Opening a new restaurant can be an exciting experience. You're building a brand and sculpting the exact dining experience you always wanted for guests. At the same time, it can feel a bit overwhelming if you’re not prepared with the right tools. Because, let’s face it, there’s a LOT to keep track of when opening a restaurant—from assessing the latest restaurant tech to crafting a profitable menu, hiring staff, and so much more. One common pitfall is neglecting to step back and analyzing all your costs. Thankfully, there’s one document that can act as your saving grace when it comes to your bottom line: the restaurant profit and loss statement.

According to Forbes, all restaurant owners should view profit and loss statements, otherwise known as restaurant P&L or income statements, as the best measurement for growth. That’s because a P&L statement clearly illustrates a restaurant's financial strengths and weaknesses as an overall business. Restaurant managers can even use P&L statements to get a stronger sense of their restaurant’s financial health for the future.

But before you jump into a lifelong friendship with this magical document, let’s first look into the components that define a restaurant P&L and some tips on how to efficiently read a profit and loss statement.

Table of Contents

What is a restaurant P&L statement?

A restaurant profit and loss statement is the total profit earned after subtracting various costs and losses during a certain time period. Also commonly known as an “income statement,” most restaurant P&L statements are formatted as a PDF or Excel spreadsheet, which can be completed through a profit & loss statement template.

Restaurants tend to complete a restaurant P&L statement on a weekly, monthly, or quarterly basis to get a consistent picture of their profits and loss. These short-term P&L statements are also filled alongside a yearly P&L statement, which helps restaurants get a long-term view of those same trends.

What is the difference between a profit and loss statement vs balance sheet vs cash flow statement vs break-even calculator?

Hand holding a balancing scale.
Knowing the right way to assess your restaurant data can sometimes feel like a balancing act.

Restaurant income statements, alongside cash flow statements and balance sheets, are all valuable tools needed to make an informed decision on the future of your restaurant's business. Even though these three main financial statements help assess a restaurant’s finances, they are often confused for one another since they ask for similar financial information.

What is a balance sheet?

Balance sheets are used to explore what a restaurant financially owns alongside what it financially owes. Investopedia notes that balance sheets measure finances at a specific moment in time, while restaurant P&L statements cover a designated period of time such as a month or year. Balance sheets specifically determine the restaurant’s overall worth by having you calculate a list of your assets and liabilities in a single place, while a P&L statement helps determine your financial gains and losses.

What is a cash flow statement?

Just as the name suggests, cash flow statements are used to see all the money sources flowing in and out of a restaurant over a period of time. While a P&L statement measures a restaurant’s profitability, a cash flow statement illustrates where money is coming in and going out.

In addition to operating activities, a cash flow statement also includes investing activities and financing activities. Combined, they provide a wholistic view of a restaurant’s cash management over a period of time, but negative cash flow isn’t always bad. For example, new restaurants and restaurant brands that are expanding to new locations often have negative cash flows since they’re investing funds into opening new restaurants.

What is a break-even point calculator?

Calculating your restaurant break-even point is very similar to but simpler than completing a P&L statement. A break-even calculator shows you how much revenue you need to earn in order to make a profit. It’s very similar to a P&L statement, but requires less details and doesn’t give you nearly as much insight about your restaurant’s financial health.

How to prepare a profit and loss statement

Anyone can download a free profit and loss income statement template to complete on their own, but without understanding the logic behind every part of a P&L statement, it can be frustrating trying to assess your restaurant’s costs.

Different statistics about restaurant changes for 2023 on a restaurant chalkboard display.
According to the National Restaurant Association's State of the Restaurant Industry Report, over 90% of operators claim rising food and beverage costs are becoming a real issue for their restaurants.

The last thing you’d want is to create a restaurant's profit and loss statement with missing information. To accurately fill in a profit and loss statement, be sure to consult your restaurant accounting software, inventory management software, restaurant payroll software, and any other paperwork to track both sales data and expenses from that time period, such as your restaurant’s receipts and invoices.

You’ll use that paperwork to calculate your net sales and total operating expenses. Since you’ll also be calculating your total revenue, and subtracting income tax later on, remember to stay organized and keep your paperwork in a single place for quick access. With a cloud-based restaurant point-of-sale system, you can make your life much easier by receiving instant data reports straight from your system to use any time of day.

What are the parts of a restaurant income statement or P&L statement?

People drinking and talking at a restaurant bar.
There are several sections of a P&L statement covering different aspects of your restaurant's finances. Photo by Luca Bravo / Unsplash

There are seven main components typically used to create a profit and loss statement. Each part covers a specific aspect of your restaurant’s finances, such as your total labor and food costs, that’ll reflect your gains and losses once calculations are complete. You’ll also find smaller subcategories to include in your restaurant income statement if you wish.

Before starting to fill out a P&L statement, make sure to have a specific timeframe in mind. This can be weekly, monthly, quarterly, or annually. The timeframe you choose will dictate the sales and cost numbers you use.

Most restaurants should follow the 30/30/30 rule, meaning you should try to spend about 30% on your COGS, about 30% on labor, and about 30% on controllable controllable expenses like rent, electricity, and internet.

Profit and loss components

  1. Gross sales
  2. Cost of goods sold (COGS)
  3. Labor costs
  4. Gross profit
  5. Operating expenses
  6. Operating income
  7. Net profit

1. Gross sales

For this first section, list the total dollar amount earned from food sales and beverage sales alongside any other operating sales income such as retail sales, party room rentals, or vending machine profits. To show their gross sales amount, most restaurants tend to break those three categories into smaller categories such as wine, beer, liquor, or non-alcoholic beverages.

Of course, since every business is different, you don’t need to list similar items to see an accurate gross sales calculation. Just list your budgeted goal next to an actual goal for that time period, then add them all up while remembering to be mindful of different time periods covered in your P&L statement. Just like we mentioned above, most managers track their weekly gross sales alongside monthly gross sales to find any inconsistencies and make adjustments right away.

2. Cost of Goods Sold (COGS)

Just as its name suggests, your total cost of goods sold, or COGS, is what you've spent on the actual product to create the food sold in your restaurant over a specific period of time. In other words, it’s the cost of inventory. When creating the COGS section on your restaurant P&L statement, list the same categories from your net profit section. Most COGS list the restaurant's food and beverage costs, which can then be broken down into smaller categories. For food, restaurants usually list items like chicken, pork, dairy, produce, and dry goods. For drinks, restaurants tend to list wine, liquor, keg beer, bottle beer, and non alcoholic beverages.

Remember, the prime cost of goods sold isn’t only limited to your restaurant’s food and beverage items. Your COGS should also cover the cost of your technology, merchandise, and any other purchases made to eventually make a profit. Some restaurants even list merchandise as their own separate line items to maintain a more accurate read on its costs.

See a boost in your restaurant profits by following these menu tricks!

To calculate your restaurant’s COGS, you simply need to add the cost of your inventory in the beginning of your designated time period to the amount of your purchased inventory, then subtract the cost of your inventory at the end of the designated time period.

Simple COGS formula & example

Here’s the simple formula to calculate your cost of goods sold:

COGS = (inventory cost at beginning of time period + purchased inventory cost) - ending inventory cost

For example, let’s say your starting food costs are $1,500, your purchased inventory costs are $2,700, and your ending inventory costs are $1,700. According to the formula, that would be (1,500 + 2,700) - 1,700. At the end of calculations, the COGS value would be $2,500 specifically for your food section. The same would then be calculated for the different categories listed. Add them up all together to get your total COGS for that time period.

Most restaurant operators also find it useful to convert their COGS into a percentage, otherwise known as your COGS margin ratio. To calculate your COGS margin ratio, simply divide your COGS by gross sales. This percentage helps see if a restaurant is overspending their total (meaning they lose from the net profit) or spending a healthy 20-30% of their gross profit on the prime cost of goods sold.This entire process can be automated when you have an integration between your POS and inventory management software. For example, SpotOn Restaurant POS integrates with MarginEdge, making it easy to see real-time food costs, among other invaluable data.

3. Labor costs

The labor costs section typically covers the money spent on people working in every aspect of the restaurant. However, instead of individually listing the restaurant labor cost for your salaried and hourly employees, restaurant profit and loss statements should break down these labor costs into sections for front-of-house and back-of-house staff.

Front-of-house staff would include bartenders, servers, and hosts. Back-of-house staff would include line cooks and supervisors. Most restaurants even place dishwashers on their own line just to get a good glimpse of how much they're spending to accomplish certain tasks. Of course, you can also break down these two sections into smaller categories that deserve their own line items.

With these two sections, you'll get a better sense of how much you're spending to keep the restaurant and kitchen operations running as smoothly as possible. And with the right labor management software, you can then adjust total labor expenses by prioritizing efficiency and assurance for your restaurant staff as well. Thanks to simple scheduling, quick tip payouts, and more, you can sculpt the perfect employee experience all while saving money and time.

4. Gross profit

A restaurant server brings guests their food
The gross profit for your restaurant is calculated by taking your gross sales and subtracting your COGS. Photo by Louis Hansel / Unsplash

Since you’ve got the numbers down for your total income revenue and COGS, you can now calculate the total amount of profit you’ve earned in that given time period, otherwise known as your gross profit.

Gross profit formula

Calculating your restaurant gross profit is probably the easiest part of an income statement. Here’s the simple formula anyone can follow:

Gross profit = gross sales - COGS

This should only take up one single line on your income statement. While it isn’t necessary, some restaurants also include a gross profit margin as well. To calculate your gross profit margin, simply divide your total profit by the number of total sales in a certain period of time.

5. Operating expenses

For this fourth section, you will need to list all the controllable expenses paid so the restaurant can function normally as a profitable business. Don’t be shy and list the bare minimum for your operating costs.

Include every expense that occurred over your designated period of time, from the cost of implementing an online ordering system to purchasing new dining tables. Some easy examples are the cost of linens, detergent, cleaning supplies, rent, and electricity.

By accounting for every single prime cost and placing them into a single place, you get a good view of which expenses are justified and which aren’t worth it anymore. For example, if you discover that you’re spending more on kitchen repairs each month thanks to inflation, then adjust accordingly for next month.

6. Operating income

This section is where you calculate your restaurant’s total earnings prior to any interest or taxation. Much like with your overall profit, it's relatively simple finding out your restaurant's income from operations.

If you don’t have any real dollar amount for your COGS, you can simply subtract operating expenses from your revenue. Otherwise, simply subtract your operating expenses from your gross profit, or follow this simple formula:

Operating income = gross profit - operating expenses

7. Net profit

The net profit, otherwise known as your restaurant’s bottom line, should be the final section of the restaurant profit and loss statement. Your net profit shows the total growth or loss within a certain time period after all othe expenses and profits have been calculated. You calculate net profit by subtracting your operating expenses from gross profit.

Net profit formula

Here’s the simplified formula to follow:

Net profit = gross profit - total operating expenses

Before you dive into your bottom line, don’t forget to calculate depreciation and taxes, especially your payroll taxes. While it isn’t exactly necessary, some restaurant profit and loss statements include the dollar amount before and after taxes to give them extra insight into their overall financial health analysis.

How to read a restaurant profit and loss statement: 3 P&L tips and tricks

Image of someone reading and enjoying their coffee at a restaurant
Interpreting the data from your P&L statement is equally important as filling it out correctly. Photo by Austin Distel / Unsplash

1. Heal your restaurant pain points

One main benefit to a P&L statement is its ability to display every dollar earned and spent in your restaurant. As we mentioned above, that awareness gives you a good view of everything that could possibly hurt your ability to earn profit. For example, if you see that your total sales aren’t as high since guests aren’t dining in as much, you can set up an online ordering system as a practical alternative.

SpotOn client Blue Barn successfully transitioned 50% of their business to commission-free online ordering while also streamlining operations for $3,600 in monthly labor savings. They just needed to take a step back, examine the data, and crunch the numbers.

2. Find & adjust unnecessary operating expenses

You’d be surprised how most operating expenses are overlooked when you’re in the rush of running a restaurant. By completing a restaurant profit & loss analysis at the end of a quarter or month, you’ll be able to approach those operating expenses with a clearer sense of their overall prime cost.

Image of smartphone and iPad tablet with SpotOn reservation software.
SpotOn's restaurant reservation software is easy to use for any type of restaurant.

For example, as a restaurant owner, are you suddenly aware that you’re spending too much money on per cover fees through a third party reservation platform? SpotOn Reserve helps save you money by syncing its reporting analytics right in your restaurant’s point-of-sale system. With a contemporary reservation solution, you’ll also ease up your restaurant staff’s workload while bringing in more guests looking for a bite.

3. Enhance the restaurant dining experience

Now that you’ve seen your pain points and all those unnecessary operating expenses, you can use a profit and loss statement to develop and grow your restaurant in ways previously unimagined. Of course that type of change isn’t easy and won’t happen overnight. However, you’d be surprised how treating a profit and loss statement as a thermometer will help you gauge your restaurant’s experience with the exact breathing room needed for future growth.

That’s how SpotOn Client Momoya managed to perfect the dining experience for their guests, all while seeing a boost to their own profits. By having all the data in one place to examine and analyze, Momoya noticed it took a longer time to take orders from their outdoor seating area. The solution? Momoya decided to implement dish out handheld POS devices to their servers to help them cover more tables and turn those tables faster. As a result, the restaurant saw a 10% increase in daily orders alongside a 4% boost in tips for their servers.

All said and done, the P&L statement can be the most important tool in your toolbox to analyze your bottom line—and improve it. Just don’t forget to keep your past P&L statements on hand in case you need to have another reference for your own growth, alongside the usual reports and data you can receive directly from your restaurant point-of-sale system.

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