When your financials aren’t in order, you tend to spend more time thinking about money. How much money is in the bank right now? Can we pay the team? Can we make this investment? There’s a belief that when cash flow and profits aren’t where we need them to be, the solution is to just work harder and sell more. However, there’s a lot you can do outside of that to get a handle on your finances and increase profitability.
Today on the Real Food Brands Podcast, host and food & bev Brand Strategist Katie Mleziva talks with Sarah Delevan, a financial consultant who helps food brands achieve profitability. In this episode, we talk about the common mistakes many brands make with their finances, and how you can create a profitability formula for your food business.
“Once the financials are in order,” Sarah says, “the focus is no longer on money and what happens is creativity starts to return.” You get a clear picture of what you need to do to achieve your goals and can escape the do-more-sell-more hustle mentality.
The Three Common Mistakes Food and Bev Businesses Make with Their Finances
Sarah’s worked with all sorts of food and beverage businesses, and there are a few common mistakes she’s run into that hint at deeper problems with how they’re thinking about their finances.
1. They Use Basic Financial Reports
What is a “basic” financial report? There are three signs Sarah identifies as clues that your financial reporting might not be giving you enough information:
- You have one line item for income on your profit and loss statement (P&L) but you have multiple income streams (like direct-to-consumer and wholesale).
- You have one line item for cost of goods sold, with no breakdowns for ingredients, packaging and labeling, shipping, etc.
- Your expenses are listed in alphabetical order (indicating no customizations have been made).
“This happens because no one teaches us that we can have a say in what our financial reports look like,” Sarah says, “and these reports are certainly not telling us that we need to in order to make good decisions for our business.” A simplified report can give you misleading information and make it hard to get that profitability we’re after. Sit down with your report to really understand both what it’s lacking and what you want to see, then get your bookkeeper involved in making the necessary changes.
2. They Price Their Products Based on the Competition, Their Gut, or Industry Standards
Sarah hears from small brands all the time that they’re pricing their products to be competitive with “company X.” But, as Sarah explains, “what’s working for someone else isn’t necessarily going to work for you, and frankly, you don’t know if company X is profitable, you just know what they’re charging for their product.”
The same thing applies to pricing based on your gut, or according to industry standards. Ultimately, you need to make decisions based on the actual realities of your business and not external perceptions. “While you want to know what the market is doing,” Katie adds, “that doesn’t mean you need to price your products there. You can use your brand story to highlight the value and benefits your brand brings to the table.”
3. They Believe That Selling More Will Bring More Profits
Many business owners believe that selling more and scaling will increase profitability. While there are savings to be had on bulk orders for things like packaging, most brands don’t know the breakpoints that will make a difference to their bottom line. “Relying on things that are out of your control to improve profitability is the mistake here,” Sarah says, “where profitability really starts to happen is inside your business.”
The Financial Success Formula
Again, no two businesses are going to be the same, and for the same reason, no two businesses have the same formula for financial success. You need to look at all of your costs and balance it with revenue to understand what profitability looks like for you.
“If you are experiencing limited profitability—maybe you’ve got some months you’re profitable and some months you’re negative—and you don’t quite know why, I can say you have a financial success formula that’s in need of improvement,” Sarah says. Dig into your costs as a percentage of revenue and look at their consistency month-to-month. This can help you set targets that work for you, and identify problems that are causing issues for your business. Your financial success formula gives you the goals you need to avoid surprises and set yourself up for long term success.
Listen to the full episode for more, including common problems businesses run into with discounting, and why the current situation is the perfect opportunity to improve your financial situation on your own terms.
Now, let’s go shake up shopping carts!
In This Episode:
- How her own food business challenges lead Sarah to become an expert in food financials and help others.
- Why selling more doesn’t necessarily mean increased profitability.
- What you need to see on your P&L.
- The problems with pricing based on competition or industry standards.
- Why you need to know your financials before scaling your food business.
- How to create a financial success formula for your food brand.
Quotes:
“You can come inward during this quiet time and really look at your business and tighten things up so that if and when we get back to business, you are the most successful version of yourself and your business that there ever was.” – Sarah Delevan
“For founders, when their financials aren’t in order they’re always thinking about money: how much money is in the bank right now? Can we pay the team? Can we spend this?” ” – Sarah Delevan
“Relying on things that are out of your control to improve profitability is a mistake. Where profitability really starts to happen is inside your business.” – Sarah Delevan
Resources:
- Sarah’s Profitability Blueprint
- Podcast Ep #36: How to Define, Align and Activate Your Brand Strategy
- Podcast Ep #45: The 5-Minute Food Business Brand Strategy Formula
- Podcast Ep #49: 4 Common Brand Strategy Mistakes (and How to Fix Them)
- Sarah Delevan Consulting website
- @Sarah.Delevan.Consulting on Instagram
- Connect with Katie on LinkedIn
- Real Food Brands Brand Checkup Scorecard
- Real Food Brands Marketing Roundtable Facebook Group
- Real Food Brands website
