How To Read a Restaurant Profit and Loss (P&L) Statement: A Complete Guide

A successful restaurant needs more than five-star reviews and healthy sales numbers. If you don't understand your profit and loss statement, you could serve hundreds of customers every weekend and still lose money.

A restaurant profit and loss statement helps you track your financial progress beyond simply checking your bank account balance. Think of it as your restaurant's financial report card: it breaks down every dollar that comes in through sales and every dollar that goes out through expenses, from food costs and labor to rent and utilities.

What Is a Profit and Loss Statement for Restaurants?

A profit and loss statement is a financial report that shows whether your restaurant made or lost money during a specific period, typically a month, quarter, or year. By subtracting your total expenses from your total revenue, the restaurant P&L statement reveals your net profit (or loss), giving you a clear snapshot of your financial health. It also helps you identify trends, spot problem areas (like rising food costs or inefficient labor spending), and make informed financial decisions.

Why Is It Important To Have a Profit and Loss Statement for Restaurants?

A restaurant profit and loss statement gives you a detailed financial breakdown so you can see exactly where you're earning money and where you're losing it.

Perhaps your bar sales are outperforming food sales, or you're losing money due to food waste, overstaffing, or rising food costs. Armed with this knowledge, you can optimize your budget by reallocating resources to high-performing areas, adjusting your menu prices, or tightening up operational inefficiencies.

When Should You Update Your Restaurant Profit and Loss Statement?

Profit and loss statements for restaurant businesses can be generated weekly, monthly, or yearly, depending on your goals. A weekly P&L statement helps you stay on top of profitability and reveal unexpected cost issues so you can make immediate course corrections.

Monthly and yearly profit and loss statements help you make strategic decisions and evaluate your restaurant's overall growth trajectory. Monthly statements track seasonal variations and measure the impact of changes you have implemented, and yearly statements provide a big picture view of long-term trends and patterns in your business.

What's Inside a Restaurant Profit and Loss Statement?

A restaurant P&L statement includes six key sections that work together to paint a complete picture of your financial performance. At the top, you'll find your Revenue and Sales, followed by your Cost of Goods Sold (COGS), which covers your food and beverage costs. From there, the statement breaks down Labor Costs, Operating and Occupancy Costs, and Depreciation, before arriving at the bottom line: your Net Profit or Loss.

Let's look at each of these sections in more detail.

Revenue and Sales

The revenue and sales section of your restaurant P&L statement documents all the money your restaurant brings in before any expenses are deducted. In addition to capturing total income, you can also track sales in specific categories, such as food, wine, beer, liquor, and non-alcoholic beverages or merchandise if applicable. By categorizing your revenue this way, you can see which parts of your menu are driving the most income and which might be underperforming.

For example, if you see that your craft cocktail program is generating significantly higher margins than your food sales, you can make smarter decisions about inventory, pricing, staffing, and marketing focus.

Cost of Goods Sold (COGS)

Cost of goods sold (COGS) calculates the total cost of the food and beverage inventory you used during a specific period. You determine this number by calculating your beginning inventory, adding any purchases made during the period, and subtracting your ending inventory. Just like with revenue, breaking down COGS into specific categories gives you deeper insight into your restaurant performance.

For instance, you might find that your food cost percentage is within industry standards, but your liquor costs are running high. By tracking COGS at this granular level, you can calculate cost percentages for each category, identify problem areas, and make course corrections to improve profit margins in each segment of your business.

Labor Costs

Labor costs typically represent your second-largest expense after COGS. This section includes the salaries and wages paid to all your employees (chefs, line cooks, servers, bartenders, hosts, bussers, and management), along with payroll taxes (like Social Security, Medicare, and unemployment taxes) and employee benefits. On your P&L statement, labor costs are usually expressed both as a dollar amount and as a percentage of total sales. Restaurants typically aim to keep this figure between 25-35% depending on the service model and concept.

Labor costs are one of the few expenses you can adjust quickly in response to sales fluctuations. For example, you can rework employee schedules during slow periods, train staff to handle multiple roles, or hire additional help during busy seasons.

Operating and Occupancy Costs

Operating and occupancy costs cover all the other expenses required to keep your restaurant doors open and running smoothly. Together, these categories on your restaurant P&L statement capture everything beyond food, beverage, and labor costs.

• Operating costs include the day-to-day expenses involved in running your business. They include kitchen supplies, cleaning supplies, maintenance and repairs, pest control, credit card processing fees, marketing and advertising, professional services like accounting or legal fees, and technology costs for your point-of-sale system or online ordering platform.
• Occupancy costs represent fixed overhead expenses that you pay regardless of how busy you are. They include rent or mortgage payments, utilities (electricity, gas, water, trash), property insurance, business licenses, and property taxes.

Understanding and monitoring these costs can help you reduce waste and find more cost-effective solutions for everything from energy usage to marketing strategies.

Depreciation

Depreciation accounts for the gradual wear and tear on big-ticket items like ovens, refrigerators, freezers, furniture, point-of-sale systems, and anything else that loses value over time. While depreciation doesn't represent actual cash leaving your bank account each month (since you already paid for these items upfront), it does affect your net profit calculation and can provide valuable tax benefits. Your accountant can help you calculate depreciation using IRS guidelines, and then claim these depreciation expenses as annual tax write-offs.

Net Profit or Loss

This is the number that ultimately determines whether your restaurant is financially successful during a set period. Calculate it by determining your total revenue and subtracting all your expenses: COGS, labor costs, operating and occupancy costs, depreciation, and any other costs incurred during that timeframe.

If your revenue exceeds your expenses, you have a net profit, meaning your restaurant made money; if your expenses exceed your revenue, you have a net loss, indicating you spent more than you earned. Use this number to determine whether you can reinvest in your business, pay yourself as an owner, build cash reserves for emergencies, or make changes to increase profit margins.

How To Read a Profit and Loss Statement: Important Metrics To Consider

Once you understand the basic components, the next step is knowing how to read a restaurant P&L statement then interpret the data to make smart business decisions.

Here are several key metrics you should track:

Percent of Sales

Percent of sales shows how much of your sales revenue goes toward specific expense categories. Calculate this metric by dividing each cost category (labor, food and beverage, operating expenses, and occupancy costs) by your total sales and multiplying by 100 to get a percentage.

Formula: Cost / Sales x 100 = % of Sales

For example, if you spent $30,000 on food costs and generated $100,000 in sales, your food cost percent of sales would be:
$30,000 / $100,000 x 100 = 30%

Use this percentage to track how much you spend compared to how much you sell, regardless of sales volume. Over time, it can help you spot cost increases relative to sales so you can make adjustments.

Gross Profit

Gross profit represents the money left over after you subtract your total cost of goods sold from your total sales revenue. It measures your restaurant's profitability before accounting for other operating expenses.
Formula: Total Sales - COGS = Gross Profit

For example, if your restaurant generated $100,000 in sales and your COGS was $30,000, your gross profit would be:
$100,000 - $30,000 = $70,000

In addition to the dollar amount, you should also track your gross profit margin. To calculate this number, divide gross profit by total sales and multiply by 100 to express it as a percentage. In this example, your gross profit margin would be 70%:
$70,000 / $100,000 x 100 = 70%

Tracking your gross profit over time helps you assess whether your profit margins are improving, declining, or staying consistent. It can also alert you to issues like rising supplier costs, menu items priced too low, or areas of waste that need immediate attention before they eat away at your bottom line.

Net Profit or Loss

As discussed above, net profit and loss is the bottom line metric that determines whether your business is truly making money after all expenses are paid. When you track this metric over time, you can see whether your profit margins are improving or declining.

To understand this metric, look at both the dollar amount (net profit or loss) and the net profit margin:
Formula: Net profit / Total Sales x 100 = Net Profit Margin %

The net profit margin shows how many cents of profit you're keeping from each dollar of sales. For example, a 10% net profit margin means you're keeping $0.10 of every sales dollar after all expenses.

Restaurant Profit and Loss Statement Example

Let's take a look at what a sample restaurant profit and loss statement might look like on a monthly basis:

Key Metrics Summary:

• Gross Profit Margin: 70.5%
• Net Profit Margin: 18.8%
• Food Cost Percentage: 30.0%
• Labor Cost Percentage: 32.0%

Profit and Loss Statement Best Practices

The real value of a restaurant profit and loss statement is that it helps you make better business decisions. When you have a good grasp on these numbers, you'll know where you're doing well and where you need to make changes.

Here are some best practices to help you get the most out of your restaurant's profit and loss statement:

• Look for Recurring Patterns and Trends: Pay attention to specific areas that consistently contribute to growth or loss, and plan ahead for those patterns. For example, if you notice that certain menu items consistently underperform or that prices rise in September, you might make an adjustment to your menu as you head into the fall.
• Establish Benchmarks for Comparison: Set baseline targets for key metrics like food cost percentage, labor cost percentage, and net profit margin based on industry standards and your restaurant's performance. These benchmarks help you quickly identify when your numbers are off track and whether improvements you've implemented are working.
• Create a Data-Driven Action Plan: Use the insights from your P&L statement to address financial pain points and boost profitability. For example, you might renegotiate supplier contracts to reduce COGS, adjust schedules to optimize labor costs, or refine your menu to focus on high-margin items.
• Review Your P&L Regularly: Make reviewing your P&L statement a regular habit that you don't skip. This might mean quick weekly check-ins to spot problems early or more detailed monthly reviews to look at bigger trends.
• Compare Results to Your Budget: Use your P&L statement to compare actual performance against what you budgeted for the period. This shows you where you're doing better than planned and where you're not hitting your targets.

By following these best practices, you'll transform your P&L statement from just another financial document into an essential tool that helps you make better decisions and reach your financial goals.