A Restaurant Profit and Loss (P&L) statement is a critical financial tool for every restaurant owner. It offers a clear picture of your restaurant’s revenues, costs, expenses, and net profit or loss.
In this article, we will explain a P&L statement, walk you through its key components, and show you how to create one.
We’ll also provide a downloadable template to help streamline the process and enhance your restaurant’s financial health.
Key Takeaways
- Restaurant Profit and Loss Statement (P&L): A P&L statement provides an overview of your restaurant’s revenues, costs, and expenses for a specific timeframe, helping you understand its financial health.
- Restaurant Labor Costs: Managing restaurant labor costs is crucial for controlling overhead and ensuring your restaurant remains profitable.
- Food Costs: Tracking food costs allows you to manage your prime costs and maximize profitability by minimizing waste and inefficiencies.
- Net Profit: The net profit represents the remaining income after all expenses are deducted, a key metric for evaluating your restaurant’s profitability.
- Operating Expenses: Keeping track of operating expenses, such as rent and utilities, helps you control costs and maintain financial stability.
- Restaurant’s Financial Health: Regularly reviewing your financial statements for a given period ensures you stay on top of your restaurant’s profitability and make informed decisions for future growth.
What is a restaurant income statement?
A restaurant income statement, also known as a profit and loss statement (P&L), is a financial document that outlines a restaurant’s revenues, expenses, and profits or losses over a specific period.
It provides a detailed snapshot of the restaurant’s income and expenses, ultimately indicating whether it was profitable or lost money.
This statement is crucial because it helps restaurant owners and managers:
- Understand the net profit or loss for the given timeframe.
- Identify areas of the business that are helping, such as high food sales or low operating expenses.
- Pinpoint areas that are hurting the business, such as excessive labor costs or high restaurant food costs.
Key components of a Restaurant P&L Statement
A restaurant’s profit and loss statement (P&L) consists of several key components that provide insight into the restaurant’s finances.
Here’s a breakdown of the most important elements:
1. Sales
Sales represent the total income generated by the restaurant during a specified period. They encompass revenue from food and beverage sales, as well as other sales like merchandise or catering.
Sales reflect the restaurant’s ability to attract customers and drive business.
How to categorize income streams:
- Food Sales: Income from food items sold, such as appetizers, entrees, desserts, etc.
- Beverage Sales: Income from alcoholic and non-alcoholic drinks, including soda, beer, wine, and cocktails.
- Other Sales: Revenue from other services, such as catering, event hosting, or merchandise sales.
Total Sales = Total revenue from food, beverages, and other sales during a given timeframe.
Below you can check an example calculation of a restaurant’s sales.
We have the following data:
- Food Sales = $50,000
- Beverage Sales = $20,000
- Other Sales (e.g., catering) = $5,000
The total sales of this restaurant are:
Total Sales = $50,000 + $20,000 + $5,000 = $75,000
2. Costs
The cost of goods sold (COGS) represents the total direct costs involved in producing the restaurant’s food and drinks. These costs include food and beverage purchases, inventory, waste, and the total cost of goods used in the production process.
Properly tracking COGS is crucial for managing gross profit.
What COGS include:
- Food: Cost of ingredients used in food preparation.
- Beverages: Cost of drinks served, including alcoholic and non-alcoholic beverages, as well as ingredients like lime, etc., used in drink preparation.
- Inventory: Initial inventory plus any purchases made during the period, minus the remaining inventory.
Waste: Lost or spoiled items that couldn’t be used.
COGS = Beginning Inventory + Purchases – Ending Inventory
Below you can check an example calculation of a restaurant’s COGS:
- Beginning Inventory = $8,000
- Purchases = $22,000
- Ending Inventory = $7,000
COGS = $8,000 + $22,000 – $7,000 = $23,000
3. Labor
Labor costs include all expenses related to employee compensation, such as wages, hourly wages, benefits, payroll taxes, and other related expenses.
Labor is one of the largest costs for most restaurants, and managing it efficiently is key to ensuring profitability.
Labor Cost = Total wages + Benefits + Payroll Taxes
Below you can check an example calculation of a restaurant labor cost.
- Total Wages = $25,000
- Benefits = $3,000
- Payroll Taxes = $2,000
Labor Cost = $25,000 + $3,000 + $2,000 = $30,000
Learn more about how to reduce labor costs here.
4. Operating expenses
This category covers all the day-to-day costs involved in running a restaurant, such as rent, utilities, overhead costs, insurance, marketing, and miscellaneous administrative costs.
Operating costs can significantly impact restaurant profitability.
Operating Expenses = Rent + Utilities + Marketing + Insurance + Miscellaneous Costs
Below you can check an example calculation of operating expenses.
- Rent = $8,000
- Utilities = $2,000
- Marketing = $1,000
- Insurance = $1,500
- Miscellaneous Costs = $500
Operating Expenses = $8,000 + $2,000 + $1,000 + $1,500 + $500 = $13,000
5. Net Profit/Loss
Net profit or loss is the remaining income after subtracting all expenses (COGS, labor, and operating expenses) from total revenue.
Before calculating net profit, it’s important to understand gross profit, which represents the revenue left after subtracting the cost of goods sold (COGS).
Gross Profit = Total Sales – COGS
Below you can check an example calculation of gross profit.
- Total Sales = $75,000
- COGS = $23,000
- Gross Profit = $75,000 – $23,000 = $52,000
Now, to calculate Net Profit/Loss, we subtract labor costs and operating expenses from gross profit.
Net Profit/Loss = Gross Profit – (Labor Costs + Operating Costs)
Below you can check an example calculation of net profit/loss.
- Gross Profit = $52,000
- Labor Costs = $30,000
- Operating Costs = $13,000
Net Profit/Loss = $52,000 – ($30,000 + $13,000) = $9,000
How to create a Restaurant P&L Statement
Creating a restaurant profit and loss statement (P&L) from scratch involves compiling and organizing various financial data to assess your restaurant’s financial health.
Here’s a step-by-step guide on how to build a restaurant P&L statement:
Step 1: Decide on a timeframe
The first step in creating a restaurant P&L statement is deciding on the timeframe for your report. P&L statements can be generated weekly, monthly, quarterly, or annually.
It’s helpful to review your P&L statement regularly to monitor sales, expenses, and profitability trends.
Example: If you choose a monthly timeframe, you’ll compile the data for the entire month, such as from the 1st to the 30th (or 31st).
Choose a timeframe that fits your restaurant’s needs. If you’re trying to track short-term trends, weekly or monthly reports may be more helpful, whereas quarterly or annual reports provide a broader overview of your restaurant’s financial health.
Step 2: Record total revenue
After selecting the timeframe, calculate your restaurant’s total revenue during that period. This includes income from food, beverages, and other sources, such as catering or events.
You can categorize the restaurant revenue into major groups or track it more specifically by menu items or types of service.
You can also track sales by dividing the menu into more specific categories. For instance, instead of grouping all drinks as a single category, you could separate alcoholic drinks from non-alcoholic drinks. Additionally, you can categorize food items by menu categories, such as appetizers, entrees, and desserts.
Step 3: Record the Cost of Goods Sold (COGS)
The Cost of Goods Sold (COGS) represents the total expenses involved in producing the food and drinks your restaurant sells. It is important to track these costs carefully because they directly affect your gross profit.
To calculate your COGS, track your purchases of food and beverages and adjust for inventory changes during the selected period. You can use recipe costing for better accuracy, especially if you want to analyze the profitability of individual menu items.
Step 4: Track labor expenses
Labor is a significant cost for most restaurants. Labor expenses include all wages (salaried and hourly), employee benefits, and payroll taxes.
Tracking labor costs can help you determine whether your staffing levels are appropriate for your sales volume. It can also help you identify opportunities for cost savings or operational efficiencies, such as optimizing shift schedules or reducing overtime.
Step 5: Calculate operating expenses
Operating expenses encompass all the costs required to run your restaurant, excluding food and labor, and are critical for daily operations and need to be tracked to ensure they don’t eat into your profits.
These expenses cover a wide range of areas, including:
- Supplies: Items like napkins, cleaning materials, and utensils.
- Marketing: Expenses related to restaurant advertising, promotions, and digital marketing.
- Repairs & Maintenance: Costs for fixing equipment, facilities, or upgrades.
Step 6: Account for fixed overhead costs
Fixed overhead costs, often referred to as occupancy costs, include relatively stable expenses such as rent and property insurance. These are often unavoidable, but they must be accounted for to determine a restaurant’s true profitability.
Examples of occupancy costs include:
- Rent
- Real estate taxes
- Restaurant insurance
You can also use a restaurant P&L template that we prepared for you.
Fill out the form to download the profit and loss statement template. By submitting the form, you agreed to join our newsletter list.
Analyzing Your P&L Statement: What to Look For
When analyzing your restaurant’s profit and loss statement (P&L), focus on key restaurant metrics that reveal the financial health of your business.
Here are the critical areas to focus on:
1. Food and labor costs
Track food costs to keep them within 30-35% of food sales. Calculate the food cost percentage by comparing food costs to total food sales. If the percentage is rising, focus on reducing food waste and improving restaurant inventory management.
Labor costs, including wages, benefits, and payroll taxes, should also be monitored. Track them as a percentage of total revenue. If labor costs are too high, adjust staffing, streamline processes, or reduce overtime.
Together, food and labor costs—your prime costs—should ideally be around 30% of total sales to maintain profitability.
2. Profit margins
Analyze both gross profit and net profit margins. A healthy gross profit margin indicates that you are covering your direct costs (like food and beverages), and a strong net profit margin means your business is efficient at managing operating and labor costs.
Focusing on improvement opportunities and optimizing costs can help your restaurant remain profitable.
Remember to examine trends over time and compare current results with previous periods. A strong financial statement should show steady or improving profitability, manageable costs, and positive cash flow.
Please keep in mind that the content presented in this article is intended solely for informational use and does not constitute financial or legal counsel. For guidance on financial or legal matters, it is recommended that you seek the expertise of a certified financial advisor or a legal practitioner.
