July 1, 2025
While the restaurant industry is on a path to recovery after COVID-19, its financial landscape remains inherently volatile. This makes a clear understanding of your restaurant’s profit and loss (P&L) more crucial than ever, transforming it from a mere financial report into a powerful strategic tool.
According to McKinsey, the global food delivery market has more than tripled since 2017, reaching over $150 billion. This indicates that every aspect of your operations, including emerging revenue streams, demands precise P&L analysis.
This article will meticulously discuss the essential components of your P&L statement, offering actionable insights into how each element directly impacts your bottom line and overall operational health.
A Profit and Loss (P&L) statement, also referred to as an income statement, is a financial document that summarizes a restaurant's revenues, costs, and expenses over a specific period, usually monthly, quarterly, or annually.
The P&L clearly shows a restaurant's profits by deducting costs from revenues, indicating whether the restaurant is profitable or incurring a loss. This statement is crucial for restaurant owners and managers to assess their financial health, identify trends, and make informed strategic decisions.
The P&L statement dissects your restaurant's financial performance into distinct categories, offering vital insights into where revenue is generated and how expenses are managed. Understanding these individual components is crucial for effective financial analysis and strategic decision-making.
Let's briefly understand each component with examples.
Revenue represents the total money your restaurant generates from all sales activities. It is typically categorized into the following streams:
This breakdown of sales helps you identify which areas of your menu or services are performing the best, allowing you to make data-driven decisions.
Example:
COGS refers to the direct costs incurred in producing the food and beverages your restaurant sells.
COGS is crucial for calculating gross profit, which indicates how efficiently your restaurant manages the production costs of its menu items.
Example:
Your gross profit is calculated by subtracting COGS from total revenue.
Gross Profit = $95,000 (Revenue) - $37,000 (COGS) = $58,000
Labor costs are one of the highest expenses for a restaurant. It includes wages for office staff, servers, managers, and all other employees. Labor costs also include employee benefits, such as health insurance and payroll taxes.
Managing labor costs is crucial for profitability, as high labor expenses can eat into margins. Restaurants typically aim to keep labor costs at around 30% of total revenue, although this percentage can vary depending on the type of restaurant.
Example:
These are the regular costs associated with running your restaurant, excluding COGS and labor.
It's essential to manage operating expenses to ensure they don't consume a disproportionate share of your revenue. Many restaurants aim to keep operating expenses between 20% to 30% of total revenue.
Example:
It is the final figure on your P&L statement and represents your Net Profit or Net Loss after subtracting all costs and expenses, including COGS, labor costs, and operating expenses.
Net Profit or Loss = Total Revenue - Total COGS - Labor Costs - Operating Expenses
This figure shows whether your restaurant is running at a profit or a loss. A positive number indicates that the restaurant is generating a profit, while a negative number indicates a loss.
Example:
Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) is a valuable indicator of a restaurant's operational performance, as it emphasizes the core business while excluding non-operating expenses, such as interest and taxes.
It is frequently used to assess a business's profitability before considering the impacts of accounting and financial decisions.
Example: If your profit is $50,000, but you have interest expenses of $10,000 and depreciation of $5,000, your EBITDA would be $65,000, or you can say as Gross profits before interest, depreciation, and taxes.
By understanding and closely monitoring these key components, you can get a clear picture of your restaurant's financial health.
Next, let's discuss how often you should update your P&L statement and why staying on top of it can make all the difference in your restaurant's success.
Once you understand the individual components of a P&L, the next crucial step is knowing how to calculate and accurately interpret this vital financial document. This process transforms raw numbers into actionable insights, helping you pinpoint areas for improvement and guide strategic decisions for your restaurant's profitability.
Let's break down the key steps involved in preparing and making sense of your P&L statement.
Step 1: Determine Total Revenue: Start by calculating your total revenue. It is the total income generated from all sources within a specific period, such as food sales, beverage sales, and other income (e.g., catering or events).
Example:
Food Sales: $70,000
Beverage Sales: $20,000
Other Revenue: $5,000
Total Revenue: $95,000
Step 2: Subtract COGS: Next, calculate your Cost of Goods Sold (COGS), which includes all the costs directly related to producing the food and drinks you sell. Subtract your COGS from your total revenue to find your Gross Profit.
Example:
Total COGS: $37,000
Gross Profit: $95,000 (Revenue) - $37,000 (COGS) = $58,000
Step 3: Subtract Labor Costs: Labor costs are another significant expense for restaurants. It includes wages, benefits, and payroll taxes for both front and back-of-house employees. Subtract labor costs from your gross profit to find your Operating Income.
Example:
Labor Costs: $16,000
Operating Income: $58,000 (Gross Profit) - $16,000 (Labor Costs) = $42,000
Step 4: Subtract Operating Expenses: Operating expenses include rent, utilities, marketing, and other recurring business expenses. Subtract these from your operating income to find your Net Profit or Net Loss.
Example:
Operating Expenses: $9,500
Net Profit: $42,000 (Operating Income) - $9,500 (Operating Expenses) = $32,500
Step 5: Final Calculation of Net Profit or Loss: After subtracting all costs and expenses, the remaining amount is your Net Profit or Net Loss. This figure indicates whether your restaurant is generating a profit or incurring a loss during the specified period.
Once you've calculated your P&L statement, interpreting it is key to understanding your restaurant's financial health.
Here are a few things you need to look at in your P&L statement:
iOrders streamlines financial management by connecting with your POS system to monitor sales, expenses, and labor costs in real time. This automation reduces manual errors, provides clear revenue and expense insights, and enables quick, data-driven decisions on pricing and promotions. It keeps your P&L updated effortlessly.
Next, let's explore how to customize your P&L to fit your restaurant's unique needs and why tailoring your financial reports is essential for long-term success.
Every restaurant has unique financial needs. Customizing your Profit and Loss (P&L) statement to reflect your specific operations is essential for gaining better insights and making informed decisions that support profitability and growth.
Different restaurant types have different cost structures:
Customize your P&L by adding lines for the following:
You need to add these custom expense categories to provide deeper insights:
With iOrders, your P&L integrates seamlessly with sales, expenses, and customer data, giving you a centralized dashboard for real-time insights and more effective financial management.
Now, let's address common mistakes restaurants make when managing their P&L statements and how to avoid them to ensure more accurate financial reporting.
Managing a Profit and Loss (P&L) statement is critical for restaurant profitability, but common mistakes can affect financial accuracy. Here are some key mistakes to avoid.
Failing to update your P&L on a regular basis can lead to missing important trends and discrepancies in your financial data. Without weekly updates, you may not spot sudden changes in costs, sales, or profitability, such as an unexpected increase in food prices or labor expenses. This can lead to delayed corrective action and potentially result in significant financial losses.
Small costs such as cleaning supplies, minor repairs, or small utility expenses often go unnoticed but can accumulate over time. While these expenses may seem insignificant individually, together they can significantly reduce your profits. Overlooking small costs can lead to unexpected financial drains, reducing your overall profitability.
Misclassifying expenses can distort your financial picture and mislead decision-making. For example, misclassifying marketing costs as labor costs could make your labor costs appear higher than they are, leading to unnecessary cuts in staffing.
Not tracking food waste means you're not addressing inefficiencies in your kitchen operations, which directly impacts your food cost percentage and overall COGS. Whether it's spoilage, overproduction, or unused ingredients, food waste results in lost revenue that could otherwise contribute to your profit. Unchecked food waste leads to unnecessary cost increases and lower profitability.
Ignoring delivery and third-party platform fees (from services like UberEats or DoorDash) can lead to underestimating the true cost of these services. These fees can be significant, ranging from 15% to 30% per order, and if not properly accounted for, they can eat into your profit margins.
With iOrders' commission-free online ordering, you can bypass these third-party fees, allowing you to retain more revenue per order and boost your profit margins.
Seasonal fluctuations in sales and costs, such as holiday surges or slower months, are often overlooked when updating the P&L. Ignoring these changes can cause your financial reporting to become outdated, leading to misinformed decisions based on inaccurate data.
Without considering seasonal changes, you may overestimate revenue during slow months or fail to prepare adequately during high-demand seasons.
By avoiding these mistakes and using iOrders, you can ensure a more accurate, efficient P&L management process.
Accuracy is necessary in the P&L statement. Let's discuss how an accurate P&L statement plays a vital role in your restaurant's growth.
An accurate Profit and Loss (P&L) statement is more than just a snapshot of your restaurant's financial health; it's a crucial tool for financial forecasting and developing an effective business strategy.
Here's how an accurate P&L can guide your decisions:
A P&L statement forms the foundation for financial forecasting, helping you predict future revenues, expenses, and profitability.
By analyzing past performance, you can forecast the following:
Example: If your restaurant saw a 10% increase in food sales during summer last year, you can forecast similar growth, adjusting for changes in the market or customer behavior.
A P&L helps pinpoint where your restaurant can grow by revealing areas of strength and opportunity:
An accurate P&L is essential for making key decisions:
Your P&L allows for quick, real-time adjustments in response to market shifts:
An accurate P&L not only helps forecast future performance but also enables strategic, data-driven decision-making for growth and profitability.
Now, let's understand how iOrders can help you in simplifying your P&L management.
Managing a Profit and Loss (P&L) statement can be time-consuming, but with iOrders, the process becomes seamless and efficient.
Here's how iOrders can simplify your P&L management.
iOrders' commission-free online ordering system automatically updates your sales in real-time as transactions occur, ensuring your P&L is always up-to-date without manual entry. This integration eliminates errors and ensures accurate tracking of revenue, costs, and profits.
iOrders consolidates all revenue and expense data—food sales, beverage sales, etc automatically, saving time and reducing errors. With this, you can gain a clear overview of your performance, identify areas for improvement, and forecast trends.
iOrders reporting and analytics can help you generate P&L statements tailored to your restaurant's needs. Whether it is tracking high-selling food items or analyzing seasonal trends, flexible reporting helps you focus on key data points, optimizing profitability and planning.
It helps you track your sales, expenses, and profitability over time, helping you forecast future performance accurately. iOrders enables precise forecasting for growth, cash flow management, and investment planning based on historical data.
For multi-location restaurants, iOrders offers a centralized dashboard to track all locations' financials in one place. It reduces the administrative burden and ensures consistency across locations, which is valuable for scaling operations.
By integrating iOrders into your operations, you can automate and simplify your P&L statement, allowing you to focus on growth and profitability.
A current and precise Profit and Loss (P&L) statement is crucial for guiding strategic decisions that promote growth and profitability. By understanding key metrics such as revenue, cost of goods sold (COGS), labor costs, and net profit, you can identify opportunities to optimize operations, increase efficiency, and enhance your bottom line.
With the right tools, managing your P&L becomes a streamlined and automated process. iOrders empowers restaurant owners with real-time data, customizable reports, and financial insights that simplify the task of tracking and interpreting their P&L statements.
Whether you're managing a single location or scaling across multiple sites, iOrders ensures your financials are always in sync.
Take control of your restaurant's financial future. Contact iOrders today and see how our platform can help you manage your P&L with ease, allowing you to focus on what matters most—growing your business.
