On the Line / Accounting / How to Read a Profit and Loss Statement

How to Read a Profit and Loss Statement

Learn how to create and analyze a profit and loss statement using this restaurant income statement template and guide.

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Managing a Profit and Loss Statement (P&L) in the restaurant business is a crucial task — and it can get complicated because your business is one with countless moving pieces in an industry with some of the tightest profit margins. 

Henry Patterson of ReThink Restaurants, who coaches restaurant operators on managing their books, says there is no one approach to restaurant accounting -- from robust prime-cost analyses, last-minute monthly reporting, and successful open-book management

But regardless of how you approach your restaurant’s finances, communicate the contents of your P&L to your staff. Because the more transparent you can be about money and metrics, the more your staff and business will benefit.

“[Restaurant workers] frequently imagine that a huge percentage of revenue becomes profit” and that the owners simply pocket it, which course isn’t true, Henry said. “When [employees] learn that the average profit margin for a full-service restaurant is 5%, they say, 'Are you kidding? All this work and that's it?'”

Mastering your restaurant's income statement and, better yet, educating your team on it, is an important place to be as transparent as possible.

Before we dive in, here are the basics you need to know. 

What is a Restaurant Income Statement?

First, a restaurant income statement is a financial statement that summarizes the revenue, costs, and expenses incurred during a specific period of time. A P&L statement serves two key purposes for restaurant operators:

  1. To understand net profit or loss

  2. To identify areas that are contributing to or hurting the business

Here, you'll see the key metrics that make up a restaurant income statement and learn how to analyze them to get actionable insights.

The Restaurant Numbers & Metrics Calculator

The Restaurant Numbers & Metrics Calculator

Calculate the key restaurant metrics needed to understand the health of your business.

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How to Create a Restaurant P&L Statement

1. Choose a Timeframe

The first step in creating a restaurant profit and loss statement is selecting a timeframe. You can create P&L statements weekly, monthly, quarterly, or annually. It's a good idea to generate these statements regularly so you always have a clear sense of how various aspects of your business are affecting costs and sales. On your statement sheet, enter your restaurant name and the selected timeframe for your data.

2. Record Sales for the Selected Timeframe

The first section to fill in on an income statement is the sales section.

The sales section shows you how much money your restaurant brought in during the given period. In a pre-filled income statement template, you’ll see sections for food, wine, beer, liquor, and soft drink sales. You can choose to track sales more specifically by segmenting your food sales into more targeted categories or menu groups. Or you can simplify your P&L statement by dividing sales into just food and beverage.

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If you have a restaurant POS system that offers sales tracking and reporting, you can easily access detailed sales information for your selected timeframe. 

3. Enter Cost of Goods Sold (COGS)

COGS is really just another way of saying the cost of the inventory used to create the food and beverage items sold during your selected time period.

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If you use standardized recipes for all of your food and drink items, it should be fairly easy to calculate your cost of goods sold. For instance, if you sell 10 chicken dishes and each dish costs $5 to create based on your inventory costs, then your COGS is $50 (10 x $5).

4. Labor

Labor includes all salaried and hourly employees, as well as payroll taxes and employee benefits. You should calculate the amount you spent on each of these labor-related expenses during the time period you selected and enter them individually into the income statement template.

5. Operating Expenses

Operating expenses are the controllable expenses involved in running your day-to-day operations. This could include things like supplies, repairs and upgrades, marketing and advertising, and music and entertainment.

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6. Occupancy Costs

Occupancy expenses are the fixed overhead costs related to things like rent, real estate, and property insurance. These costs are fixed because you cannot alter or change them.

7. Depreciation

Depreciation refers to the decreasing value of an asset (in this case the physical restaurant establishment and equipment) overtime. Although depreciation is inevitable, it still needs to be accounted for in order to accurately calculate your net profit or loss.

Click here for more information about depreciation and for assistance calculating your restaurant’s depreciation.

How to Analyze a Profit and Loss Statement

Based on the data you provided, the template will calculate key data and financial points about your business.

Percent of Sales

If you're taking advantage of the free restaurant income statement template, you’ll see that the percentage of total sales is being used to cover labor, occupancy, food and beverage costs, and operational expenses. The percentages listed here are an important indication of how your business is performing.

Labor and food costs should account for the largest percentage of total sales (typically around 30% each for both quick-service and full-service restaurants), according to industry standards.

Key Takeaway: Every restaurant is different, but if you notice an unusually high amount being allocated to labor, food, and drink, it may be a time to reevaluate staffing and low-margin menu items. 

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Gross Profit & Gross Profit Margin

Gross profit is calculated by subtracting the total cost of goods sold from total sales.

On an interactive P&L template, gross profit is calculated automatically once you enter sales and COGS values into the income statement template. Next to the gross profit dollar amount you should see a percentage, which represents your restaurant’s gross profit margin.

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Gross profit margin is calculated by dividing your gross profit by total sales. Pay particular attention to this metric over time and compare it to your historical data to understand how food and beverage costs are impacting margins. Gross profit margin is often the metric restaurants rely on when deciding where to set menu prices and portion sizes.

Key Takeaway: Track this metric over time and use the data to make decisions about pricing menu items and setting portion sizes.

Net Profit/Loss

The final metric in the income statement template is the metric you likely care the most about – the bottom line. Net profit/loss is a key indicator of how your business performed during a specific period of time. This number will be positive or negative depending on business performance.

If this metric is positive, congratulations! Your restaurant is profitable overall.

If the number is negative. it means that your restaurant’s costs are greater than its total food and beverage sales. Over an extended period of time, that could mean trouble.

Key TakeawayKeep a close eye on net profit/loss and compare it to your own historical data to see how your restaurant’s bottom line compares to the previous week, month, or year.

What is Prime Cost?

While it is, of course, important to calculate your restaurant’s net profit or loss, it's not a particularly actionable metric. It highlights how your restaurant’s bottom line is changing over time, but it doesn’t necessarily show you how to improve. It simply shows you how your restaurant performed in the past. 

If you’re looking for ways to cut costs and improve your net profit, your restaurant’s prime cost will be the most helpful metric. 

A restaurant’s prime cost is the sum of its labor expenses and its cost of goods sold. Not only does prime cost make up the bulk of a restaurant’s expenses (typically around two-thirds or 60%), but it also constitutes the portion of the business that can be manipulated to maximize profit. Although making minor changes to labor and food costs during a set period of time may not seem significant, every dollar shaved off of prime cost is another dollar that can go towards overhead expenses and profit.

Key Takeaway: Use prime cost, the sum of COGS and labor expenses, to determine where to cut costs to improve net profit.

Restaurant P&L Statement Template

Restaurant P&L Statement Template

Evaluate your restaurant's financial strengths and weaknesses with the free P&L and income statement template.

You must have Javascript enabled in order to submit forms on our website. If you'd like to contact Toast please call us at:

(857) 301-6002
First and Last Name is required
Phone Number is required
Restaurant Name is required
What is your role? is required
Yes, I’d like a demo of Toast, a restaurant technology platform.
Yes, I'd like a demo of Toast is required
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