How to Read a Restaurant Profit and Loss Statement (Free Income Statement Template)
By: Sam Kusinitz
Jul 03, 2018
A restaurant income statement is a financial statement that summarizes the revenue, costs, and expenses incurred during a specific period of time, serving two key purposes:
Helping restaurant owners understand their net profit or loss.
Helping identify areas that are contributing to or hurting the business.
This blog will introduce the key metrics that make up a restaurant income statement and show you how to analyze it to gain valuable and actionable insights.
For best results, follow along with an income statement template, filling it in with your own restaurant’s metrics as you read.
How to Create a Restaurant P&L Statement
1. Select a Timeframe
Step #1 in creating a restaurant profit and loss statement is selecting a timeframe. You can create P&L statements weekly, monthly, quarterly, or annually. It is 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 time 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.
If you have a POS system that offers sales tracking and reporting, you can easily access detailed sales information for your selected timeframe. If you do not have a POS system, use whatever method is in place for tracking sales.
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.
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 ten chicken dishes and it costs you $5 dollars to create each dish based on your inventory costs and amount used, then your COGS is $50 (10 x $5).
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.
6. Occupancy Costs
Occupancy expenses are the fixed overhead costs related to things like the rent, real estate, and property insurance. These costs are fixed because you do not have the ability to alter or change them.
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.
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 the that 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.
According to industry standards, 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).
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.
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.
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.
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 Takeaway: Keep 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 in order 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.
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