This is part of blog series on how to start your own food business, including a starter kit - click here for the original post.

Congrats on taking the first steps to fulfilling your dream of beginning a food business! Keep in mind that a food business requires much more than delicious recipes. A food business is just that — a business — and many eventually have to shut down because they run out of money. Food entrepreneurs can avoid this unseemly fate, though, by having a clear understanding of their sales and expenses prior to beginning operations. A profit and loss (P&L) forecast helps business owners set the right product and pricing mix, creating a solid cost structure for continued financial success.

As part of the Sous Chef startup kit (main article here), we’ve developed a very simple and easy to use P&L forecast template that you can use to see if your business is going to make money, or not.

Click here to access the P&L forecast template and follow the step by step instructions below.

Access the P&L Template

1. Product and pricing mix

Inputs for the P&L forecast include the products you plan to sell, the price you will charge for them, and the costs associated with making them. So how do you figure these out?

Identify the items you want to sell.
Determine the ingredient and labor costs for making each of those items.
Set a price that your customers are willing to pay.

Selecting items and setting prices are pretty straightforward, but calculating ingredient and labor costs may be a bit more challenging. You can use Sous Chef to figure this out in the Recipe Manager, check out one example of a Mediterranean Grain Bowl recipe below.

Example recipe cost in Sous Chef’s recipe manager

Alternatively, you can take a conservative estimate that your food cost and your labor cost will each be about 30% of your anticipated sales price. For example, if you’re selling something for $10, you can assume your food cost and your labor cost will each be about $3.

The following three products will be used for this example: Mediterranean Grain Bowl, Caesar Salad, and Vegan Banh Mi Sandwich. Here’s a screenshot showing how to enter the product name, ingredient cost, labor cost, and price in the P&L model.

#1 Products tab of P&L forecast template

2. Sales volume

Now that you know the cost structure for each of the items on your menu, you need to forecast how many of each you think you’ll sell. To keep it simple, we’re looking at a one- week model, Monday through Sunday. Simply enter how many of each item you think you will sell per day of the week. The screenshot below shows the same 3 items with specific sales volume forecasts for the full week - there’s no service on the weekends so Saturday and Sunday are set to zero.

3. Distribution

Unless customers are picking up from your store, delivering products to your customers will cost something. In this example, we’ll look at hiring drivers for delivery, making some deliveries yourself, and using a third-party delivery service like DoorDash. The screenshot below shows one line for a delivery guy, one line for personal delivery, and one line for DoorDash delivery.

4. Overhead

Don’t forget about overhead! Overhead has been known to kill companies that forget to allocate funds for the costs that are critical for supporting operations. Overhead is a big category that covers many items including rent, utilities, insurance, marketing, and more. When you’re first starting out, you probably won’t know all the details that go into your overhead. If this is the case, just click the “I don’t know yet” checkbox and the model will default to 25% of the sales price for overhead. This is a general estimate of 15% rent, utilities, miscellaneous, and 10% sales, marketing, and promotion.

If you do have numbers for your overhead expense, enter them in the Cost column, and select the recurrence in the next column over - monthly or annual. There are extra blank lines at the bottom to add more items if you need to.

Check out the screenshot below - you’ll notice that the “I don’t know yet” box is clicked and the rest is left blank.

#4 Overhead tab of P&L forecast template

5. Review your P&L

Congratulations - you’ve completed all the main categories for computing your estimated P&L forecast. As you learn more about your business expenditures, we recommend you tweak #1 - #4 to fine tune your P&L forecast to understand what it will take to succeed in your business.

The screenshot below shows the summary of the inputs we walked through in this example. Your summary will look different depending on your inputs. You’ll want to make sure the “Income” line is a positive number, which means you’ll make a profit.

Access the P&L Template

Next: the Business Canvas

Now that you understand your cost structure, it’s time to pull in the rest of the pieces to your business and build a light-weight business plan, called a Business Canvas. Learn more here.

Special thanks to David Lettis for editorial support.

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