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The Best Way to Format Your Restaurant's P&L

The best way to present the financial information contained on your P&L is in a way that works best for you. If your current P&L is telling you what you need to know to effectively manage your restaurant, then don't change it.

But if you're not thrilled with what you're using, or you're wondering if there's a better way, here are some ideas to consider. The following sample P&Ls contain features found in many of the best single and multi-unit operators in the industry.

Consider getting at least two versions of your P&L, a one-page summary and a more detailed version. Most restaurant operators really like the one-page summary because they want a simple, cut to the chase, look at how the restaurant is performing and really don't care to pour over any financial report for more a minute or two.

Summary P&L Format

The following is a summary P&L format that will give you a quick look at the critical numbers you need when managing a restaurant:

Note: All percentages are calculated as a percentage of Total Sales except Cost of Sales line items, which are based on their respective sales. Bar Consumables percentage is based on Liquor Sales.

Notice that this format makes it easy to see the four major checkpoints on a restaurant P&L - sales, prime cost, controllable profit and net income. If these four numbers are in line with expectations, you may not need to delve into your P&L much further.

Key Information You Need to Track in Your P&L

Sales. While this is pretty obvious, the top line is the single biggest profit-determining factor on the P&L. Strong sales volume can make up for quite a few management mistakes and cost control glitches, for a while anyway. It's good to compare current sales to the same period of the prior year, and to a budget or forecast, if available. It's also helpful to look at check average and customer counts when comparing sales from one period to another.

Prime Cost. Prime cost is the total cost of sales plus all payroll related costs, including wages, benefits, payroll taxes, worker's compensation, and other similar expenses. Keeping close tabs on your prime cost is critical for a number of reasons; it represents your two biggest and most volatile cost areas, and makes up 80% to 90% of the expenses for which you have any real control or discretion.

Controllable Profit. Sometimes referred to as "Operating Income", Controllable Profit reflects only those expenses that the operations personnel have any real control or influence over. This makes it a good benchmark for evaluating management's overall effectiveness at "running the restaurant."

Net Income. Finally, this is what's left after all the expenses are paid (provided there are no brackets around it). The importance of this number is quite apparent, however, it may be helpful to compare "Net Income" to one or more prior periods to see if you're gaining or losing ground. Another important measure of profitability is to compare annual Net Income to the total investment you have in the restaurant. This is your ROI or "Return On Investment."

If you're interested in restaurant industry averages and benchmarks for these and other numbers, check out the appropriately titled articles in the Financial section of the Resource Library.

The Detailed P&L Format

Below is a more detailed P&L format that gives you much more information, particularly about your costs and expenses.

The number and type of accounts are shown only as an example. The level of detail you should use depends on what you think you need. The goal is to understand what's going on in your restaurant so you can make intelligent decisions and manage it properly. Some operators I've worked with want their expenses broken down in very detailed categories. Others want less. That's a decision for you, and probably your managers, to make.

Use a good P&L format and you'll know more about how your restaurant is actually performing, which is the first step in making sound business decisions.

ADDITIONAL RESOURCES:
RestaurantOwner.com P&L Reporting System

Your P&L should not only tell you whether your restaurant is profitable, it needs to provide accurate cost of sales, labor and operating expenses in a way that helps management identify challenges and track progress through numbers. Standard P&L reports from off-the-shelf accounting software are not restaurant specific, and therefore are virtually useless as a management tool.

We offer a complete system to help you build and use your P&L so that it becomes one of your most powerful management tools. Visit the link below to direct you to the necessary download forms and learning resources needed to get this system implemented in your restaurant.