sell to break even. Add the static expenses and incidental expenses to the maximum variable expenses to get a range of maximum and minimum monthly expenses. Next add up the cost of what you feel is the minimum amount you might sell in a month, so potatoes, fish and the cost of drinks, cups napkins and anything else on the menu along with packaging. Figure out an even mix that you would see for a given period. If you feel most people will order fish, chips and a drink, then figure an even split between those three products. Stick to whole packages of things in your figures. Don’t try to split packages.
Next we will compare the total of all costs and expenses to the gross sales that amount of product you could produce with the materials you listed. If the gross sales total is more than the total expenses, then that represents a positive cash flow. Lower the quantities till you are at break even. If the expenses exceed gross sales, increase your order quantities and projected sales until you have a break even point. But make sure you are being realistic. If your break even point is higher than the quantity that you expect to sell, then you will have to either raise the prices or figure out how to cut expenses.
Setting Goals keeps your Business Growing
The next step is to set goals for daily, weekly and monthly profits based on exceeding your minimum profit, and checking how much each incremental increase in sales impacts your profit. This helps you understand how profit increases exponentially once income has exceeded fixed costs.
Setting goals helps you plan for the future, but it is also important to check the actual numbers each month. How close are your projections and goals to the actual sales? Are there expenses in your monthly budget you did not count on? Is there more waste than you had assumed? Work to eliminate waste and drive down costs. Advertise and offer promotional sales to increase your profit but make sure any advertising costs work hard in terms of what they bring in.
After a few months you can begin to estimate your profit margin, but you will not know the full story till you have operated your business for at least a year. There are slow seasons and busy seasons, these will average out. As time goes on your business should grow, but the first year’s gross profit compared to the first year’s gross expenses will give you a net profit margin, which is a staring point for setting more accurate growth.
It can be fun to work out fish and chip shop profit to see if you met or exceeded your goals. However if it isn’t your idea of fun, it is best to engage your accountant to produce monthly management accounts and present them to you. Projecting sales can be difficult, but it is very important to understand what your minimum sales amount is and to work very hard to exceed it. Anything over that amount is fish and chip shop profit.