RESTAURANT FINANCIAL REPORTING

Restaurant Profit and Loss Statement: How to Read Your P&L

A restaurant profit and loss statement should tell you much
more than whether the business made money last month.

A well-structured restaurant P&L can show you where revenue is coming from,
what food and beverage are costing you, whether labor is under control, how much
overhead the restaurant carries and how much profit is actually left.

But that only works if the numbers are categorized correctly and management
knows how to read them.


The goal isn’t simply to read the bottom line. It’s to understand what
created the bottom line.

What Is a Restaurant Profit and Loss Statement?

A profit and loss statement—often called a P&L or
income statement—summarizes revenue and expenses over a
specific period.

Revenue − Expenses = Profit or Loss

That basic formula is simple.

What makes a restaurant P&L useful is the detail between revenue and profit.

A strong restaurant P&L should help you see:

  • Food sales
  • Beverage sales
  • Other operating revenue
  • Food COGS
  • Beverage COGS
  • Labor
  • Prime cost
  • Occupancy expenses
  • Operating expenses
  • Operating profit
  • Net profit

The Basic Structure of a Restaurant P&L


Sales → COGS → Gross Profit → Labor → Operating Expenses → Operating Profit → Net Profit

Each section answers a different management question.

Sales

How much revenue did the restaurant generate?

COGS

What did the food and beverages we sold actually cost?

Labor

What did it cost to staff the operation?

Operating Expenses

What did it cost to keep the restaurant running?

Profit

What remained after those costs were paid?

Example Restaurant P&L

Here’s a simplified restaurant with
$100,000 in monthly sales.

Category Amount % of Sales
Net Sales $100,000 100%
COGS $30,000 30%
Gross Profit $70,000 70%
Labor $30,000 30%
Operating Expenses $32,000 32%
Operating Profit $8,000 8%

The $8,000 profit matters. But the more valuable information is what
happened to the other $92,000.

1. Start With Restaurant Sales

The top of the P&L should show revenue in categories that are actually
useful for management.

One account called Sales is usually not enough.

Better Revenue Detail

Food Sales: $52,000
Beer Sales: $16,000
Wine Sales: $10,000
Liquor Sales: $18,000
Other Revenue: $4,000

Breaking revenue apart helps you compare each category with its corresponding costs.


Revenue categories should be detailed enough to help you make decisions,
but not so detailed that the financial statements become unreadable.

If your QuickBooks structure doesn’t support this kind of reporting, see our

restaurant chart of accounts guide
.

2. Understand Net Sales vs. Gross Sales

Your POS may report gross sales before discounts, comps and certain adjustments.

For management purposes, it’s useful to understand both gross activity and
what remained after revenue reductions.

Example

Gross Sales: $105,000
Discounts: $3,000
Comps: $1,000
Refunds: $1,000

Net Sales: $100,000


If $5,000 is disappearing between gross sales and net sales, management
should know exactly why.

3. Review Cost of Goods Sold

COGS measures the cost of the food and beverage product actually used to
produce sales.


Beginning Inventory + Purchases − Ending Inventory = COGS

One of the most common restaurant accounting mistakes is treating every
purchase during the month as COGS.

Example

Beginning inventory: $12,000
Purchases: $34,000
Ending inventory: $16,000

Actual COGS: $30,000

Simply treating the $34,000 of purchases as COGS would overstate product cost
by $4,000 for the period.

Read our complete

restaurant COGS guide

for the calculation and controls behind this number.

4. Separate Food and Beverage Cost

A combined COGS percentage can hide where the actual problem is.

Combined COGS

Total sales:
$100,000

Total COGS:
$30,000

Combined COGS:
30%

That might appear reasonable.

But underneath it:

Food

Food sales: $60,000
Food COGS: $22,800
Food cost: 38%

Beverage

Beverage sales: $40,000
Beverage COGS: $7,200
Beverage cost: 18%


The combined percentage looked fine because strong beverage margin was
hiding a food-cost problem.

If food cost is running high, read

Restaurant Food Cost Too High?

5. Calculate Gross Profit

Net Sales − COGS = Gross Profit

Example

Net sales: $100,000
COGS: $30,000

Gross profit: $70,000

That $70,000 must still cover labor and every other expense required to run the restaurant.


Gross profit is not owner profit. It is the money available after product
cost to pay for everything else.

6. Review Labor Cost

Labor is usually one of the largest controllable restaurant costs.

Total Labor ÷ Net Sales = Labor Cost %

Depending on how you structure reporting, labor may include:

  • Hourly wages
  • Salaried management
  • Overtime
  • Employer payroll taxes
  • Workers’ compensation
  • Benefits

Example

Net sales: $100,000
Total labor: $30,000

Labor cost: 30%

Don’t stop with the percentage.

Review labor by day, daypart, scheduled hours, actual hours and sales per labor hour.

Our

restaurant payroll and labor controls

connect the payroll number back to scheduling and sales.

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Use the Margin & Menu Restaurant Financial Leak Checklist to review
accounting, food cost, labor, cash, POS controls and other common profit leaks.


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7. Calculate Prime Cost

Prime cost combines two of the most important controllable restaurant costs.

COGS + Labor = Prime Cost

Example

COGS:
$30,000

Labor:
$30,000

Prime cost:
$60,000

On $100,000 of sales:
60%

That means 60 cents of every sales dollar is being consumed before rent,
utilities, insurance, repairs, processing fees and most other overhead.

See our complete guide to

restaurant prime cost
.

8. Review Occupancy Costs

Occupancy costs are typically less flexible than food or labor.

They may include:

  • Rent
  • Property taxes
  • Common-area charges
  • Property insurance
  • Certain building-related expenses

A restaurant with excellent food and labor control can still struggle if
occupancy costs are too high for the sales volume.

9. Review Operating Expenses

Operating expenses are where a lot of small leaks can hide.

Common restaurant operating expenses include:

  • Utilities
  • Insurance
  • Repairs and maintenance
  • Cleaning
  • Smallwares
  • Linen
  • Pest control
  • POS software
  • Other software
  • Accounting
  • Professional fees
  • Marketing
  • Telephone and internet

Review both dollar amount and percentage of sales.


Small expenses may not matter individually.
The trend across dozens of categories can matter a great deal.

10. Don’t Hide Credit-Card Processing Fees

Merchant processing should be visible enough that management can understand what cards cost.

Example

Card sales:
$80,000

Processing expense:
$2,800

Effective cost:
3.5%

If the processing expense suddenly jumps materially, investigate the reason
instead of burying it inside a generic bank-fee account.

11. Understand Operating Profit

Operating profit measures what remains after normal restaurant operations.


Gross Profit − Labor − Operating Expenses = Operating Profit

Depending on how the statements are structured, interest, taxes, depreciation
and certain owner-related activity may appear elsewhere.


Operating profit helps answer whether the restaurant itself is economically working.

12. Calculate Restaurant Profit Margin

Net Profit ÷ Net Sales × 100 = Net Profit Margin

Example

Net sales: $100,000
Net profit: $6,000

Net margin: 6%

That means the restaurant keeps roughly six cents from every sales dollar
after the expenses included in that profit calculation.

For the deeper explanation, read

Restaurant Profit Margin: What Is a Good Margin?

13. Compare Every Major Number as a Percentage of Sales

Dollar amounts are important, but percentages make trends easier to see.

Food Cost %

Is product becoming more expensive relative to food revenue?

Beverage Cost %

Are beverage margins holding?

Labor %

Is payroll moving appropriately with sales?

Prime Cost %

How much revenue is being consumed by product and people?

Occupancy %

Can the sales volume support the location?

Profit Margin %

How much of every sales dollar is ultimately left?

14. Compare the P&L With Previous Periods

One P&L is a snapshot.

Multiple periods reveal a trend.

Metric May June July
Food Cost 29% 31% 35%
Labor 28% 29% 29%
Prime Cost 57% 60% 64%

Labor is relatively stable.

Food cost is driving the deterioration.


That’s what a useful P&L should do: tell management where to investigate next.

15. Compare Actual Results With Budget

Your P&L becomes much more useful when you compare actual results with what you expected.

Actual − Budget = Variance

Example

Budgeted labor:
$28,000

Actual labor:
$32,000

Unfavorable variance:
$4,000

The next question is not simply:

“Why did we miss budget?”

Ask:


Was the difference caused by sales volume, overtime, scheduling, wage rates,
staffing changes or something else?

16. Your P&L May Still Be Wrong

A professionally formatted financial statement is not automatically an accurate one.

Restaurant P&Ls can be distorted by:

  • POS sales mapped incorrectly
  • Bank deposits posted as new revenue
  • Sales tax recorded as income
  • Tips recorded as restaurant revenue
  • Duplicate transactions
  • Missing expenses
  • Incorrect inventory entries
  • Loan payments categorized incorrectly
  • Owner transactions posted to operating expenses
  • Clearing accounts that never reconcile

QuickBooks can produce a beautiful report from bad underlying data.

Before making major decisions from the P&L, make sure the systems feeding
it are reliable.

If Toast is part of that workflow, read

How to Reconcile Toast POS to QuickBooks
.

17. Profit on the P&L Is Not the Same as Cash

This is one of the most important concepts for restaurant owners.

Your P&L can show a profit while your checking account declines.

Cash may be used for:

  • Loan principal
  • Owner distributions
  • Equipment purchases
  • Inventory increases
  • Tax payments
  • Other balance-sheet transactions

The P&L tells you whether the restaurant earned money.
It does not explain every dollar that entered or left the bank.

See

Why Your Restaurant Can Be Profitable on Paper but Have No Cash
.

The Five P&L Numbers Every Restaurant Owner Should Know

1

Net Sales

How much revenue did the restaurant actually produce?

2

COGS %

How much of sales is being consumed by food and beverage product?

3

Labor %

How much of sales is being consumed by payroll?

4

Prime Cost %

How much is being consumed by the two largest controllable costs?

5

Net Profit Margin

How much of every sales dollar is ultimately remaining?

Questions to Ask Every Time You Review Your Restaurant P&L

  • Did sales increase or decrease?
  • What caused the sales change?
  • Did food cost change?
  • Did beverage cost change?
  • Did labor move with sales?
  • Did prime cost improve or deteriorate?
  • Which operating expenses changed materially?
  • Did merchant-processing cost change?
  • Did profit margin improve or decline?
  • Can every significant variance be explained?

Don’t review the P&L simply to see whether you made money.
Review it to determine what management needs to do next.

How Often Should Restaurant Owners Review the P&L?

A complete accounting P&L should generally be reviewed at least monthly.

But several of the numbers that drive it should be monitored much more frequently.

Weekly

  • Sales
  • Labor
  • COGS estimate
  • Prime cost
  • Discounts and comps

Monthly

  • Final COGS
  • Full labor burden
  • Operating expenses
  • Reconciled bank activity
  • Final profit margin

And the books need to be closed properly before relying on the final numbers.

See

Restaurant Month-End Close: The Right Way to Close Your Books
.

The Bottom Line

A restaurant P&L is not just a bookkeeping report.

Used correctly, it is a management dashboard.


Sales → COGS → Gross Margin → Labor → Prime Cost → Overhead → Profit

When those numbers are structured correctly, you can see where profitability
is improving, where margin is being lost and what deserves management attention.


Your P&L should not simply tell you what happened last month.
It should help you decide what to change this month.
DON’T TRUST YOUR RESTAURANT P&L?

Find Out Whether the Numbers Behind It Actually Reconcile.

The Margin & Menu 360° Restaurant Systems Audit follows the numbers
from the POS through accounting, deposits, inventory, labor and financial reporting.

  • POS sales and reporting
  • QuickBooks and account mapping
  • Bank deposits and clearing accounts
  • Food and beverage COGS
  • Inventory
  • Labor and payroll
  • Cash and tips
  • Prime cost
  • Profit and loss reporting
  • Cash flow and profitability

You receive a financial health score, written findings and a
prioritized action plan
showing where the numbers stop making
sense and what should be fixed first.

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HOW MARGIN & MENU CAN HELP

Fix the Systems Behind Your Restaurant’s Numbers.

Better restaurant financial performance starts with systems that connect.
Explore the areas where Margin & Menu helps restaurant owners improve
control, reporting and profitability.


ACCOUNTING
Restaurant Accounting Services
Reconciliation, QuickBooks & financial reporting →


POS SYSTEMS
Restaurant POS Consulting
POS setup, reporting & back-office controls →


INVENTORY + COGS
Inventory & COGS Controls
Purchasing, variance, waste & food cost →


PAYROLL + LABOR
Payroll & Labor Controls
Scheduling, payroll & labor-cost control →


CASH + TIPS
Cash & Tip Controls
Drawers, tips, payouts & deposits →


PROFITABILITY
Profitability & Financial Reporting
Prime cost, cash flow, margins & KPIs →


Explore More Restaurant Financial Resources →