Learn how to interpret a profit and loss statement for a restaurant using a free income statement template and guide.

Managing a restaurant’s profit and loss (P&L) statement is very important. The P&L is the report that summarizes all the work and strategy into either a positive or negative number. Ensuring an accurate P&L involves detailed work, tracking cash flows, net income, and fluctuating costs, especially given ongoing food inflation. Restaurant businesses that want to control their income statement and operating expenses need to start with precise sales reporting and cost control. Understanding the importance of the P&L as a restaurant financial report, how it measures financial health, and consistently calculating restaurant profit and loss statements is essential.

What is a restaurant income statement?

A restaurant profit and loss statement, or P&L, is a report that shows a restaurant’s earnings and costs over a certain period, usually a month or a year. It helps the restaurant owner see how much money they’re making, how they’re making it, and which parts of the restaurant are making money. 

Check out our free Restaurant Profit and Loss Statement Template to understand how your restaurant is performing financially. Assess your strengths and weaknesses easily with this handy tool.

The main uses of a P&L are to see 

• if the restaurant is making or losing money and 
• to find out which parts of the business are helping or hurting.

Select a timeframe

To begin creating a restaurant profit and loss statement, choose a timeframe. You can opt for weekly, monthly, quarterly, or annual statements. It’s advisable to generate these statements regularly to gain a clear understanding of how different aspects of your business impact costs and sales. On your statement sheet, input your restaurant’s name and the chosen timeframe for your data.

Record sales for the chosen timeframe

The first part to complete on an income statement is the sales section. This section illustrates the total revenue your restaurant generated during the specified period. In a pre-filled income statement template, you’ll find sections for food, wine, beer, liquor, and soft drink sales. You can also opt to track sales more specifically by categorizing food sales into targeted groups or simplify your P&L statement by dividing sales into food, alcohol, and non-alcoholic beverages. If you have a restaurant POS system like Toast, which provides sales tracking and reporting, you can easily access detailed sales information for your chosen timeframe.

Enter Cost of Goods Sold (COGS)

COGS refers to the cost of the inventory used to prepare the food and beverage items sold within the selected time. Recipe costing is an advanced method that can help calculate your restaurant’s cost of goods sold and is crucial for determining plate costs and measuring the profitability of each menu item. 

Labor

Labor encompasses all salaried and hourly employees, payroll taxes, and employee benefits. Calculate the amount spent on labor-related expenses during the selected period and input them individually into the income statement template.

Operating costs

Restaurant operating costs are the controllable expenses involved in your day-to-day operations. This may include supplies, repairs and upgrades, marketing and advertising, as well as music and entertainment.

Occupancy Costs

Occupancy expenses are the fixed overhead costs associated with items such as rent, real estate, and property insurance. These costs are largely fixed because they cannot be altered or changed. However, it is possible to refinance a mortgage or attempt to negotiate or extend your lease.

Depreciation

Depreciation pertains to the declining value of an asset (in this case, the physical restaurant establishment and equipment) over time. While depreciation is unavoidable, it still must be considered to accurately calculate your net profit or loss.

Guidelines for evaluating a restaurant’s profit and loss statement

After inputting your data, the template will calculate essential financial insights about your business.

Percentage of sales

In the free restaurant income statement template, the percentage of total sales is allocated to cover labor, occupancy, food and beverage costs, and operational expenses. These percentages provide crucial insights into your business’s performance.

Labor and food costs, also known as restaurant prime costs, should typically represent the largest percentage of total sales (around 30 percent each).

Key Takeaway: While every restaurant differs, unusually high allocations to labor, food, and drink may indicate a need to reassess staffing and low-margin menu items.

Gross profit and gross profit margin

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

In an interactive P&L template, gross profit is automatically calculated when you input sales and COGS values. Next to the gross profit dollar amount, you’ll find a percentage representing your restaurant’s gross profit margin.

Gross profit margin is calculated by dividing your gross profit by total sales. Monitoring this metric over time and comparing it to historical data helps understand the impact of food and beverage costs on margins.

Key Takeaway: Continuously track this metric and utilize 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 bottom line. Net profit/loss is a key indicator of your business’s performance during a specific period. This number can be positive or negative based on business performance.

A positive metric indicates a profitable restaurant.

A negative number suggests that your restaurant’s costs exceed its total food and beverage sales, which could lead to trouble over an extended period.

Key Takeaway: Closely monitor net profit/loss and compare it to historical data to assess your restaurant’s bottom line compared to previous weeks, months, or years.

Leverage the full potential of restaurant P&L statements and actionable reports

Mastering your restaurant P&L reporting is just the first step—there are more detailed and actionable insights to explore.

Consistently monitoring your P&L and delving into specific reporting requires essential data. A robust data foundation relies on having the right systems in place to automatically collect, store, analyze, and perform reports.

One of the most crucial foundational systems is a point-of-sale system designed for restaurants. It serves as the entry point for sales, capturing dollar amounts, order details, order sizes, and more.

Additionally, you should consider:

• Employee management tools that help oversee and regulate restaurant payroll
• A cost management platform, especially one that utilizes invoice automation to digitize crucial line-item invoice data.

Conclusion

Understanding a restaurant’s profit and loss (P&L) statement is paramount for effective management. This comprehensive report summarizes all operational efforts and strategies into either a positive or negative outcome. Tracking cash flows, net income, and costs, especially in the face of ongoing food inflation, is crucial. By grasping the significance of the P&L, measuring financial health, and consistently analyzing these statements, restaurants can optimize performance and ensure sustainable profitability.