Ratios

I look at my P&L, Cash Flow and Balance Sheet almost daily out of habit, probably like a child checks to make sure their favourite toy is still on the shelf where they left it. This morning I noticed something out of whack after our bookkeeper made updating entries after some Green Bean purchases. Our ratios are off.
Normally my ratios are pretty close to the following: Cogs 40%, Labour 25%, G&A 20%, EBIDTA 15% with some minor seasonal changes resulting from the fact that I treat labour as a fixed cost since if we aren't busy, I don't send anyone home.
This morning my ratios showed: Cogs 51%, Labour 14%, G&A 13%, EBIDTA 22%.
So what's going on.
As most of you are experiencing first hand, green coffee prices have increased significantly and last years stock has pretty much been exhausted leading me to rely more on spot coffees which are carrying higher prices than last year's. In advance of this years bookings with the understanding that prices won't plummet any time soon I raised all prices across the board to accommodate the new reality. These two moves necessarily reduce the overall impact of labour and G&A while sometimes helping the bottom line. As I stated before, labour for me is considered fixed, therefore any price increase which doesn't reduce volume must make labour more productive and profit positive. Since we are increasing revenue without increasing traditional fixed costs such as rent, utilities, phone and legals other than what is predictable, those costs as a portion of sales are reduced.

While the exact impact of increased COGS and Prices cannot be known ahead of time, using a spreadsheet to quickly inject new costs and produce corresponding pricing is a great way to monitor profitability in a foolproof way. The spreadsheet I use employs fixed per pound costs which are adjusted semi annually to reflect increase/decreased G&A and labour. The inputs for COGS are changed almost weekly now, and once I push beyond a price by 5%, I make a change in our wholesale pricing. If you get nothing else from this post take this part to heart, look at your Financials every day and learn your own ratios. It is a great way to see trouble on the horizon well before anyone else notices.