Here’s a given: You want your bar or restaurant to grow. And to make it grow, you need to make decisions that encourage growth and boost profit margins to improve your bottom line of how much bars make with controllable expenses-even with your Valentine’s day promotion ideas for restaurants. You'll spend a lot at the beginning learning how to get a liquor license, so from there on out, you've got to focus on profits and finding the prime cost and your cost of goods sold (COGS) numbers.
Strategic decisions based on restaurant accounting, boosting restaurant SEO, and a swot analysis for restaurant. The reality of your restaurant’s finances. That’s what running a successful bar and restaurant is all about.
Enter the restaurant profit and loss statement. It is, perhaps, the most concise measure of your restaurant’s financial health a big part of knowing how to manage restaurant accounts.
All successful food service and hospitality operators are fluent in calculating, creating, and reading restaurant profit and loss statements. You'll need to do more than just read some books on running a restaurant.
Knowing how gives them all the information they need to slowly turn the screws of profitability. And that means a lot in a business with tight margins like food and beverage. So, let’s walk through what a restaurant P&L statement is and how they’re created.
What Is a Restaurant Profit and Loss Statement?
A restaurant profit and loss statement, also called a P&L or income statement, is a financial document that details a business’s total revenue and expenses over a specific time period. A restaurant P&L provides a snapshot of the most fundamental metric a business has: how much profit is being made, and from where.
At its most basic, it’s just costs subtracted from sales. Knowing that gives bar and restaurant managers the ability to lean into profitable items or strategies and vice versa.
What Does a Restaurant P&L Include?
A restaurant profit and loss statement includes five primary sections:
- Labor cost
- Operating cost
- COGS (includes food cost and liquor cost)
- Net profit or loss
By calculating three costs (labor, operating, and goods sold), and subtracting that from total sales, a business is left with their net profit or net loss. This is what a P&L statement communicates.
Restaurant P&L: How Often?
You should calculate and review your P&L at least every four weeks. If you’re using bar management software like BinWise Pro, it’s available instantly for your review whenever you want.
It is the most important document your accountant or restaurant accounting software generates. The more often you look it over and give yourself a chance to course-correct based on its figures, the better.
Restaurant Profit and Loss Statement vs. Restaurant Balance Sheet
Another way to understand a restaurant P&L statement is looking at what it’s not. Your restaurant P&L doesn’t include your total cash-on-hand, any information about your inventory, your equity, your debts, or your liabilities.
Your restaurant balance sheet does. Where a P&L provides a snapshot of profitability, a balance sheet provides a full-spectrum look at both short- and long-term financial health.
Every restaurant balance sheet includes:
- Assets. This is what your bar or restaurant owns. Inventory, cooking and bar equipment, real estate, and cash on-hand.
- Liabilities. This is what your bar or restaurant owes. Supplier bills, property and equipment rental charges, and any other loans or credit.
- Equity. This is the difference between assets and liabilities. It includes retained earnings, which are the restaurant’s net income (profit) from operations.
The information from a restaurant P&L is included in a balance sheet. But, as you can see, a balance sheet is a far more detailed picture of finances.
Example of Restaurant Profit and Loss Statement
Here’s a sample restaurant profit and loss statement:
All it boils down to is subtracting all your costs from your total sales.
How to Calculate P&L For Restaurant
Now let’s look at how to recreate a document like the one above.
Profit and Loss Formula for Restaurant
Here’s the profit and loss formula for a restaurant:
Net Profit/Loss = Total Sales - COGS - Labor Cost - Operating Cost
And here it is in action:
How to Calculate Restaurant Profit and Loss
How to calculate profit and loss in a restaurant is a matter of pulling figures from your POS, accounting software, or inventory management system. Then subtracting them from total sales.
Let’s take the week starting 2/1/21 from the example above.
Net Profit/Loss = Total Sales - COGS - Labor Cost - Operating Cost
Net Profit/Loss = $8,000 - $2,500 - $2,000 - $1,235
Net Profit/Loss = $2,265
You need to account for the sale of every item that contributes to your total revenue, every stream there is. Thankfully, you can pull this from your POS or bar inventory management software like BinWise.
In fact, BinWise Pro’s SmartView Report shows you exactly what you sold, when, and for how much. You can then use the information to dial in cost percentage and run pricing experiments (psychological pricing, anyone?) to maximize profits.
The COGS, or cost of goods sold, is the total amount your business paid to purchase and prepare each item sold. You should also be able to pull your COGS from your POS or restaurant accounting software. List each week’s COGS.
If you find your COGS varying wildly, look into standardized recipes. Most restaurant failure is from a lack of oversight and the absence of consistency. This is another thing BinWise Pro helps bars and restaurants across the country with: consistent data collection, analysis, and reporting. All with just a few clicks.
Pull all the salaries, hourly wages, and contractor wages for the time frame to calculate your total restaurant labor cost.
Record everything that’s involved in daily restaurant operations, like repairs, overhead expenses, utilities, etc.
This is the end result of the profit and loss formula, by week. You can also calculate it by month by using the same formula with monthly numbers.
To make your life a little easier, we’ve got a free restaurant profit and loss statement for Excel. You can download it below.
Restaurant P&L Template: Restaurant Profit and Loss Statement Excel Template Free
Here’s a free, downloadable restaurant P&L template.
And here’s what’s great about it:
- It does all the calculations for you. If you input your sales, COGS, labor cost, and operating cost, it will total each of those up for you. The green rows are the rows you don’t have to touch. That’s where the totals will show up.
- It’s editable. If you need to change anything or add or remove rows, you can. The auto-calculations will still work.
Our suggestion is to import this restaurant profit and loss template into either Excel or Google Sheets. You should also download our restaurant financial audit checklist for extra accounting help.
Restaurant P&L Benchmarks
You can tell more from a P&L statement than just how much your profit was (or wasn’t).
You can also uncover other restaurant KPI like:
- Median revenue per employee. How much revenue does your business generate per employee? Are you overstaffed?
- Net profit per employee. You may generate a lot per employee, but is that translating to profits? If not, the problem is likely in COGS or operating expenses.
- Median percentage labor cost. What percentage of your revenue and profit is spent on labor? Is it too much? Too little?
- Median percentage operational cost. What percentage of your revenue and profit is spent on operating expenses? You can grill deeper and ask what percentage of your revenue and profit is spent on a type of operational expense, like occupancy cost. That’s how much it costs to rent and maintain your physical space.
- COGS-to-sales ratio. What percentage of your sales ratio does it cost to acquire and prepare the items you sell or services you provide?
As a general rule, combined COGS and labor cost should not exceed 65% of gross revenue.
There are a lot of inferences a business can make with an up-to-date P&L sheet. And a large part of having accurate P&L reporting is having accurate inventory. You should also check out our free restaurant break even point calculator and learn how to calculate ROI for further guidance.
That’s where a perpetual inventory system like BinWise Pro comes in. It integrates seamlessly with POS systems and accounting software. It also has an easy-to-use restaurant chart of accounts.
It also keeps track of your inventory down to the penny, in real time, so you can call on that information to start making profitable decisions. And It saves hours upon hours taking bar inventory, you know, instead of taking a physical count of inventory.