Part 5: “The Money Shot”

01 Dec Part 5: “The Money Shot”

I visited Seattle in April 2015 for the World Barista Championship and Coffee Expo which was a fabulous experience. Whilst there I visited a handful of espresso bars, including a branch of a local new hotshot café that was located in the middle of a brewery; it was fun and innovative - but seemingly in the middle of nowhere, although it had established a good reputation at its’ other locations. It left me wondering though - how on earth will they sustain this? They seem to be expanding at a really rapid rate. I dream of opening a second Loustic in Paris but even after 2.5 years coffee sales aren’t yet near what needs to do that.

I got my answer three weeks later after returning to Paris; they had gone bankrupt. Which was a shame, as the coffee was really rather good.

When you start up a business, you make errors - it is a given. Most toddlers fall down when learning to walk. What is astonishing however is even how many experienced small business owners still don’t know how to calculate their profit and loss. They simply can’t tell you how much money they’ve made or lost at the end of a business trading day. It’s actually a simple calculation.

If you can’t calculate your daily profit and loss then you are feeling around in the dark, and you risk losing your business, even if (or especially if) you are taking a lot of money.

Staff at Loustic are trained how to calculate a simple profit and loss. I admired how transparent Nico from KB was with his staff about his café’s figures, and feel there it is a lot to be gained from sharing this information with staff, so they are fully in the picture about how much money the café really makes (not a lot in our case, as it turns out, although business is slowly growing).

Here’s the calculation:

Work out your fixed daily costs:

1. Rent and charges per day (multiply your monthly rent and charges by 12 months, then divide by 365 days). Example: if your rent and charges are 2000€ per month, the calculation is 2000 x 12 /365 = 66 euros per day.
2. Bank loan (if applicable) - same calculation as rent. Say your loan is 1500€ per month, then this works out to 1500 x 12/365 = 49 euros/day
3. Your gross salary - in France you pay 47% on top of what you pay yourself which covers social security and retirement (it’s 23% in Britain). So if you pay yourself 1500€/month, you have to add 47% of this (705€) which makes 2205€ gross per month, or 72€ per day.
4. Staff costs: The minimum wage in France is currently 9,61€ per hour, to which you have to add 45% charges for social security and employer charges. This works out to roughly 14€ per hour. I currently have 11 hours of staff hours to pay per weekday - which makes 11 hours x 14€ = 154€/day.

Imagine we use these figures to calculate our total fixed costs that we have to meet to keep the café open and break even, we have to add (1) + (2) + (3) + (4) = 66+49+72+154 = 341 euros net of tax and product margins per day.

A WORD OF WARNING THOUGH - this 341 euros is not the money you need to take at the cash register. You need to take much more. This 341 euros is what you are left with after you have deducted the cost of the purchase price of the goods (i.e. what your supplier charges you, for example, the price of the coffee you buy from your roaster, the cakes etc. The difference between the price you sell the goods to the customer and the price you buy them for is called the margin.) A typical daily margin in a coffee shop ranges from 60 to 70%.

Our iPad cash register app (called ‘Skytill’) calculates the daily margin for us, as we input all the cost information, so our job is easy!

Let’s take the 341 euros quoted above and divide it by a margin of 68% plus add 10% VAT to get the amount we need to take at the cash register to break even:

341/0,68 = 501 euros + 10% VAT = 551 euros. So, you need to take 551 euros per day just to break even and pay yourself, based on this example. Obviously, the profitability depends on your fixed costs and of course customers! - will there be 2 or more owners who need to be paid? Will you need to pay more staff? Is the location worth the rent? 551€ per day may not sound like much, but it depends on your location - are you capable of generating enough business consistently from your spot? (Loustic is down a small side street and a little hidden, for example, so lower foot traffic but lower rent too - it’s the compromise a lot of startup businesses have to juggle with).