Does Your Restaurant P&L Really Help You?

By: Nick Gardner

If you’re running a restaurant, a profit and loss statement is your best friend, regardless of the size of your business. Recording your costs, expenses, and sales over pre-set periods of time (preferably weekly), this vital financial tool shows exactly where your eatery is earning or losing money.

 

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Armed with accurate and timely data, watchful restaurateurs tweak their operations constantly, keeping costs low without sacrificing quality. With broader horizons, monthly and yearly P&L statements are useful for tracking progress over the longer term. 

 

Helpful, but Sometimes Confusing

A profit and loss statement for a restaurant can be extremely helpful or extremely confusing depending on who you are and how that data is presented. In general, the output from your accounting package needs to be massaged to turn it into a useful operations tool.

A well-prepared P&L statement is packed with so much useful information that it can be overwhelming, especially for non-accountants more interested in ladles than ledgers. Keeping things simple, a restaurant P&L statement should include at least the following five main categories:

  1. Sales breakdown;
  2. Cost of goods sold (CoGS);
  3. Labor costs;
  4. Operating costs; 
  5. Net profit or loss.

However, each restaurant is unique, and its P&L statement should be customized to match business needs, breaking down each of these categories into smaller sections as required. Unnoticeable outlays (such as waste disposal or insurance) can nibble away at lean margins, while peripheral income streams (like branded merchandise) may prove unexpectedly profitable. 

Go Granular

Is your P&L easy to read? Is it easy to see what is making up each line item? Are there entire sections you just skip because you don’t understand them or it’s too hard to decipher? Do you know why and how all of your expenses are going to each line item?

To make a P&L useful, your chart of accounts(COA) should be structured with enough detail to be useful but not so much that it is unwieldy. An example is the granularity of recording Labor so that you can make decisions. If your COA stops at payroll, payroll fees, and payroll taxes but doesn’t break down into roles (cooks, servers, kitchen manager, etc…) you cannot make decisions to manage labor costs. A better approach is to break down the labor expenses into roles and then see that data represented as a % of revenue or sales categories. For example, if you know your line cook costs as a % of food sales, you can set targets and start to make decisions about managing that cost.

Performances Depend on Percentages

Do you think in $ or %?

Successful restaurateurs think not only in terms of the dollar values of their expenditures and revenues. They know that percentages are just as important as absolute figures. 

Once you have the spend at the right level of granularity, the addition of key percentages can help you set goals and track them. Seeing these on your P&L next to the $ turns the numbers into insights. Let me lay out a scenario:

  • A restaurant has $98,357k in net sales, $32,326k in CoGs spend, and $39,123 in Labor spend – 

             Where should they focus their efforts?

  • How about now: They are at 27% CoGs/Net Sales and 42% Labor/Net Sales

Based on this example, many operators would say; Labor is too high, start there! But without the %s those insights are not obvious. A good granular operations-focused P&L helps you see beyond the $. Hone enables you to customize the P&L so you can see these key metrics and also create custom metrics such as Kitchen labor as a % of Food Sales or Liquor Cost as a percentage of Liquor Sales. We also make it really easy to see what we have recorded for each row in the P&L.

In general, successful restaurants keep their prime costs – basically food, beverages, and payroll – at under 60% of their gross revenues. Much of the remaining 40% is absorbed by taxes and operating costs, often leaving only a wafer-thin slice of the pie as the net profits.

To make your P&L useful, you need some tool, maybe a spreadsheet that converts the export from your accounting package into $ and %s so you can analyze performance and start making decisions. A good restaurant-focused bookkeeper should have a system to do this for you. 

Controllable spends – like ingredients and wages – will then be easier to track over time, as sales changes with seasonality, weighing their true value to the business. 

 

Each restaurant is unique, and its P&L statement should be customized to match business needs, breaking down each of these categories into smaller sections as required.

Making the Best Use of Your Data 

One of the main reasons why 50% of new restaurants shut down within five years is the amount of attention paid to their figures. Profits mean survival – because packed tables every night offer no guarantee of success if revenues are unable to keep pace with expenses. 

Understanding the financials is the best way to grow a business, forecast sales and expenses based on past performance and current factors (weather, events…). This is why accurate tracking and recording of everything that goes into a P&L is just as important as cleanliness and portion control; always in the background, but crucial factors for the success of any restaurant.

Major Bookkeeping Problems

Many restaurants face similar issues when it comes to keeping their books. But experienced restaurant bookkeeping firms have seen them all before, developing ways of dealing effectively with these problems. So … Do any of these situations sound familiar?

  • Food and beverage costs are tough to control;
  • Vendor invoices are scattered everywhere, so CoGs spend is not easily available;
  • Payroll is high but you are unsure about what can/should change;
  • Liquor inventory counts are irregular, and don’t line up with sales;
  • Cash flow is always a concern when paying bills;
  • Prepping for tax season is a recurring nightmare.

If you can tick any of these items, it’s time to call in the experts. With modern technology, no restaurant owner or manager needs to spend endless hours wading through paper and software systems. Easy to customize, sophisticated financial reporting software can help turn even the simplest eatery into a profitable business.

Better Data = Smarter Decisions 

With the right reporting, which is easy to digest, at a regular cadence you can make great decisions about your operation quickly.

Running a business that responds to so many outside factors (particularly the weather and current events) means keeping a sensitive finger on its pulse right around the clock. Fast decisions based on fresh data can make a real difference between ending the month in the red or the black.

This is why accurate reporting through trustworthy bookkeeping services is so important. A clear presentation of data and metrics, that can be understood at a glance, can steer restaurateurs safely through even the stormiest times. In fact, using your restaurant’s weekly figures as a compass is a quick and trustworthy way of increasing profits and lowering losses.

Responding to the needs of each operation, from corner cafes to local franchisees of nationwide chains, Hone’s specialized restaurant bookkeeping service and reporting platform leave restaurateurs free to focus on their kitchens and dining rooms, keeping their customers happy and coming back for more. 

By: Nick Gardner

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