How to Read Profit & Loss Statement for a Restaurant
Managing a Profit & Loss Statement (P&L) in a restaurant business is an important task – and it can be difficult because your business is one of the countless moving pieces in an industry with certain strong profit margins.
Henry Patterson of ReThink Restaurants, which trains restaurant managers in managing their books, says there is no single way to calculate restaurants – from rigorous cost analysis, last-minute minute reporting, and open-book management.
But no matter how you spend your restaurant money, contact your staff about your P&L content. Because the more you can be transparent about money and metrics, the more your team and business will benefit the most.
“[Restaurant workers] often assume that a large percentage of their income goes to profits” and that the owners put it in their pockets, which is wrong, “says Henry. “When [employees] found that the average profit margin at a fully functional restaurant was 5%, they said,” Are you kidding? All this work and is it all there? “
Managing your restaurant budget and, at best, educating your team on it is an important area in which you should be as transparent as possible.
Before we go inside, here are the basics you need to know.
What is a Restaurant Income Statement?
First, a restaurant revenue statement is a financial statement that summarizes the income, expenses, and expenses received over some time. The P&L statement achieves two critical objectives for restaurant staff:
- To understand net profit or loss.
- To identify areas that are contributing to and hurting the business.
Here, you will see the key metrics that make up a restaurant income statement & learn how to analyze them to get actionable insights.
The Way to Create a Restaurant Profit & Loss Statement
Choose a Timeframe
The first step in making a statement on restaurant profit and loss is to select a set time. You can create Profit & Loss statements weekly, monthly, quarterly, or annually. It is an excellent idea to produce these statements regularly to clearly understand how the different aspects of your business affect costs and sales. Enter your restaurant’s name and timeframe for your data on your statement sheet.
Record Sales for the Selected Timeframe
The first step in completing the income statement is the sales phase. The sales section shows you how much your restaurant money has earned in a given time. In the completed income statement template, you will see food, wine, beer, alcohol, and soft drinks sales categories. You can choose to track sales primarily by dividing your food sales into more targeted categories or menu groups.
You can easily access detailed sales details for your selected time if you have a POS restaurant system that provides tracking and reporting.
Enter Cost of Goods Sold (COGS)
COGS is just one of many ways that the cost of goods is used to create food and beverages sold in your chosen time. Using standard recipes for all your food and beverage items should easily calculate your cost of goods sold. For example, if you sell ten containers of chicken and each bowl costs $ 5 to create, depending on your inventory cost, your COGS is $ 50 (10 x $ 5).
Employees include all hourly paid employees, employee taxes, and employee benefits. You should also calculate the amount you spent on each job-related expense when you have chosen and enter each one in the income statement template.
Operating expenses are manageable costs involved in your day-to-day operations. This can include giving, refurbishment and renewal, marketing and advertising, and music and entertainment.
.Accommodation costs are fixed costs associated with things like rent, property, and property insurance. These costs have been selected because you cannot change or change them.
Depreciation refers to the declining value of goods (in this case, the restaurant and equipment) over time. Although a decline is inevitable, it still needs to be calculated to accurately calculate your profit or loss.
How to Analyze Profit and Loss Statement
The template will calculate essential data and financial points about your business based on your information.
Percent of Sales
If you use a free income statement template, you will see that a percentage of total sales covers employees, accommodation, food and beverage costs, and operating expenses. Therefore, the rates listed here are an essential indicator of how well your business is doing.
Depending on industry standards, personnel and food costs should account for the most significant percentage of total sales (typically around 30% for fast food and whole foods).
Every restaurant is different, but if you see an unusually high price offered employees food and drink, it can be time to re-evaluate the menu items for employees and subordinates.
Gross Profit and Gross Profit Margin
Gross profit is usually calculated by subtracting the total cost of the goods sold from total sales. A collaborative P&L template calculates total profit automatically when entering sales and COGS values into the income statement template. Next to the most significant dollar profit, you should see a percentage representing the limit of your total profit.
The total profit line is calculated by dividing your total profit by wholesale sales. Please pay close attention to this metric over time and compare it with your historical data to understand how food and drink costs affect genes. The profit margin for all metric restaurants usually depends on where to place menu prices and share sizes.
Track the metric over time and data to decide on pricing items and set component sizes.
The final metric is an example of an income statement metric you may be most concerned about – the bottom line. Total profits/losses are an essential indicator of how your business has performed over time. This amount will be positive or negative depending on the company’s performance.
Suppose this metric agrees; congratulations! Your restaurant has total benefits.
If the number is negative, it implies that your restaurant costs are higher than the total sales of food and beverages. In the long run, that could mean trouble.
Keep a close eye on net gains/losses and compare them with your historical data to see how your restaurant line compares with last week, month or year.
What is Prime Cost?
While important, you are calculating the profit or loss of your restaurant net is not a valid metric. It highlights how your restaurant line changes over time but doesn’t show how to improve. It just shows you how your restaurant has worked in the past.
If you are looking for ways to reduce costs and improve your overall profitability, your first restaurant expenses will be a helpful metric.
The initial cost of the restaurant is the total cost of its personnel and its cost of goods sold. The main expense is making a lot of restaurant costs (usually around two-thirds or 60%) and part of a business that can increase profits. While making small changes in labor and food costs over time may seem insignificant, every dollar considered at a higher fee is one dollar that can go to higher prices and profits.
Use start-up costs, total COGS, and personnel costs to determine how to reduce costs to improve overall profitability.