Understanding a restaurant's profit and loss statement (P&L) is a critical skill for owners and managers looking to understand the financial health of their business.

By analyzing a P&L statement, stakeholders can make informed decisions to improve profitability and steer the restaurant toward success.

In this guide, we'll take a look at what makes up a P&L statement, how to read one, and how it can help manage costs and maximize revenue.

Key Takeaways

• Components of a restaurant P&L include sales, food and beverage costs, labor costs, operating expenses, and net profit.
• Analyzing revenue and sales data can help identify trends, evaluate menu performance, and optimize pricing strategies.
• Managing costs and expenses involves monitoring and controlling food and beverage costs, labor costs, and overhead expenses.
• Interpreting the P&L allows restaurant owners and managers to assess profitability, identify areas for improvement, and make informed business decisions.

What Is A Restaurant Profit & Loss Statement?

A restaurant profit and loss statement, also called a P&L or income statement, is a financial document that breaks down a restaurant's total revenue, costs, and expenses over a specific period, usually a month, quarter, or year.

An income statement allows restaurateurs to see how much revenue they're making, how much capital they're losing, and where these instances are occurring.

What Is Included in A Profit & Loss Statement?

A typical restaurant P&L includes the following sections:

1. Revenue: This represents the total income generated from sales of food, beverages, and other income for merchandise, catering.
2. Cost of Goods Sold (COGS): COGS includes the direct costs associated with producing the food and beverages sold, such as ingredients, packaging, and any other materials.
3. Labor Costs: This includes wages, salaries, employee benefits, and labor related taxes.
4. Operating Expenses: Operating expenses cover the costs of running the restaurant, including rent, insurance, utilities, marketing, maintenance, and depreciation.
5. Other Income and Expenses: This category includes any additional income or expenses that are not directly related to the core operations of the restaurant.

How to Analyze A Profit & Loss Statement

Based on the data you've input, your statement will provide you with key financial calculations that will help you understand your financial progress, identify discrepancies and areas of opportunity, and grow your business.

Cost Percentages

Cost percentages are calculated by dividing specific costs by total sales. They help in benchmarking against industry standards to assess efficiency and profitability.

Your restaurant's prime cost, which includes labor and food costs, will be the biggest percentage of sales. A typical food cost percentage ranges from 28% to 35%, while the target range for labor cost percentage falls between 25% to 35%

Monitor these percentages over time to view trends and areas where cost control measures can be implemented. For instance, a rising food cost percentage might prompt a review of menu pricing, waste management, or supplier negotiation.

Gross Profit

Gross profit on a restaurant’s P&L statement is the revenue remaining after deducting the cost of goods sold (COGS). This figure is a crucial KPI to measure as it reflects the core profitability of the restaurant's menu before accounting for the overhead and operational expenses.

Gross profit is automatically calculated by a P&L template once you input your sales and COGS data.

Maximize gross profit by implementing the right menu pricing strategy, controlling costs, and ensuring portion control.

Prime Cost

Prime cost is a key performance indicator in the restaurant industry that combines the two largest controllable expenses: labor costs and COGS.

Keeping prime cost within the range of 60-70% is vital for maintaining profitability while ensuring competitive pricing and quality service.

Net Profit & Loss

Net profit, or net income, is the amount of money left from restaurant revenues after you've paid  all expenses. Net profit provides the most comprehensive view of a restaurant's financial health, serving as a key indicator of how your restaurant operated in a specific time frame.

A positive net profit indicates a profitable business, while a negative metric signals that you're spending more money than you're bringing in. Keeps tabs on your net profit over time and compare it to previous statements to gain a comprehensive view of your restaurant's growth rate and profitability.

Restaurant Reporting Tools

Data is the backbone of generating not only P&L statements but other detailed reports as well that give you detailed insights into the operations of your restaurant. The best accounting software will reduce the time you spend on crunching numbers and empower you with the information you need to make data-driven decisions to grow your business.

MarketMan, a cloud-based restaurant inventory management platform, is a personalized bookkeeper in your pocket that integrates with industry-leading accounting software. Easily scan and upload invoices in seconds, automate vendor payments, and generate advanced reporting on price changes, COGS, and purchase patterns in minutes. Book a demo today to chat with our team of experts.