Standardization is very important. As you look at your Restaurant P&L’s, make sure you have a standard, well labeled methodology of knowing where all your expenses are. What P&L line items have the most areas of opportunity in your business?
Hey, this is Rick Ormsby at Unbridled Capital, and I'd like to talk a little bit today about franchise P and L's. We see thousands of P and L's across many different industries and brands. A lot of them are in the restaurant space. I wanted to give you a couple of points in commentary that I've seen over all these years in business. One of the things I'd say is standardization is very important, and so as you look at your restaurant P and L's, make sure you have a standard well labeled methodology of knowing where all your expenses are. As it pertains to the restaurant business, we always want to look first at food and paper, and then labor costs. And those are obviously the two largest components of P and L expenses. Food and paper costs are typically going to run somewhere between 25 and 35%.
You probably don't want to be at the very low end of that number, or you're providing poor food to your customers. If you're on the high end, you're not making enough money. In the labor side, you want to see labor below 30 certainly, depending on what your sales volume is, obviously a component of labor is fixed and a component is more floating or variable, but you typically want to see labor costs in the low to mid twenties, if you can do it. And we like to see franchisees who have a good, mindful eye on minimum wage and a story that they can tell about how they're going to keep the profitability and the EBITDA of their business intact in the face of inflationary wage pressures that are in the marketplace. As you move down the P and L, we see things like R and M costs and expenses that are important.
I always ask clients are all of these expenses on the R and M, or repair maintenance line, are they one-time expenses? Did you do some remodeling that was maybe to be capitalized, but you brought into the repair and maintenance line on the P and L in the last year? We like to look at credit card fees, and in the case of restaurants, drink rebates. Where are they in the P and L's? What's the story behind the leases and the lease rates that you're paying? Are they subject to change, or are you jumping up against future bumps in lease percentages? And we need to look at that on a pro forma basis.
And finally, I think you want to look at the P and L year to year, and look for any major changes in the storyline between those changes. If there are any lines within the P and L's that are moving, we like to talk with operators who have a perspective on why that is. We like to talk about operators in the food business as an example of a perspective on why commodity costs are increasing or decreasing, and what they're planning to do to implement that, to defend their profit margins in their business. If you have any questions about this, P and L analysis and looking at a franchise P and L, is probably one of the most critical components of doing our job at Unbridled Capital, and so we offer an expertise to you in any way to help you in your business.