Cash First, P&L Later: The Financial Reports That Actually Drive Food Business Success
(Listen on Apple or Spotify. Full transcript below.)
Recently on The Good Food CFO Podcast, I tackled a question that comes up frequently: "What financial reports should I be looking at monthly, quarterly, and yearly for long-term success?"
After years of working with food businesess, I've discovered something counterintuitive: most founders look at their financials in completely the wrong order. The P&L statement (where most founders start) should actually be number four on your priority list.
In our latest episode, I break down the hierarchy of financial reports that truly matter for food business success and explain exactly how often you should review each one. Here's a preview of what we covered:
Start With One Report and Build Your Habit for food business success
If you're not currently tracking any financial metrics consistently, don't try to implement everything at once. Start with just one report (the first one on my list) and build the habit. As you get comfortable, you'll naturally start asking questions that will lead you to looking at additional financial information.
The Financial Report Hierarchy Food Founders Need to Know
1. Cash Flow Projection: Your Business Fuel
If you do nothing else, monitor your cash flow. As Jim Collins says, cash is like fuel to an airplane – you want to anticipate a shortage long before the warning light starts flashing!
A proper cash flow projection shows both your current cash position AND your projected cash for the coming periods. This isn't just about knowing your bank balance – it's about understanding the complete picture of money moving in and out of your business and ensuring you’ll have enough cash to meet your business needs and achieve your goals.
On the podcast, I explain exactly how frequently different businesses should check their cash flow and share why I completely disagree with founders who say, "I know my cash situation – I don't need a spreadsheet."
Not managing your cash flow yet? Get started today with our easy-to-use tool.
2. Product Cost Information: Margin Matters
The second most critical financial information is your product costs – and this needs updating far more frequently than most founders realize.
Many food entrepreneurs meticulously cost out products at launch but then rarely revisit those numbers as ingredients and packaging costs change. This creates a dangerous disconnect between your perceived and actual product margins.
In the full episode, I share the exact system I used as a buyer to track cost changes and immediately see their impact on product margins, plus how this approach is especially critical with today's volatile ingredient prices.
3. Sales Numbers: Revenue Reality Check
Your sales data is the third critical financial element to track consistently. You need to know if you're on track to hit targets by channel, not just overall.
In the podcast, I explain why waiting until month-end to check these numbers is far too late, and share examples of how successful food brands use weekly sales monitoring to spot problems early and make tactical adjustments before it's too late.
4 & 5: P&L and Balance Sheet
I round out my framework with insights on how to effectively use your Profit & Loss Report and balance sheet as strategic tools rather than overwhelming documents. On the podcast, I explain exactly what to look for, how often to review them, and which specific metrics matter most for food businesses.
I also reveal one particularly important ratio on your balance sheet that tells you how efficiently you're converting inventory back into cash – a critical metric for food businesses that most founders overlook.
The Bottom Line
Financial reports aren't just paperwork – they're decision-making tools that tell you which levers to pull in your business. Instead of being overwhelmed by numbers, build your financial awareness systematically, starting with cash flow and working through this hierarchy.
For the complete breakdown, including specific examples of how my favorite food brands use these reports, the exact frequency for reviewing each one, and the key metrics to focus on at different business stages, listen to the full episode of The Good Food CFO Podcast.
If you're ready to get serious about your financial tracking but aren't sure where to start, reach out! Email us at hello@thegoodfoodcfo.com or join us for CFO office hours.
Sarah Delavan is a food business CFO who helps food founders build financially sustainable businesses. Listen to The Good Food CFO Podcast wherever you get your podcasts.
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Episode Timeline
00:00 Introduction and Listener Engagement
04:32 Understanding Financial Reports for Success
12:05 The Importance of Cash Flow
18:37 Cost Information and Product Margins
28:33 Sales Numbers and Revenue Tracking
34:07 Analyzing the Profit and Loss Statement
39:22 The Role of the Balance Sheet
Full Episode Transcript
You're listening to the Good Food CFO Podcast. I'm your host, Sarah Delevan, joined as always by our producer, Chelsea Stier. Chelsea, we've got another episode based on a listener question, and you have a brand new background.
Yes, I had a move last weekend. think my watch clocked me taking or climbing 29 flights of stairs. So that was really fun. But yes, I'm here in the new office and it's very exciting to have an official office. you.
Yeah, I'm excited to see how it evolves over time because I know you're still sort of in the move-in process, but you get a glimpse of who Chelsea is as a person more in this space. So if you're not watching on YouTube, you can pop on over there and check it out. You'll see cameras and record players and albums and I love it. I love to see a little bit more of you behind you.
Thank you. Well, Sarah, I cannot wait to get to this listener question, but before I do, I think you know what I'm going to say. We have a big goal here on the podcast, which our goal is to reach 1 million food founders. there's some ways that everyone listening at home, at work, on a run, whatever you're doing, you can help us. One of the ways is by sharing this episode.
with any food founder friends that you might know sharing on Instagram, sharing on LinkedIn, know, wherever you have built community, getting the word out really does help. And then the other big way is by rating this podcast wherever you listen to it and then leaving a review. Reviews really do help us, especially on Apple. You've heard me say that before, but it does help.
us get in front of more eyes organically on that app as well.
Chels, I want to add, I know that there's been some silly stuff happening with Apple and their reviews. So if there's anyone listening who's tried to leave a review and been unsuccessful, or maybe you've left a review and you haven't heard us read it here on the podcast, reach out to us and let us know.
Yeah, definitely. We've been in contact with Apple now a couple times about that. Okay. Speaking of reviews, I would love to share a couple that we got on one of our recent episodes. Yeah. So these all came from the same episode. They were all reviews that we got on Instagram and they were in relation to our BABOYOT episode that we did with Hope Lawrence and the Hudson Henry Baking Company.
love to review.
And the first one came from Kat from Farmer Market Pros. And she said, this is a great episode. Danielle from It's All Happening said that she listened yesterday and loved this episode. And then the last one came from Cassie, who I think at this point is a pretty well-known community member of ours from Cassie's Country Cupboard. And she shared that hope is a huge inspiration to her.
And I think she's right. That was such a great episode. And it was really, really inspiring to listen to.
Yeah, I got a little bit of one-on-one feedback from folks as well. Really loving that story. I think the bootstrapping mentality, the way that Hope grew her business, it truly is an inspiring story. And that's exactly why we wanted to have her on the podcast. So I'm glad that everybody enjoyed it as much as they did. And we'll pass that information along to Hope as well.
Yeah, so if you listened to the episode and loved it, and for those that did reach out and tell us what they thought about it, thank you so much for sharing those kind words with us. As we've talked about a million times before, Sarah, we love getting that feedback. We love to know what is the content that's really resonating with you so that we know what you want to hear.
Yeah. And in that vein, Chelsea, this episode, as I mentioned earlier, is based on a listener question. it came into the hello at the goodfoodcfo.com inbox and it reads as follows. Can you give me a breakdown of what financial reports I should be looking at yearly, quarterly, and monthly or consistently? Another way of putting it, how do some of your favorite businesses look over their books, their projections,
their finances for long-term success.
That's kind of a juicy question. All right. Well, should we hop into the episode? And I can't wait to hear your answer.
Yeah, I want to dive in. Let's do it. I want to take a moment to thank our BABOYOT members whose contributions have supported the continued production of the Good Food CFO podcast. Whether you are a one time monthly or annual member, your contributions are helping us grow our impact. And together we are changing the way that food business is done. If you're listening and you want to learn more about our BABOYOT membership, how it supports this podcast and our impact,
And to learn more about the exclusive perks like live Q &As, member events, beta testing new tools, and more, visit thegoodfoodcfo.com slash Baboyot. That's B-A-B-O-Y-O-T. Now back to the show.
Okay, Sarah. So I just want to reiterate the question that we got from our listener before we jump in here. And basically what they were asking, right, is like, what should they be looking at? What information should they be tracking on a, a, you know, regular basis, whether that's monthly, quarterly, annually, in order to basically have long-term success in their company? And I love that they asked you,
What do some of your favorite businesses do? When do they look at their books? I want to start there with your quote unquote favorite businesses.
Yeah, I mean, my favorite businesses are those that look at the numbers consistently, but what they look at and what consistency means for them is very different, sort of across the board, right? They sound like a broken record when I say this, but no two businesses are the same, no two founders are the same. And so even when it comes to what reports, you know, and what financials and what information are you looking at regularly or consistently, that information is going to vary.
based on your goals, based on what you're working toward, based on what maybe hasn't been working so well in your business. And whether you look at the information weekly, daily, monthly, quarterly, annually, that's also going to depend. But we can absolutely here today have a conversation about what
the what I'll call like sort of like is the most relevant or generally the most important information for founders to look at and what a good, I'll say cadence for looking at that information is. And as we talk through it, I'll give a little bit of insight into, you know, where to start and sort of how to build up.
to full list that I'm going to provide today. I think the disclaimer that comes with this episode is if you're not looking at anything now, right, you might start just by looking at one report or one piece of information and that's a great place to start. It's kind of like getting into any routine or creating any kind of new habit. Don't go all in all at once. It's going to be too hard to maintain.
So just start with one thing and progress from there. And I actually think that when you start looking at, you know, a new piece of financial information or financial information for the first time, the more you look at it, the more used to seeing it you are, it's going to start creating questions in your mind and you're going to want to start, you know, answering those questions, which will then lead to you looking at additional financial information. So let it happen naturally, but you're going to have to kind of create that
initial habit and just start with, you know, one report and that will be enough.
Yeah, that's the other thing that you just made me think of is like, if you did go all in and you started looking at everything and then those questions came up, that would be really overwhelming. Yeah. Of like, wait, wait, wait, wait. I have so many questions. So yeah, I think that's really great advice. Start with one. So as we talk through these things, are we doing them in an order that makes sense or?
Yeah.
Yeah. So recently we had a book club selection. It was written by Jim Collins. It was called Beyond Entrepreneurship 2.0. He and other business experts all have lists of financials to pay attention to. And within all of those lists, there's really a core selection of reports that I think are the most important. And so
That is the list that I'm going to present today. And I'm going to approach it from the, if you do nothing else, start here, you know, place, and then we're going to add to it sort of in order of importance. But again, with that caveat of like, you know, you might not need a certain report, right? So critical thinking, always really important. If you have a situation and maybe you're not sure what your
maybe second or third report that you should be looking at regularly is, it's a great place to go to the quick question on our website. You can ask that or join us in office hours and kind of get more insight into what would specifically be helpful for your business. But yes, we're gonna go in an order that is on purpose.
Yeah. And I love, even as you're talking about this, I'm thinking about, you know, that quick question or office hours and spending the time to really set up like, is your, almost like your KPIs, right? That you're keeping track of and looking at and that if that's not something that you do currently, that taking the time to really get that set and really put yourself on a trajectory of following that information would be a
really great investment of your time and energy. Definitely.
This is a bit of a sneak peek into a future episode, but we've got a founder coming on the show soon who was part of our CFO office hours. Something that we're going to dive into with him is some specific reporting that he does. One of the takeaways that I got from him was that he set up some of his reports in an automation and it actually emails him and his partner who happens to be his wife. It's delivered to the inbox.
whether it's like daily or weekly. His wife has started to look at this information and really gather insights that they weren't gathering before. It was like they didn't, quote unquote, have the time to go and run the report and look at the information. But finding a tool, and again, we're going to dive into that more in that episode, but finding a tool that can deliver this information to your inbox I think is a really great idea. However, if you're someone who like me,
likes to have some information delivered to you, but in other instances likes to get their hands in the numbers to really absorb the data, then do that. So find the way that works for you where you'll actually take something away right from the act of looking at the numbers. And again, it's going to look different for everybody. And try and test new things until you find the thing that you can stick with.
Yeah. All right, should we get into it?
Yeah. So the very first report that I'm going to talk about, and this may not be a surprise to anyone, is a cash flow report. This is a report that is going to show you both your current cash on hand and also your projected cash on hand for it might be next week, it might be 24 weeks into the future, it might be next month. It sort of depends again on your business about how much money
know, you have in the bank, the less money you have in the bank, the more frequently you want that, you know, timeframe to be, the more money you have in the bank, you you can kind of look out a little bit further. So in months as opposed to weeks, we've had clients and coaching members that are so tight on cash that we're actually looking at it on a daily basis. That is a stressful situation to be in, but the way you get out of that stressful situation is to look at the numbers that way and to get out of it, right? And utilize that information to
to get out of it. So I mentioned Jim Collins a moment ago and I really loved what he says about cash in Beyond Entrepreneurship 2.0 and he says that cash is like fuel to an airplane. You want to anticipate a fuel shortage long before the panel display flashes warning you are almost out of fuel, right? And I think that that's such a great way to say it.
And a lot of people, I can kind of hear some folks potentially who are listening to this go, I know how much money I have in the bank or how much I don't and what I can pay and what I can't. And that's avoidance, right? Yes, you have an awareness. Yes, you might know that balance. You might even look at that balance on a daily basis. But if you're not putting that together with what you owe, who you owe, how past due those payments are, and you're not truly
looking at the situation for what it is and you're not able to actually craft a plan to create change. Because here's the deal. The plan doesn't just include paying the bills on time. It doesn't just include, you know, paying the bills that you can and holding off on the ones that you can't. It might, like, this is the kind of information that's going to indicate to us, do I need to change my channel strategy, you know, or is my cash flow problem
related to my customers not paying their bills, right? Because as part of cash flow, you're also projecting your invoices and when those invoices are due from your customers, your online sales projections, right? And so the issue might not be a you thing necessarily, right, in terms of like your product margins or things like that, but how slowly your customers are paying their bills. And when it reaches a certain point, and hopefully before that,
you need to have someone on your team or yourself dedicate time to getting that money in. Now I can hear other people saying, work with distributors and we don't have any control over when they're going to pay. We just have to wait for them to pay. My answer to that would be, okay, then you need to find another solution for getting money in the door. So what other channel are you going to focus on to help get cash in the door while you're waiting for your distributors to pay? And I'm being a little bit sassy here, I think, but like
The truth of the matter is I've heard so many times people say, know my cash situation. I don't need a spreadsheet to tell me what's going on. And I completely disagree. Cash is so critically important as Jim says that you have to look at the facts.
Yeah, and I'll even jump in. mean, I know I've talked about this many, every time we talk about cashflow, right, and having a cashflow projector that like, that's how I like to budget my personal, right, you know, bank account. And again, when you talk about, yeah, it's not just knowing what's in the bank, it's not just knowing what bills you owe or et cetera. Like I open that cashflow projector on a weekly basis because I have particular financial goals in my life.
And I can look and see on the cashflow where I've laid out those goals and then know, okay, am I on track to achieve it or not? And then what changes can I make in my current situation in order to get closer to that goal? Yeah. And yeah, I don't know how you do that if you're not looking at it, if you don't have your hands in it, if you're not like physically making those changes and seeing it.
Yeah. And I think, again, it's a stressful thing, especially if you don't have what I'll call a lot of money or enough money to satisfy all the bills that you owe or you've got things that are past due. And sometimes it feels safer to just not pay super close attention to it. But it is, especially in food, I think the most critical thing to look at.
we've talked about this before in other episodes, it's going to inform a lot about your business. It's going to inform where you're focusing your attention. It's going to inform other issues that you might have around margin or where you're selling your product or how much product you need to sell, right? And so it's just the number one place that if nothing else, you're paying attention to cashflow and you know that not only you have enough money today, but how long…
will the money that you have last year or the money that you have projected coming in, how far is that going to get you? Because the closer and closer the negative cash balance gets to the current day, the worse the situation is for your business. And you really, I think, can't focus on the big picture and what else you want to do and achieve if you've got this
weight of what is my true financial situation hanging over you.
Yeah, a hundred percent. Okay. So number one above all else, cashflow, understanding your cashflow and where you're at. I love that as the kind of baseline number one thing you need to be doing. Where would we go from there? If we feel like, okay, I understand where my cash is at. Maybe it's not perfect. Maybe I'm doing great, but like, I know where I'm going. What's the next thing?
Yeah. So the cashflow is a very sort of active report, right? One that you are looking at pretty regularly and also might be a bit hands-on, right? Especially if you're using our cashflow projector. And that's a bit on purpose. The next piece of financial information that I want folks to look at can be a little bit more passive, right? But it's critically important. And that is your
cost information. And here we're talking about costs in terms of your product costs, those costs of goods sold. And the reason that this is number two on my list is because I talked to a lot of people recently at Expo West and at the Intense Conference about this very topic. got a number of questions about how often should you sort of what they called it was recost your products so that you have accurate product
So it came up a lot at Intents because I was doing a presentation on product margins and your ability to grow and quote unquote scale your business, right? And what became very clear in all of the conversations at both events was that founders do a lot of work in the beginning typically to cost out their products and to set their prices. But as time goes by, those numbers are not revisited. And so you have a sense of what your…
cogs were in the beginning, and then you know that, okay, the cost of this ingredient has gone up and maybe the cost of this input has gone up. But you have not, as they said, revisited or re-cost their products to know what their margins actually are on the product level and then thus on the sales channel level in real time. And so this is critically important, as I've hinted at, because margin
matters. And your margin is the relationship between the cost of your product and the sale price of your product. And if you don't have a real handle on what your costs are and how they have changed, then you don't know what your margins are. And if you don't know what your margins are, there's a lot that you cannot do within your business. So the next sort of part of that question and a conversation I was having with folks was how often do you need to be recosting your
And this goes back to our listener question too, right? Like what is the frequency at which we should be looking at this? My answer is every time you purchase an input, you should be looking at your costs. Now, this is rooted in my time as a buyer, right? When I was a buyer, we were buying both, you know, packaging.
labels, things like that. But then we were also buying our raw ingredients basically in real time. Every single week we were buying fresh ingredients and we were producing them into a number of different things, frozen products, catering products, you know, the list goes on. But what that meant was that every single time I ordered, there was an opportunity for my cogs in a particular dish or a particular product to change.
And I knew that I needed to keep an eye on those things. I mean, the price of cauliflower could be, you know, several dollars a pound different over the course of one week or even a couple of weeks, right? We see this with things like eggs, right? And butter is one, I think, that is still pretty volatile, you know, on the market. We're now, you know, we know that coffee and chocolate has been on the rise, you know.
Yeah.
over the last several months, if not longer. And so if you have purchased these items and you haven't done the recosting, you are unaware of what your true margins are at this point in time. And therefore it's impacting your financial. It's impacting your cashflow, right? so now that sounds very active. Like, wait a second, I have to cost out my product every single time. have to update my advice.
is that you need to find yourself a tool or create a tool that allows this process to be very easy. So when I was a buyer, I built my own spreadsheet. I'm sure that's not a surprise to anybody who knows me at this point. But what I did was all of my ingredients and all of my inputs were in one sheet and they filtered into all of the recipes, right, and all of the product formulations.
in other tabs, so to speak. Anytime I updated a product cost, anytime I made an order, I would get an invoice and I would take that invoice and I would update the cost of that item. then I could then see what has changed. So to really lay it out for people, there was an ingredient page, there were all the pages with all of the recipes and sort of product formulations, and then there was a report page.
So it gave me the name of every item, like every product, everything we produced and the profit margin and the COGS percentage. And so I could see if something dropped below our preferred margin or I could see, and it was also color coded, of course, I could see if something was getting close to the threshold. In my instance, I had the flexibility to say, okay, sales team, we're not going to push this product.
right now because the cost is getting too high or we've been priced out of the margin that we need to get. So I had that kind of flexibility. For a CPG brand who doesn't necessarily have that flexibility, what you do have is the ability to focus your promotions or your sales or your marketing efforts towards a product that does have the margins that you need. You have the ability potentially to look at other providers.
You maybe, if you're in a positive cashflow situation, can buy in more volume to save on the unit cost. So again, just like with the cashflow, when you're really looking at the information, it gives you insights into what you can do to change the situation. And you can make the changes before it becomes a problem. And in this case, before your margins are affected and then your cashflow. And I want to say this, if that tool does not exist for you all, let us know.
is affected.
because we're happy to make tools, we like to innovate. I know there's a lot of recipe costing and product costing tools out there. If you don't have something that exists that feels easy, email us, communicate with us, let us know. We'll do our best to create something for you.
Yeah, that's hello at the goodfoodscfo.com. And so, Sarah, when you talk about this cost information and how often a founder should visit or revisit their cogs and then ultimately that product margin, let me just, I want to make sure I understand that you're saying that really it's about revisiting when a change has happened.
to the price of an input into that product.
Yeah, I think more specifically, every time you purchase, take that invoice and just compare it to what you've got in whatever system you're using. Because if you're not looking at the invoice, you're not going to know if a change has happened, right? Unless you're seeing the cost information upfront, which is also possible, right? But looking at the information every time you purchase, just giving a quick glance to compare. And if that cost has changed, update it.
So then you can see, what is the impact going to be here? If you can get quotes, depending on what you're buying, like we've got coffee clients, so they know what they're going to pay. They can negotiate a little bit based on how much they're buying or who they're buying from. And so if you get those numbers up front and then you can update your information and see what is the impact of this new price going to be on my margins, then that informs you like, let me see if I can negotiate more. Let me see.
what else I can do to make this work. Because I think, again, especially with coffee and chocolate, and I'm sure there are other things that are really rising in price right now that are being purchased from outside of the US, you're not going to have a lot of wiggle room with that input itself, right? But knowing its impact on your margin is going to inform, okay, what else can I do? What are the other things I can look at? Or do I need to change my strategy?
and where I'm selling or where I'm trying to drive sales so that I can get the margin that I need to be in business. Or I can go seek more funding if that's something that you as a founder want and can
And I think the thing that is kind of falling into place to me here as we have this conversation, right, is that at the end of the day, this reporting, these numbers that we're looking at, that we're checking in on, one of the biggest purposes of that check-in or of that understanding or, you know, consistent looking at ultimately is
so that you can look around and go, okay, what are the levers that I have available to me? What are the things that I can do to have an impact? I love that. Okay, so what is the next report or numbers that we should be looking at?
Yeah, the next one on my list is sales numbers, revenue, revenue dollars, units, however you want to look at it in your business. This is critically important because if you're not hitting your revenue targets overall by channel, that's also going to impact your margins, right? If you're sort of how you're selling.
is different than how you thought you were going to sell in terms of the channel mix, right? That can impact your gross profit margins, which will impact your cash flow. And if your revenue, for example, is lower than you had projected, that just in general, even if you are kind of having the same channel mix as you thought you were, the amount of cash in your business is simply going to be lower. So covering your operating expenses might become more difficult.
A lot of people have, I've heard them say like, you you don't have any business unless you have sales, and that's true, right? Like you're in business when you start selling your product and you need to sell a certain amount of product to break even. You need to sell a certain amount of product at a certain margin to be profitable. And if you're not keeping an eye on your sales numbers or your sales units, you don't have an idea of where you are financially, right?
How often would I look at this? Weekly. think weekly sales numbers is really important. I hope that you have a sense of how much revenue you either want or need to generate each month, right, and over the course of the year as a total. I hope you have a sense of like what, when I say the channel mix, like what percentage of your sales do you want to be in each?
sales channel, right? So maybe you want 50 % wholesale direct, 25 % distribution and 25 % online, right? Maybe that's your breakdown. Again, everyone's is going to be a little bit different. But so you've got that mapped out to some degree. You've got like a revenue total for each month and then you've got your annual total. If you're not looking at the sales numbers until the end of the month, it's too late.
As you just pointed out, Chelsea, you can't pull any levers. You can't create change. The month has already happened. It is over, right? So if you're looking at it weekly, you can then say, okay, I'm on track, right? I'm where I'm supposed to be, week one of four, for example, or I'm not on track, week one.
Yeah. And so that I think is my next question is, if you're checking on a weekly basis, if you're looking at your sales numbers and you are off track, what are some of the levers here that, you know, we can be looking at or talking about or thinking about as a founder to move the needle?
I think that's a great question. My answer would be to, at that point, you can investigate. Let's say your online sales channel is down. Go to the back end of your website. Are your visitors down? Are your visitors consistent but things aren't converting how you thought? Have you sent a newsletter that can convert your readers into a sale in a while? Maybe one is due.
So just, think, investigate what is going on to then say, to determine what levers you can pull in that particular channel. If we're thinking about, you know, distribution or wholesale, we might look at, okay, what is the purchasing history of my customers in these sales channels? And has someone fallen off? Like, did we make a sales projection assuming that someone was going to buy in a particular cadence? Let me look at that and see when was the last time
you know, Joe's market ordered from us. You know, we've talked about, I think in previous episodes, the value of having your invoices in QuickBooks because you can run sales reports and then you can utilize those pivot tables that we've talked about, I know, in an episode to see when was the last time everyone ordered, what were the units, you know, number of units that they purchased.
Yes.
You can really use that almost as a sales sheet, like a call sheet, reach out to those people, visit those people, pull the lever of trying to drive sales from folks who maybe haven't purchased in a while or who you were expecting a purchase from and you didn't. Keisha from Live Loud Foods, I think is a great example of someone who really pays attention.
to their sales data, goes in and visits the store and tries to understand, you know, did the position of my product move? You know, is there something going on here that I can control or that is out of my control that is affecting my sales number? So I think having the awareness then can point you in the direction of where to go to investigate so that you can determine what levers you can pull and what actions you can take to drive revenue in this case.
I think that's such good advice, such good guidance and information. So, okay, what's next? can't, like, keep it coming. What's the next thing we're looking at?
So finally we've reached the P &L. Okay. And maybe people are surprised that like this is, what is this number four on the list? We've talked about this before too, Chelsea. The P &L can be overwhelming for people. There are a lot of people who have P &Ls that they look at them and they say, this isn't helpful for me. And quite frankly, I think
paying attention to cash flow, paying attention to your costs, right, that are going to inform your margins and paying attention to your sales. This is like real-time data. This is data that like you can actually do something with right now, right?
Exactly what I was going to say. It's like drilled into my head from my days as a store manager, right? I had a boss who would always say to me, if you're looking for the answer on your P &L, you're too late. Always. It's great for some information as I'm sure you're going to provide for us. But yeah, that real time like data, you're not going to find here.
Yeah. Yeah.
Yeah. And I remember we did an episode, I think it was either at the end of a year or the beginning of a year where we really talked about like when you look at your P &L or when you look at data about your business, things might not be quote unquote moving in the upward direction, right? So your revenue might not be higher this year than last year, but your profit margins might be, right? So looking at the P &L is a place you go to
in my opinion, to see like sort of how have you been doing? How are things going? How does this year compare to last year? Presumably you set some goals, you set some intentions. The P &L is a good place to go to look back and to compare where are we now compared to where we were. Are things going in the right direction, right? So that's how I would recommend that people
use the P &L, especially if you're just starting out because as you said, it's a how did we do, not a how are we doing, right, like month to month. But when you use it as a comparative tool, you can answer the question, how are we doing? The other thing I want to say about the P &L, especially for people who are getting into this for the first time, maybe you don't look at it regularly, I think the cadence here, like it could be monthly.
But for a lot of founders, I think it's going to be quarterly. You're going to know your cash flow. You're going to know if you're hitting your sales numbers or not. You're going to know what your margins are, right? Or if you're looking at number one, two, and three on this list. So number four just becomes a reflection of, as you've said already, where you've been. And you can look at this year to date compared to last year to date or this quarter.
compared to last year same quarter. And that's good reference to have. You might also look at your PNL to say, okay, we're gearing up for a new quarter. What was last year, you know, Q2? How did we perform then? What are we trying to achieve that's different this year? You know what mean? And it might inform some things for you, but that's how I would use a PNL.
Yeah.
Deeper than that, as I said a moment ago, pay attention to what's important to you. So let's say coming out of last year, you were wanting to increase your gross profit margins, so your overall combined gross profit margin on the P &L. You might look at your P &L and say, okay, is it going up or is it going down? You might have a goal of reducing your labor costs as a percentage of revenue.
The PNL is a great place to go to look to see if that's happening, right? If you're not already looking at that on like a weekly or monthly basis somewhere else. So those types of things, I think like, what are you working on? What are you working toward? And you need that sort of historical data to see how you're doing. That's what a PNL can be helpful for as well.
Yeah. And I think it's also really helpful when you're thinking about a PNL and using it in that way, kind of like to reflect on how you've done or to think about like your future goals is also to really be able to break that PNL down into sections and kind of zooming in on the section that really matters to you, right? Or that you're trying to move the needle on. Because I don't know that saying
yeah, my goals for this year are to improve my sales, improve my cost of goods, improve my operating. Like it's too much, right? So like really what are you zeroing in on, on that P &L and breaking it down that way so that you can really make a difference in a particular area of your business. Okay. And so Sarah, you have one more report for us or one more, you know, area of the business that we should be looking at.
Yep, I agree.
Let's dive into it.
Yeah. So this final, you know, report, if you will, financial information that I think folks should look at, it's at the bottom of the list for a reason. Not that it's completely unimportant, but that the others are more important as you're building these habits of looking at things consistently and regularly to create change or affect, you know, long-term success in your business. The final one is the balance sheet.
We don't talk a lot about the balance sheet here on the podcast. It's for good reason. On the list of things to pay attention to, for me, it's a little bit low. A lot of people find the balance sheet overwhelming. It's a lot to take in. What does it mean exactly? Again, how can I utilize this to affect change in my business? There are ways, and I'm going to talk about those a little bit, but
Again, similar to what you just said about the P &L, taking it all in, looking at every single line for the current year actually might not be that helpful for you. A, it's a lot of information and B, you're maybe not trying to affect change everywhere. For example, your assets might be what they are because you have equipment and they didn't change and you don't really need that information.
Right? However, if you look at it, you know, this year compared to last year, or again, like Q2 of this year compared to Q2 of last year, comparatively, there are some interesting things to look at. One of them might be your cash balances. Right? Again, you should be looking at your cash flow on a weekly, daily, or monthly basis, depending on where you are.
You're going to have an awareness of what your cash balance is. But there's interesting insights that you can gain sometimes from looking at your cash balance right now compared to your cash balance at the end of last year or, like I said, same timeframe last year. Is it going up? Is it going down? Have you invested in something and so it's lower? There might be something there for you. Your accounts payable and accounts receivable.
information is stored there. So again, how much do people owe you and how much do you owe people? That's going to be in your cash flow. But if it's helpful to look at comparatively and say, I know how much we're collecting now or how much is past due, whether we're past due or our customers are. But let me remind myself, are we improving on these things over last year?
Yeah.
Now these things like cash balance, like your accounts receivable balance, your accounts payable balance, they will have an impact on your ability to get financing in some instances, right? So it's important to know where your company stands and it's your balance sheet is important whenever you're trying to go get money. But again, for an everyday tool to use in your business, the whole balance sheet is not something that I look to, but there are a couple numbers that I think are
quite interesting that can provide value. And one of them is your inventory turnover ratio. Now, when you look at your balance sheet, you're not going to see a line that says Chelsea's inventory turnover ratio. You have to do a little bit of math, right? So here's the formula. It's your cost of goods sold divided by your average inventory for the year. And so you're going to have to pull those numbers from your financials.
But what this is going to tell you is how many times you turn over your inventory in a year. Now, why is that important? Inventory is essentially cash that you can't spend and that you can't use, that you have to sell, right? You have to sell that product in order to get cash to then be able to utilize it for something. If your inventory turnover ratio is
low, meaning you're not turning over lot of inventory in a year. What that is indicating is that you've got a lot of cash tied up in product sitting in a warehouse somewhere. If you're turning over inventory many times in a year, what that might tell us is you're effectively selling your product. And perhaps you are in a position to buy more
Right? Larger volume and perhaps get a tiny savings per unit. Right? So it's that number, that ratio of, and when you decide to do that is going to be different for every business. Right? It's going to depend on your cashflow. It's going to depend on a lot of things, but that's something that we can learn about our business. You know, gosh, I bought a lot of inventory so that I could, you know, pay two cents less per unit or five cents less per unit, but
Now I've been sitting on all this inventory for two
Yeah.
even saved based on your storage capacity? Yeah. Right? are you going to have to pay more to store more inventory? Yes. Yeah. Yes.
Yeah.
Yeah.
Yeah. And I think, you know, exactly what you're talking about too is like, okay, yeah, maybe it doesn't have an impact on, you know, what we're doing right now or how we, you know, move the needle right now or what levers we pull, as I've said. But I think that the point that you're making is like, this is the getting real about your business part that every founder should do.
And that doesn't mean that it's getting real because it's bad. It's just getting real, right? Like having those honest conversations with yourself, having those future looking plans for yourself and making sure that ultimately, no matter what happens, whether you're wildly successful or not, that you yourself as the founder are protected.
Yeah, so that email is going to be hello at the good food, CFO.com. That's hello at the good food, CFO.com. Sarah, thank you so much for putting this information together. I love when we do these kinds of episodes where we're talking directly to a listener and answering their question. I think it is so helpful to not just that listener, but probably many, right? Cause if one person has the question, I'm sure.
that many do. So thank you for being so thoughtful and putting all this information together.
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