Cooking Up a Profit and Loss Forecast (in 5 Easy Steps)

This article is part of a series on how to start your own food business.

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Congrats on taking the first steps toward beginning a food business. A food business requires much more than delicious recipes. Many eventually have to shut down because they run out of money. Food entrepreneurs can avoid this fate by having a clear understanding of sales and expenses prior to beginning operations.

A profit and loss forecast helps business owners set the right product and pricing mix, creating a solid cost structure for continued financial success.

1. Product and pricing mix

Inputs for the P&L forecast include the products you plan to sell, the price you will charge, and the costs associated with making them. Start by:

1. Identifying the items you want to sell.
2. Determining the ingredient and labor costs for each item.
3. Setting a price that customers are willing to pay.

Selecting items and setting prices are straightforward, but calculating ingredient and labor costs may be more challenging. Alternatively, you can take a conservative estimate that food cost and labor cost will each be about 30% of the anticipated sales price. For example, if you’re selling something for $10, you might assume your food cost and labor cost will each be about $3.

2. Sales volume

Now that you know the cost structure for each menu item, forecast how many of each you think you’ll sell. To keep it simple, look at a one-week model, Monday through Sunday, and enter how many of each item you expect to sell per day.

3. Distribution

Unless customers are picking up from your store, delivering products will cost something. Consider the costs of hiring drivers, making some deliveries yourself, and using a third-party delivery service.

4. Overhead

Don’t forget about overhead. This category includes rent, utilities, insurance, marketing, and more. When you’re first starting out, you probably won’t know all the details. In that case, a general estimate might be 25% of the sales price: 15% for rent, utilities, and miscellaneous costs, and 10% for sales, marketing, and promotion.

If you do have overhead numbers, enter the cost and note whether it recurs monthly or annually.

5. Review your P&L

Congratulations—you’ve completed the main categories for an estimated P&L forecast. As you learn more about your business expenditures, refine the earlier inputs to understand what it will take to succeed. Make sure the income line is positive, which means you’ll make a profit.

Next: the business canvas

Now that you understand your cost structure, pull in the rest of the pieces of your business with a lightweight business plan called a business canvas. Learn more in the business canvas guide.

Special thanks to David Lettis for editorial support.