Restaurant Profit, Loss, Financial Data
Restaurant Profit and Loss Statements: Understanding and Creating Them
What is a Profit & Loss Statement
A restaurant profit and loss statement also referred to as a restaurant P&L, shows your business’ costs and revenue (net profit or loss) during a specified period of time. In other words, your P&L functions as a bank statement for your hospitality organization to monitor your company’s financial health. Calculating the profitability of most food service establishments comes down to basic fundamental business components: increasing sales or margins (revenue) and reducing costs or expenses. Statistics show that 50% of new restaurants go out of business by year 5 because they fail to make a profit.
A restaurant P&L statement is a pretty common financial reporting method for determining your restaurant’s profitability; where this might get a little confusing is knowing what to actually include in your restaurant’s P&L statement.
This restaurant P&L guide will walk you through the essential steps for creating a restaurant P&L report.
Whether you chose to have a restaurant CPA generate your P&L or you use an accounting software to create it yourself, you will have a better understanding of reading and reviewing one.
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What Information Should You Include?
A restaurant specific P&L statement will usually consist of three main components:
- Section 1 of the P&L will include a breakdown of your sales and revenue.
- The next section will list all your cost of goods sold (COGS).
- The last section will include operating expenses, such as the cost of restaurant insurance and occupancy expenditures.
Another thing to mention is that the restaurant labor cost is usually listed as a separate expense between COGS and operating expenses.
To figure out where your largest profits or losses have occurred, get more granular and break down your revenue and costs into smaller, more specific sections. Also, every business is different, so you can customize your P&L to your company’s needs; you don’t have to take a generic restaurant profit and loss example statement as the testament to follow. You can make your statement as simple or elaborate as you want, but remember it will be more helpful to understand your accounts if you provide details of the costs and gains most relevant to your establishment.
Revenue
Revenue is the profits you earn from selling items and goods to your customers. Most restaurants will make their highest profits from their sales of food and beverages, but some chains will have other forms of revenue. Make sure you list each form of income separately on your Profit and Loss statement.
Food & Beverage Sales
In this category, you can break line items down into smaller subset sections under food, beer, wine and coffee. Depending on what kind of food sales, hospitality business you have, one section may be more profitable than others for you.
Costs
Costs Your restaurant’s costs should include any type of expense, such as inventory purchases, insurance costs, and employee paychecks. The three main expenditures you will encounter as a manager include the cost of goods sold, restaurant labor cost and restaurant operating expenses which is usually listed as separate line items on the P&L statement.
More information to include in a Profit & Loss Statement
Cost of Goods Sold
The cost of goods sold (COGS) metric, or sometimes referred to as cost of usage, records the amount of money you spend on food ingredients and beverages that you supply to your customers.
To understand how the COGS works, you must calculate how much you end up spending on inventory to fulfill your sales transactions to your patrons.
Restaurant Labor Costs
The wages and salaries of all your staff, from your head chef to your waiters, will determine your labor costs. This category offers significant cost containment opportunities. Labor costs can be improved with knowledge of a required resource allocation to demand, continuous improvements in productivity – employee, or physical components of the business, e.g., labor saving equipment, optimized floor plans, etc.
Occupancy Expenses
These costs or expenses include the nuts and bolts of running your business, which includes property taxes, utilities, interest, depreciation, rent and waste removal. Keep in mind to carefully review your leasing agreement, because some expenses may vary where others like the waste removal may be a fixed cost. Another thing to be on the lookout for is possible unforeseen expenses like equipment, or even building, repairs that are a necessity to the safety and success of the business.
Prime Cost
The prime cost is the sum of a restaurant’s food, beverage and labor costs. Some restaurant owners will consider this their profitability cost benchmark number on their P&L statement. Because the prime cost bundles the two largest cost categories, it represents a key indicator into whether the company will be profitable in the next reporting period.
Prime cost is also a direct reflection as to how management is controlling food, beverage and labor costs on a daily basis throughout the reporting period. A successful restaurant will keep its prime cost at 65% or lower.
Restaurant Operating Expenses
Operating expenses will include costs on everything from tablecloths to rent. Depending on what type of hospitality business you have, your expenses may vary.
Restaurant Insurance Cost
Insurance is a must have element when running a business which can cost thousands of dollars a year, based on the extent of the risk coverage you want. Your restaurant’s insurance costs may include coverage for worker’s comp, business crimes, general liabilities, loss of income, equipment breakdown or even property damage. It is recommended you shop around from a few vendors to see all your options.
Controllable Expenses
You can think of miscellaneous costs as any daily expense that is necessary to your restaurant’s business such as the restocking of linen uniforms, cleaning supplies, napkins, paper cups, replacing glassware etc. You also can also include advertising here. Some expenses will obviously vary depending on the type of establishment you run. As an example, when comparing a 5-star Manhattan restaurant to a fast food chain, the 5-star restaurant will invest in more fancy chinaware and the fast food chain will purchase more disposable cups.
Other Business Ventures
Merchandise Sales– this could include any items that are sold or function as promotions for your restaurant. Merchandise could include gift cards, t-shirts, mugs or hats. The chain Hooters does a lot of merchandising, sales and promotion.
Catering – this is a great way to reach out to a new neighborhood and introduce people to your cuisine. This could include doing high end special events or private parties, and it could include selling snacks for a fundraiser or local school event. If your restaurant does any catering, make certain to list it as separate income item, on your P&L statement.
Net Profit / Loss
At the end of the P&L statement, you must list your net profit or loss based on your costs and revenue. You calculate your net profit or loss by subtracting both the labor costs and the operating costs from your gross profit. Your revenue needs to be higher than all your combined costs for you to generate a profit.
Remember, your profit and loss statement should include only what is most relevant to your particular culinary business.
Successful businesses use and rely on data to make decisions.
In order to understand how to increase the profitability of your restaurant, you need to first have a clear sense of how your restaurant is currently performing.
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How much are you spending on labor?
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How much does it cost you to create each of your menu items?
Which menu items are the best and worst sellers?
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After considering your controllable costs like payroll and food costs, is there enough money to cover your overhead costs?
By regularly creating income statements and tracking your prime cost over time, you will start to recognize trends and areas that need more attention so you can make the appropriate adjustments.
Bookkeeping Chef’s software, platform makes it easy to create and read accurate P&L statements.
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