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Print ArticleMaking Your P&L Game Ready: The conversion of your latest P&L statement into a suitable $1,000 transaction is easier than you think. The table within this article shows the methods used to turn an annual expense into a transactional cost on our $1,000 sale (see notes for details). The finances I've shown represent a $2.2 million service maintenance firm with low COGS expenses and high employment and service costs. There is no limit to the number of expense categories you can show. Note how the Percent of Sales Ratio remains unchanged from the annual view to the transactional view. Once you determine ratio to sales for each expense type you simply multiply $1,000 by that percent to generate the exact split for each expense on your P&L. In this case, a total of $884 was expensed from the $1,000 in revenue, leaving $116 or 11.6 percent in net income (before taxes and depreciation).
Set Your Format/Play The Game: While the rules are flexible, you'll want to follow the basics when you play. A one- or two-person team holds and distributes the $1,000 revenue (your sales team might be best suited) while the rest of your employees take turns acting as various vendors and material suppliers; demanding their cut of the cash (based on each expense type's percent of total sales) until every expense item has been satisfied.
The very best workshops happened when people's normal roles were creatively shaken up. Fun came from watching people act out of character or against type; impersonating the habits and speech patterns of the blade sharpening serviceman or the kid who collects rent money for the landlord.
Consider handing out everyone's part ahead of time, as if you were casting a play. If the format works, assign a specific P&L role to each employee. Management should act as the observers and facilitators of the game — keeping the process moving along and everyone informed and participating. Remember, it's all about telling a story with numbers and it's easier to freely narrate when you're controlling the action and orchestrating the steadily shrinking $1,000 in revenue.
If you were in the red, have extra cash on hand to "create a bank loan" so that all of the expenses get paid. If possible, allow those who normally safeguard the company money, receipts, purchase orders, etc. to have a night away from all that. Switch their roles up and let them demand money for a change. Allow them to sit back and nod knowingly as that $1,000 continues to melt away from the driving rain of expenses.
Make It Happen: This is primarily a headline-driven exercise. Not every single financial detail can be incorporated into this quick game but there will appear, those golden moments, when you'll have an opportunity to demonstrate some of the offbeat, unwelcome and frustrating business surprises that can only be seen from the banks of the P&L. "The Life of a Sale Workshop" opens a window into your firm's profit process. Run it and you will quickly teach each of your employees the critical realities found in both producing sales dollars and holding onto them. What lesson could be more important today?
WHIP-SMART CONVERSION TABLE
• Divide each individual expense by the total sales revenue to determine percent of
sales (item #1 - $12,278/$180,546 = 6.8% of sales)
• Use percent of sales to determine the workshop's cash equivalent on the hypothetical
$1,000 sale (item #1 = 6.8% of $1,000 = $68.00)
| Income/Expense Type | Profit & Loss Performance ($) | Percent Sales | Convert to $1,000 Sale | Percent of $1,000 |
| Total Sales Revenue | $180,546 | 100% | $1,000.00 | 100% |
| Cost of Goods Sold | $12,278 | 6.8% | $68.00 | 6.8% |
| Salaries/Wages | $82,899 | 44.1% | $441.00 | 44.1% |
| Payroll Taxes | $6,386 | 3.6% | $36.00 | 3.6% |
| Workers Comp/Benefits | $5,648 | 3.1% | $31.00 | 3.1% |
| Vehicle Insurance | $5,871 | 3.3% | $33.00 | 3.3% |
| Vehicle Gasoline | $5,210 | 2.9% | $52.00 | 2.9% |
| Telephone/Cell | $2,547 | 1.4% | $14.00 | 1.4% |
| Marketing/Advertising | $9,269 | 5.1% | $51.00 | 5.1% |
| Auto Leasing | $2,336 | 1.3% | $13.00 | 1.3% |
| Uniforms | $2,637 | 1.5% | $15.00 | 1.5% |
| Professional Fees | $3,521 | 1.9% | $19.00 | 1.9% |
| Misc. Shop Expenses | $1,569 | 1.1% | $11.00 | 1.1% |
| Facility Repairs | $5,969 | 3.2% | $32.00 | 3.2% |
| Office Supplies/Postage | $3,021 | 1.7% | $17.00 | 1.7% |
| Liability Insurance | $3,195 | 1.8% | $18.00 | 1.8% |
| Miscellaneous | $6,246 | 3.3% | $33.00 | 3.3% |
| Total Expenses | $159,602 | 88.4% | $884.00 | 88.4% |
This hypothetical service firm used 88.4% of their sales dollars in order to maintain the enterprise, leaving 11.6% to be retained for other uses by the firm.
About the author: Chris Traynor, SPHR, is the Director for Whip-Smart Management Consulting, Wayne, N.J., and has 25 years of experience in the solid surface industry as a consultant to fabricators, distributors and manufacturers. He can be reached at ctraynor@whip-smart.com.
