Understanding the Restaurant Profit and Loss (P&L) Statement
A restaurant's profit and loss statement, or P&L, is a handy document to keep track of your business' overall finances. The P&L summarizes income, expenses and inventory, illustrating a restaurant's total profits and losses over a period of time. Most P&L statements involve two major sections:
- The section first specifies any sources of revenue, including food and beverage sales, merchandise sales, catering, and any other source of income important to the restaurant. This section also includes the usage cost associated with the sales, known as the Cost of Goods Sold (COGS). » Learn More About Restaurant Cost of Goods
- The second section involves all operating expenses in the restaurant. This includes payroll, rent, utilities, repairs and any other costs you have incurred.
The difference between the revenue and the expenses determines whether the restaurant reaps a profit or suffers a loss at the end of a given period.
All sales income is recorded on the P&L statement. There are usually separate lines on the statement for the different sources of income, including the following common sources of restaurant revenue:
Food and beverage sales
The most obvious means of income in your restaurant is food and beverage sales, since this is the reason most people come to your restaurant in the first place. Food sales will likely be your major source of income. However, this depends on your restaurant concept. For juice bars, juice will constitute the major source of revenue. For coffee shops, probably coffee. You get the idea.
Merchandise is another method of boosting profits. Merchandise includes souvenirs, gifts and other retail items unique to your establishment that can increase sales, especially from tourists or holiday shoppers. Merchandise includes the following:
- Gift certificates or gift cards
- Prepackaged food or beverages
Another method of creating income is by catering, or engaging in other off-site selling opportunities. Catering parties and events for customers is a great way to increase daily sales and reach out to people who have never tried your restaurant. Limited service restaurants can offer a catered lunch option for surrounding businesses. Smoothie shops can sell smoothies at local high schools and sporting events. It pays to learn about your surrounding area and how you can take your sales outside your restaurant's walls.
There are many expenses involved in operating a restaurant. Restaurant owners or operators can include whatever expenses they like on their P&L, as long as it helps them to stay organized and aware of the costs they face. The following are commonly included on restaurant P&L statements:
Cost of Goods Sold (COGS)
Cost of Goods Sold (COGS), also known as Cost of Goods Used or simply usage, is the cost of the products, or goods, that your restaurant sells. Essentially, this is the money spent on inventory. This is usually denoted just below total sales on the P&L report. To control usage and make the biggest profit, the restaurant must purchase enough products to serve your customers without running out and without having too much left over going bad on the shelves. » Learn More About Conducting Inventory and Tracking Usage
Also called labor cost, this is one of the most important expenses in your restaurant. Part of your business's income must go to salaries and hourly wages in order to provide paychecks for your employees. This is considered a controllable cost, however, since the manager can determine how many hourly employees to schedule, and can manipulate the number of people on a shift at any time. The trick is to balance labor in order to provide great customer service without scheduling more workers than you need. » Learn More About How to Control Labor Costs in the Restaurant
There are several daily expenses incurred while running the restaurant, such as purchasing or replacing china, flatware or glassware, as well as any linens or paper products that may need to be cleaned or replenished. These can be lumped into operational expenses on your P&L.
Known as occupancy costs, rent or mortgage, property taxes, water and sewer taxes, gas and electric, insurance, and repairs all fall under the restaurant owner's responsibility. These are typically known as fixed expenses since restaurant owners usually have to pay a steady amount on these costs every month.
When to Prepare a P&L Report
It is best to prepare a P&L each week if possible. This makes it easier to track numbers and compare reports from month to month and even year to year.1 The main reason for the P&L report is simply to track these profits and expenses to see how well your business is doing. When you know the numbers and trends, you know what changes you can make to improve your business profits.
The categories listed on the P&L, including all the line items in each category, are dependent on the information the owner needs or wants to analyze. P&L statements will look different for each restaurant, depending on the type of food product, the required occupancy expenses, and the operations costs unique to the establishment. Look below for a sample restaurant P&L:
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