Restaurant profit and loss statement: a worked example, line by line

Short answer: a restaurant profit and loss statement (P&L) lists sales split into food and drinks, then cost of sales (the food and drink you used), gross profit, staff costs, overheads such as rent and energy, and the net profit at the bottom. Read every line as a share of sales. The two numbers that matter most are food cost % (what you spent on food for every 100 of food sales) and prime cost (cost of sales plus all staff costs). In the example below, a restaurant with £80,000 of sales in a busy month keeps £10,000 (12.5%). In a quiet month with 20% less in sales it keeps £960, because rent and most of the wages do not fall with the sales.

A worked example: a 60-cover restaurant in Leeds

These figures are made up. The restaurant is a small company registered for VAT, so every figure excludes VAT. The owner-chef’s salary is in the wages line.

	October	% of sales	January	% of sales
Food sales	60,000	75.0%	48,000	75.0%
Drinks sales	20,000	25.0%	16,000	25.0%
Total sales	80,000	100%	64,000	100%
Food cost	(18,000)	30.0% of food	(14,400)	30.0% of food
Drinks cost	(5,000)	25.0% of drinks	(4,000)	25.0% of drinks
Gross profit	57,000	71.3%	45,600	71.3%
Wages, including the owner-chef	(24,600)	30.8%	(22,600)	35.3%
Employer NI and pension	(2,600)	3.3%	(2,400)	3.8%
Rent and business rates	(8,000)	10.0%	(8,000)	12.5%
Gas and electricity	(3,200)	4.0%	(3,600)	5.6%
Card fees	(1,200)	1.5%	(960)	1.5%
Delivery app commission	(1,600)	2.0%	(1,280)	2.0%
Repairs and maintenance	(900)	1.1%	(900)	1.4%
Marketing	(700)	0.9%	(700)	1.1%
Accountant, software and insurance	(1,100)	1.4%	(1,100)	1.7%
Cleaning and laundry	(800)	1.0%	(800)	1.3%
Other	(600)	0.8%	(600)	0.9%
Operating profit before depreciation	11,700	14.6%	2,660	4.2%
Depreciation	(1,200)	1.5%	(1,200)	1.9%
Loan interest	(500)	0.6%	(500)	0.8%
Net profit before tax	10,000	12.5%	960	1.5%

Brackets are costs. Food and drinks cost are shown against their own sales, which is how kitchens and bars price; every other line is a share of total sales.

The lines that tell you most

• Food cost, 30% of food sales. For every £100 of food sold, £30 went on ingredients. Figures often quoted for restaurants are somewhere around 28% to 35%, depending on the menu. A rise of three points, from 30% to 33%, costs this restaurant £1,800 a month, or £21,600 a year, without anyone noticing a bill that looks wrong. Supplier price rises, waste, over-portioning and menu prices that have not moved are the usual causes.
• Drinks cost, 25% of drinks sales. Drinks usually carry a higher margin than food. A month where more of the sales are drinks lifts the overall gross margin even if nothing else changes, so look at the food and drinks lines separately.
• Prime cost, 62.8% in October. Cost of sales plus all staff costs: 23,000 + 27,200 = £50,200. Prime cost is the number most restaurant owners watch, because it is the part you can change week to week through the menu, ordering and the rota. A level often quoted as a target is around 60% to 65% of sales. In January it reaches 67.8%, because the staff costs only fell by £2,200 while sales fell by £16,000.
• Staff costs, 34% of sales in October and 39.1% in January. Wages plus employer National Insurance and pension (in Australia, super and payroll tax where it applies). The free wage percentage calculator does this sum for a week or a month.
• Rent and rates, 10% of sales. Fixed. It is £8,000 in a busy month and a quiet one, which is why it jumps to 12.5% of sales in January.
• Delivery app commission, 2% of total sales. The restaurant took £8,000 a month through a delivery app at 20% commission. As a share of those orders it is 20 points of margin, which is worth knowing before pushing more sales through the app.

Why January makes so little

Sales fell 20% but profit fell 90%, from £10,000 to £960. Gross profit fell by £11,400. Rent, insurance, software and repairs did not change, energy went up in winter, and the rota came down only a little. That is normal for a restaurant, and it is why one quiet month can use up the profit of a good one. Two things follow:

1. Know your break-even month. Overheads and staff costs in January were £42,940 before depreciation and interest; with a 71.25% gross margin, the restaurant covers them at about £60,300 of sales a month. The free break-even calculator does this for your own figures.
2. Keep cash from the busy months. A profitable October does not mean a profitable quarter. The how many months of cash guide works out how much to hold back.

Food cost needs a stock count

Most restaurants record food purchases as an expense when the supplier bill arrives. That makes the food cost line follow your deliveries, not what the kitchen used: a big order on the last day of the month makes the month look expensive, and the next month look cheap. A month-end stock count fixes it:

Food cost for October	£
Food stock at 1 October	4,000
Add food purchases in October	19,500
Less food stock at 31 October	(5,500)
Food used (food cost)	18,000

Without the count, October’s food cost would show the £19,500 of purchases, or 32.5% instead of 30%. If you count stock each month, ask your bookkeeper or accountant to post the change in stock to the Balance Sheet so the P&L shows the food actually used. If you do not, compare food cost over three months or more, not one.

Setting up a restaurant P&L in Xero

1. Split sales by type. Use separate revenue accounts for food and drinks (and for delivery or events if they matter), or one sales account with a tracking category. Most point-of-sale systems that connect to Xero post a daily sales summary you can map to these accounts.
2. Split cost of sales the same way. Food purchases and drinks purchases in their own cost of sales accounts, so each can be read against its own sales.
3. Keep staff costs together. Wages, employer NI or super, and pension in their own accounts under operating expenses, so you can add them to cost of sales for prime cost.
4. Keep VAT or GST out of sales. If you are registered, the P&L shows sales without VAT or GST. Tips and service charges passed on to staff should not inflate sales either; ask your accountant how to record them.
5. Run the Profit and Loss by month. In Xero, open Accounting › Reports › Profit and Loss, pick a month and compare it with the previous months and the same month last year. The Profit and Loss by month guide shows how, and the common size P&L guide shows how to turn every line into a share of sales.

Menu names and options differ a little between Xero plans and releases; search Xero Central for “Profit and Loss report” if your screen does not match.

Common mistakes

• Reading one month on its own. Purchase timing, a quarterly bill or a five-week month can move the percentages by several points. Look at the trend.
• Food cost against total sales. It hides a rising food cost behind strong drinks sales. Read food against food and drinks against drinks.
• Leaving the owner’s pay out. If the owner-chef draws money instead of a salary, the P&L looks better than the business is. Put a fair wage for the role into your own sums before deciding whether the restaurant pays.
• Counting the loan repayments. Only the interest is on the P&L; the repayments of the loan itself come out of cash but not out of profit.
• No stock count for months. The food cost line then tells you about deliveries, not about the kitchen.

Common questions

What does a restaurant profit and loss statement include? Sales, usually split into food and drinks; cost of sales, meaning the food and drink used; gross profit; staff costs including employer taxes and pension or super; overheads such as rent, energy, card fees and repairs; then depreciation, interest and the net profit before tax.

What is prime cost in a restaurant? Prime cost is cost of sales plus all staff costs. In the example it is 23,000 of food and drink plus 27,200 of staff costs, 50,200, which is 62.8 percent of 80,000 of sales. A level often quoted as a target is around 60 to 65 percent of sales.

What is a good food cost percentage? Figures often quoted for restaurants are around 28 to 35 percent of food sales, depending on the menu. Your own trend matters more: a rise of three points on 60,000 of monthly food sales costs 1,800 a month.

Why is my restaurant profit so low in quiet months? Rent, insurance, energy and most of the wages stay the same when sales fall, so profit falls much faster than sales. In the example, sales fall 20 percent and profit falls 90 percent.

How do I calculate food cost for the month? Opening food stock, plus food purchases in the month, less closing food stock, gives the food used. Divide it by food sales. Without a stock count, the figure follows your deliveries instead of what the kitchen used.

Should VAT or GST be in restaurant sales? No. If the business is registered, the profit and loss shows sales without VAT or GST, because that money is collected for the tax office.

Your restaurant’s numbers every Monday

ReportPilot reads your Xero figures and sends a short plain-English email every Monday. It covers sales and profit against last month and the same month last year, the cash in the bank against the end of last month, money owed to you that is past due and by whom, and bills due in the next two weeks against your cash. It asks Xero for read-only access, and there is a 14-day free trial with no card.