How To Calculate a P&L Statement For Your Restaurant
How this Restaurant Income Statement Template Boosts Profits
When starting out in the restaurant business, there are many methods and procedures that improve your chances for success, and one of the most powerful is a Profit and Loss Statement (P & L Statement). Having one is crucial because restaurant profit margins are typically low, which means keeping a tight track of sales and expenses is integral to maintaining a healthy profit.
In this article, we will take a closer look at how to generate a P&L statement and how the results it provides can improve your business performance and drive you to hit profits that beat industry standards.
What is a Restaurant Profit and Loss Statement?
A restaurant profit and loss statement, also called a restaurant income statement, is a financial tool that helps you compare your total sales and total costs over a set period of time, such as weekly, monthly, or annually. With it, you can better understand your restaurant’s profit progress at each stage.
Though all periods are helpful, the ideal reporting period is weekly, so you can catch issues early. Each loss formula within this financial statement helps you pinpoint what areas improved and which didn’t, helping you concentrate better on the areas that need improvement.
How to Calculate a P&L Statement for Your Restaurant
By subtracting the total cost of goods sold from your totals, you can calculate how much money is left. Take this gross profit amount and add in all operating costs for that week to get a subtotal. When adding up labor costs per week plus the total operational expense, take away any net profits or losses found by looking at each individual number so far; do not include anything else yet on paper until every line has been added together (including Net Income/Loss).
The resulting totals give you a good snapshot of your overall financial health. Now let’s take a closer look at how a P&L statement works and how you can use its results to your advantage.
How is a Profit and Loss System Designed?
A P+L can also be easily customized to fit your exact needs.
A P&L usually consists of the following:
- Sales Breakdown: Here you list all items you sell and how much money each item has brought for a given time period. You can also group items into different product categories, such as “lunch”, or by individual items, such as a specific burger, whatever you find works best for your restaurant analysis.
- Cost of goods sold (CoGS): This is your cost for all food, drinks, and anything else you sell, such as T-shirts and hats. Food and drink inventory costs need to include the ingredients costs per meal or per drink. To calculate your CoGS, take your starting inventory amount plus the cost of that inventory and subtract your ending inventory amount.
- Restaurant Labor Cost: This is the total cost of your wait staff, kitchen staff, hosts, bussers, and cleaning crew, and even you. It includes payroll taxes and employee benefits. Enter each element separately and then create a total.
- Restaurant Operating Expenses: This is the total of your day-to-day outside costs like basic supplies, advertising, marketing, music, and entertainment.
- Occupancy Expenses: These are fixed costs such as real estate (rent, or mortgages and property taxes) insurance, and utilities (I.e., electric and waste removal.)
- Depreciation: Like a car, everything wears down and needs repairs. Budgeting for it will ensure a correct net profit or loss.
- Net Profit or Loss: This is the calculation that shows your final results. Add up #2-6 and compare it with #1. A negative number means you spend more than you are making. A positive number equates to your profit. The higher the number, the better your profit.
All the above data also helps you create food cost percentages and other important data that is often referenced in the restaurant business for a clean look at where things need improvement. Here are some common data points:
- CoGS Percentage: Take your CoGS total and divide it by the food sales. The ideal is typically around 31%.
- Gross Profit Percentage: Take your total sales and minus the CoGS, and then divide it by the total sales. The resulting percentage should fall between 20 and 40%.
- Net Profit Percentage: Take your net profit and divide it by your revenue, and then multiply it by 100. Your total should fall between 3 and 10%.
- Food Cost Percentage: Take your CoGS and divide it by your food sales. This is the portion of your total sales spent on food. The average food cost percentage is current food cost percentage around 25 to 33%.
- Gross Profit: This is your profit after deducting the CoGS from your total sales. To get it, take total sales and subtract the CoGS. (Note that: data shouldn’t be used for a final understanding of performance since it only accounts for CoGS and not for other costs and expenses.)
- Net Profit or Loss compared to Gross Profit: This is the remaining total of actual profit after you take the gross profit and deduct the labor costs and operating costs.
- Prime Cost: This is the sum of the labor, food, and beverage costs. To get a prime cost percentage, take your prime cost and divide it by your total sales. The resulting total is what many restaurant owners use as a key indicator for success. You get a strong look at the biggest indicators for profit and how those elements are managed. Your percentage should be around 60%.
In addition to the tabulations above, you can further drill down into the median revenue and profit per employee.
What is the Average Restaurant Profit Margin?
On average, profit margins for restaurants are from 3 to 10%. Here is a more in-depth look at popular restaurant categories.
- Full-Service Restaurants: 3 to 5%
- Fast Food / Casual Restaurants: 6 to 9%
- Catering: 7 or 8%
- Food Trucks: 6 to 9%
Why are Profit Margins so Low?
The reason for low margins is because of the CoGS, labor, and overhead. In general, one-third of a restaurant’s revenue is for CoGS, one-third is for labor, and the rest goes to overhead costs. The result is a low percentage profit. Due to the low margins, being aware of any losses is essential.
Improve Restaurant Profit Margins
By having data broken out in percentages, you can tackle any losses individually. Here are some common areas of improvement:
Decrease Expenses in Restaurants
Reducing costs without sacrificing sales directly improves your restaurant margins regardless of your restaurant type. You can use restaurant accounting software to create tight restaurant calculations to see which areas need trimming. The larger the expense you eliminate, the better.
Reduce Food Waste with Tight Inventory
Food waste comes in many forms, the biggest being theft, freebies, and loss of freshness due to prolonged storage. Your CoGS are significant; even small amounts from food waste directly affects your profit. Maintaining tight and accurate food and beverage inventory exposes issues early. Today’s restaurant and bar inventory management software helps you and your kitchen staff by making tracking each item easy. At BNG POS, we often offer this software to our customers.
How to Improve Food and Beverage Sales with Your Customers
Your regular customer base is most often the bulk of your income. Improved menu pricing, food and drink selections, and customer experience all work to keep your base happy while increasing the chance they will tell their friends, improving your volume of customers.
Increasing your employee benefits and hourly wages also helps retain quality staff. By maintaining effective service from expert staff, you gain more sales to cover the cost of those higher employee paychecks.
Improve Your Employee Scheduling
You can use today’s advanced restaurant and bar software to review sales trends and rework your employee schedule, so you have more staff when you need it and less staff when you don’t.
How to Manage a Restaurant Balance Sheet and Cash Flow
With the help of your P&L statement, you maintain a tighter oversite of cash flow, and the right programs make it easier. A P&L must have tight inventory from kitchen crews and accurate cash flow statements from cash register attendees and wait staff. BNG POS can help with all this work. We provide restaurant industry software to help you and your teams achieve accurate sales results for better financial decisions – and this is just one of the many software and hardware benefits we provide for the restaurant industry.
To learn more, contact us here at BNG POS.