When starting out in the restaurant business, there are many methods and procedures that improve your chances for success, and one of the most powerful is a Profit and Loss Statement (P & L Statement). Having one is crucial because restaurant profit margins are typically low, which means keeping a tight track of sales and expenses is integral to maintaining a healthy profit.
In this article, we will take a closer look at how to generate a P&L statement and how the results it provides can improve your business performance and drive you to hit profits that beat industry standards.
A restaurant profit and loss statement, also called a restaurant income statement, is a financial tool that helps you compare your total sales and total costs over a set period of time, such as weekly, monthly, or annually. With it, you can better understand your restaurant's profit progress at each stage.
Though all periods are helpful, the ideal reporting period is weekly, so you can catch issues early. Each loss formula within this financial statement helps you pinpoint what areas improved and which didn't, helping you concentrate better on the areas that need improvement.
By subtracting the total cost of goods sold from your totals, you can calculate how much money is left. Take this gross profit amount and add in all operating costs for that week to get a subtotal. When adding up labor costs per week plus the total operational expense, take away any net profits or losses found by looking at each individual number so far; do not include anything else yet on paper until every line has been added together (including Net Income/Loss).
The resulting totals give you a good snapshot of your overall financial health. Now let's take a closer look at how a P&L statement works and how you can use its results to your advantage.
How is a Profit and Loss System Designed?
A P+L can also be easily customized to fit your exact needs.
A P&L usually consists of the following:
All the above data also helps you create food cost percentages and other important data that is often referenced in the restaurant business for a clean look at where things need improvement. Here are some common data points:
In addition to the tabulations above, you can further drill down into the median revenue and profit per employee.
On average, profit margins for restaurants are from 3 to 10%. Here is a more in-depth look at popular restaurant categories.
The reason for low margins is because of the CoGS, labor, and overhead. In general, one-third of a restaurant's revenue is for CoGS, one-third is for labor, and the rest goes to overhead costs. The result is a low percentage profit. Due to the low margins, being aware of any losses is essential.
By having data broken out in percentages, you can tackle any losses individually. Here are some common areas of improvement:
Reducing costs without sacrificing sales directly improves your restaurant margins regardless of your restaurant type. You can use restaurant accounting software to create tight restaurant calculations to see which areas need trimming. The larger the expense you eliminate, the better.
Food waste comes in many forms, the biggest being theft, freebies, and loss of freshness due to prolonged storage. Your CoGS are significant; even small amounts from food waste directly affects your profit. Maintaining tight and accurate food and beverage inventory exposes issues early. Today's restaurant and bar inventory management software helps you and your kitchen staff by making tracking each item easy. At BNG POS, we often offer this software to our customers.
Your regular customer base is most often the bulk of your income. Improved menu pricing, food and drink selections, and customer experience all work to keep your base happy while increasing the chance they will tell their friends, improving your volume of customers.
Increasing your employee benefits and hourly wages also helps retain quality staff. By maintaining effective service from expert staff, you gain more sales to cover the cost of those higher employee paychecks.
You can use today's advanced restaurant and bar software to review sales trends and rework your employee schedule, so you have more staff when you need it and less staff when you don't.
With the help of your P&L statement, you maintain a tighter oversite of cash flow, and the right programs make it easier. A P&L must have tight inventory from kitchen crews and accurate cash flow statements from cash register attendees and wait staff. BNG POS can help with all this work. We provide restaurant industry software to help you and your teams achieve accurate sales results for better financial decisions - and this is just one of the many software and hardware benefits we provide for the restaurant industry.
To learn more, contact us here at BNG POS.
