Intro to Understanding a Restaurant P&L

For many chefs, adequate training does not take place in the administration category, leaving them left alone to figure it out amidst all the chaos. For a newly promoted chef with no management experience and a passion for cooking, looking at a P&L might feel like staring under the hood of a car: they don’t understand the parts so they can’t fix it.

It's absolutely crucial to understand each line item so you can properly leverage the information. This allows you to work backward from the results to make improvements, connect those results to the systems that created them, and ultimately, to the people who perform them.

Truly understanding and owning the results on your restaurants P&L, and mastering them so that you can control them before they happen, empowers you to make smarter decisions, contribute more strategically, and even elevate your food quality within the context of the business.

What Exactly Is a P&L?

At its core, a P&L (profit and loss statement) is a summary of your restaurant's revenues, costs, and expenses over a specific period – usually a month, quarter, or year. It shows you how much money your restaurant made, how much it spent, and ultimately, whether it turned a profit or incurred a loss.

It's not just about the final number, though. The P&L tells a story about your restaurant's operational efficiency, highlighting areas of strength and identifying opportunities for improvement.

How the P&L Affects You

• Strategic Menu Development: Understanding food cost percentages on the P&L helps you price dishes profitably and serve great food confidently without sacrificing margins.

• Controlling Costs: The P&L shines a light on labor costs, utility expenses, and other operational outlays. Knowing these numbers allows you to identify inefficiencies and contribute to solutions.

• Informed Decision-Making: Should you invest in that new piece of equipment? Is it time to hire more staff? The P&L provides data to support these critical business decisions.

• Career Growth: A chef who understands the financial side of the business is an invaluable asset, seen as a true partner in the restaurant's success.

Keys to Approaching a P&L

Before we dive into the line items, here are crucial insights for any chef looking at a P&L:

1. Understand the Dollar Value of a Percentage Point: A lot of money hides in what might seem like a small fraction of a percentage point. Many chefs can be misled into thinking a slight overage is okay – like 30.8% on a 30% food cost. However, if your restaurant does $4 million in sales, with 70% consistently from food sales, and you're consistently over even slightly, that seemingly tiny difference can cost the business tens of thousands of dollars per year. Every tenth of a percent matters!

2. Understand Budgeted Percentages in Each Category: Your P&L should ideally show actual results against a budget. Knowing the target percentages for food cost, labor, etc., is vital. You can also flip this information into a sales projection to budget your spending on a declining budget (meaning, as sales go down, your spending should also decrease proportionally).

3. Understand How You Earn Your Sales: Don't just look at the total. What percentage of your sales comes from private dining? How much is lunch versus dinner? Did you run a specific promotion, and how did that impact sales mix and overall revenue? Deeper insight into sales sources helps you plan more effectively.

4. Understand and Keep Records of All Your Spending: The P&L summarizes costs, but it doesn't always show when an expense was incurred versus when it was paid. You may have had an oven fixed last month, but the invoice was paid last week, meaning it might show up on this month's P&L. Keeping your own records of large expenditures can help you reconcile and understand the numbers better. The numbers tell the story, but you need to have the narrative.

Deconstructing the P&L

While many P&Ls can look different and use slightly different verbiage, the information is laid out in a similar way and means the same thing. Let's break down the essential components:

1. Food and Beverage Sales (Revenue): This is the top line – the total money your restaurant brings in from all food and drink sold. It's the sum of your hard work in the kitchen and at the bar.

• Your Impact: Menu design, quality of food, pricing, guest satisfaction, and even speed of service all directly influence sales.

2. Food and Beverage Cost of Goods Sold (COGS): These are the direct costs of the ingredients and beverages used to create the items you sell.

• Your Impact: This is where chefs have a massive direct impact. Efficient inventory management, precise portion control, vigilant waste prevention, and smart purchasing decisions directly control these critical numbers.

3. Gross Profit: Calculated as Sales - Cost of Goods Sold. This number tells you how much money you have left after covering the direct costs of the food and beverages you sold. It's the first measure of profitability and needs to be healthy enough to cover all other operating expenses.

4. Payroll and Benefits Costs: Often the largest operating expense for any restaurant. This includes all wages (hourly and salary), payroll taxes, health insurance, and other benefits for all staff – both kitchen and front-of-house. It’s generally broken down into subcategories to budgeted labor percentages such as management, hosts, bartenders, back of house, etc.

• Your Impact: As a chef, your scheduling efficiency, kitchen staff productivity, and even retention of good employees directly affect this line item.

5. Prime Costs: This is a crucial figure: Food & Beverage COGS + Payroll & Benefits Costs. Prime costs represent the two largest expenses in a restaurant, and together, they are the most controllable. Many successful restaurants aim for prime costs to be within a specific percentage range of total sales (often 55-65%, depending on concept).

• Your Impact: By actively managing your food costs and labor, you are directly controlling the most significant expenses of the business.

6. Operational Costs: These are the daily expenses of running the restaurant, distinct from the direct cost of goods or payroll. This section will have many individual line items, such as:

• Utilities (electricity, gas, water)

• Repairs & Maintenance (equipment fixes, facility upkeep)

• Supplies (cleaning products, paper goods, smallwares, uniforms)

• Marketing & Advertising

• Administrative Expenses (office supplies, professional fees)

• Credit Card Fees

• Your Impact: While some are fixed, you can influence areas like utility usage in the kitchen, careful handling of equipment to reduce repairs, and responsible use of kitchen supplies.

7. Occupancy Costs: These are the costs associated with your physical space, primarily rent. It can also include property taxes and insurance related to the building.

• Your Impact: Generally fixed and out of your control as an employee, but understanding this cost helps put sales targets into perspective.

8. Net Profit: This is the ultimate bottom line: Gross Profit - Total Operating Expenses (including Payroll, Operational, and Occupancy Costs). This number tells you whether your restaurant truly made money or incurred a loss during the period.

9. EBITA (Earnings Before Interest, Taxes, and Amortization): While often more for owners and investors, you might see this. It essentially shows the operating profitability of the business before accounting for financing costs (interest), government levies (taxes), and non-cash expenses like amortization. It gives a clearer picture of the core operational performance.

Putting It Into Practice

When you receive a P&L, don't just glance at the bottom line. Here's your action plan:

1. Start at the Top: Look at your total sales. Are they meeting targets? How do they compare to last month, last year, or budget?

2. Zero in on COGS: Is your food cost percentage in line with industry benchmarks and your restaurant's goals? If not, investigate. Is it purchasing errors, excessive waste, portioning issues, or perhaps a sudden ingredient price hike?

3. Examine Labor: Are payroll costs too high for your sales volume? Could scheduling be optimized without compromising service or quality? Are there efficiency gains to be made in the kitchen?

4. Spot Trends: Compare the current P&L to previous periods and to budget. Are costs increasing disproportionately in certain categories? Are sales dipping without a clear reason?

5. Ask Questions: Don't be afraid to ask your manager, owner, or controller about anything you don't understand. The more you ask, the more you learn. Proactively asking shows your commitment to the business.

6. Connect to Systems & People: Once you identify an issue (e.g., high food cost), connect it back. Is it a purchasing system problem? A receiving problem? A portioning issue with a specific cook? This helps you address the root cause, not just the symptom.

Understanding the P&L isn't about becoming an accountant --- It's about recognizing that every decision you make in the kitchen, from how you order ingredients to how you schedule your team, has a direct financial implication. By embracing this knowledge, you transition from a cook to a strategic business leader.