Operating a restaurant is a balancing act. There’s a ton to manage on a daily basis: serving top-notch food and beverages, managing staff, taking care of customers, tracking orders, cleaning, opening and closing your restaurant.
While it’s easy to get wrapped up in the daily grind, as a restaurant owner, it’s essential to make time to review your restaurant’s finances, especially your profit and loss statement. Ideally, your restaurant should regularly earn a profit that allows you to grow your business. If your restaurant loses too much money, you’ll eventually find it difficult to stay open.
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Creating and regularly referring to your restaurant profit and loss statement will help you make more informed decisions and maintain a healthy bottom line. Let’s jump in!
What is a profit and loss statement?
A restaurant profit and loss statement identifies revenue and expenses for a defined period, which can be a month, quarter, or year. It’s a snapshot of your restaurant’s performance and whether you’re earning a profit or sustaining losses.
What’s included in a restaurant profit and loss statement?
A restaurant P&L statement contains five distinct categories that separate your revenue and expenses and shows your profitability:
- Gross sales
- Cost of goods sold
- Labor costs
- Operating costs
- Net profit or loss
Gross sales
Your gross sales include all the revenue you earned over a specific period. Every meal, drink, appetizer, or dessert that’s ordered has a dollar value; the gross sales will list the total of all those orders.
You can list your gross sales as one line item on your income statement, however, many restaurant owners find it best to categorize their revenue. As an example, you could have a single line item totaling your gross sales, then divide the sales across different segments, such as food sales and beverage sales.
Dividing your gross sales into categories makes it simpler to see which items attract the most customers – and which need to be adjusted or eliminated.
Cost of goods sold
Your cost of goods sold equals the total expense you incur for each menu item you sell. It should include the cost of ingredients and cost of labor to prepare the dishes. However, you will not include any expenses that aren’t directly related to your food items, like marketing costs, rent, or insurance.
Like gross sales, you can include the cost of goods sold as a single line item or split it into different categories. For instance, you might separate the cost of goods sold by menu item, especially if some dishes are costlier to prepare than others. This strategy makes it easier to determine whether a menu item is profitable or not.
Your total cost of goods sold is subtracted from your gross sales to determine your restaurant’s gross profit or loss.
Labor costs
You rely on staff to keep your restaurant operating smoothly, but their services come at an expense. Tally your labor costs for every employee you have who doesn’t directly contribute to making your food and include them under your labor expenses.
Restaurant managers, cashiers, dishwashers and janitors should be listed in your labor costs. The expenses for paying your chefs and kitchen staff are included as part of your cost of goods sold since they’re preparing the food for your customers.
Pay careful attention to your labor costs to ensure they remain manageable. Regularly check on your sales per labor hour metric to ensure you have the right balance. However, ensuring you have enough employees to operate efficiently is vital; don’t risk customer dissatisfaction simply because you don’t have enough staff to attend to their needs.
Operating costs
Your operating costs include expenses associated with your restaurant that aren’t part of your labor or cost of goods sold expenses. Operating costs include rent, insurance, marketing & advertising, point of sale system, credit card processing fees, and other similar items.
If you have any fixed assets, like restaurant seating or equipment, you’ll include the depreciation expense for each item in your operating costs.
Separating your operating costs into various categories helps you understand where you spend your money. If you aren’t achieving your profit goals, reducing unnecessary operating costs is a great place to make adjustments.
Net profit or loss
Your net profit or loss equals revenue minus costs of goods sold, labor expenses, and operating costs. A positive number means that your restaurant was profitable for the period, while a negative number indicates that your restaurant lost money.
In the early days of a restaurant, it’s common to sustain a few months of losses — your customers are just beginning to learn of your restaurant, and you’ll likely need to purchase some start-up items for your business. However, you’ll want to aim for a consistent profit over time.
Restaurant profit and loss best practices
If you’re handling your restaurant’s bookkeeping, you’ll want to update your profit and loss statement regularly. Observing the daily operations of your business will only get you so far. You may see your business booming but not realize you’re losing money due to unpopular and costly menu items or too much investment in your staff.
Compare your profit and loss statements across different periods to identify significant changes in your restaurant’s financial performance. For example, you might compare your monthly income statements for two months or look at quarter-over-quarter or year-over-year results. Comparing profit and loss statements allows you to identify opportunities for improvement and potential pitfalls.
Finally, consider collaborating with a bookkeeper specializing in restaurants. A bookkeeper can help you identify key metrics important to your restaurant, like your contribution margin or sales per labor hour. They’ll help you measure your metrics and ensure you have a current profit and loss statement you can rely on for critical financial decisions.
Create a profit and loss statement for your restaurant
While creating a profit and loss statement may sound tedious, it’s crucial to your restaurant’s success. It’s the difference between a thriving, profitable restaurant and one that’s barely getting by simply because it enables you to make adjustments before things get out of hand.
For more help with your restaurant bookkeeping or restaurant accounting, check out Table Needs Bookkeeper. We offer bookkeeping, tax preparation and filing, and professional accountants to provide guidance and answer your questions.
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