Did you know that only 40% of small businesses are profitable? According to top-business-degrees.net, 30% of small businesses break even and the final 30% are continually losing money. Which category does your business fall in? Most business owners who fall in the break even or losing money groups are there because they don’t understand the financial side of their business. This is especially true in catering, where many people start a business for their love of events or their culinary expertise.
About 10 years ago, I learned about a concept that changed how we operate and analyze our business at Footers Catering. The “Trailing 12” method (also commonly referred to as “Rolling 12”) is a way of calculating a variety of numbers by looking at each data point as the sum of the past 12 months. This removes seasonality and allows one to objectively analyze those numbers. Like most caterers we have a very seasonal business at Footers. We do more business in December than January, February and March combined so eliminating seasonality is critical in order for us to see true trends in our numbers. Those trends become very apparent when looking at a graphical representation of the numbers. See the two graphs below. The first shows sales for a company graphed by month, the second shows sales by month in trailing 12 for that same company. The second graph clearly shows an increase in overall sales over this two-year period with a decline starting to happen, something that cannot be seen in the first graph.
Once you know how to measure your numbers, then you can begin to understand what those numbers mean. The numbers all tell a story and when that story becomes clear, it is much easier to make decisions while operating your business: when to hire, when to purchase new equipment, when to save—and a plethora of other questions business owners are faced with every day. The path to joining the 40% of small businesses that are profitable starts with knowing your numbers.
The annual Catersource conference is coming up in March and I will be teaching an in depth seminar titled 7 Numbers Every Caterer Should Know. We will dive into the metrics that are critical to be looking at on a monthly basis and providing benchmarks industry standards. If you are interested in gaining additional insight into the financial side of the catering business, make sure to add that class to your schedule. I hope to see you there.
Editor’s note: Anthony will be teaching or involved in six total classes next month at Catersource 2017. Click here for a link to the list.