Hey, Jeremy Hood here, founder of Restaurant Results Partners. For those of you that don’t know, we help restaurants make more money by increasing their sales as well as their profits.
I had a conversation with a new customer today. He mentioned he might not be getting as much detail as he should from his P&L.
I thought it would be a good idea to walk through how to read a restaurant P&L statement. I am a licensed CPA in the state of Florida, so I know I’m a little bit biased. But I promise you, it’s not super complicated. I’m going to walk you through everything you need to do today to make better decisions in how you operate your restaurant.
Understanding the P&L Statement
First off, if you’re not super familiar with the P&L, there’s a book called “The Great Game of Business” that is really big on educating even employees on how to read financial statements. They describe the balance sheet as your overall report card for the health of your business, and the P&L is like a temperature check to see what symptoms might be causing your health to either improve or deteriorate.
Essentially, your P&L is where you look at your sales, cost of goods sold, all other expenses, and net profit. I’m going to walk you through how we format our P&Ls so you can make better decisions for your restaurant.
Exporting the Restaurant P&L from QuickBooks Online
We like to use QuickBooks Online. There are tons of different accounting software out there. QuickBooks Online makes it super easy for multiple people to work on your account, whether you have a bookkeeper or an employee helping you out.
It has access anywhere you go, it’s all online, and you can pull it up on your phone or any computer. There are lots of automations that happen when you sync your bank account, making it easy to maintain accurate books without taking a lot of time.
If you open your P&L, you can go to the report list. The standard P&L is probably going to look like this. It’s usually set to year-to-date by default, so the first thing you want to do is change this to last month.
If you’re using QuickBooks Online, I’ll show you how to do this inside QuickBooks. But I’ll also export this and format it in Google Sheets, in case you don’t have access to QuickBooks Online or you’re getting your P&L in Excel format.
Formatting the Restaurant P&L for Comparison
From here, I’ll show you how to format this in Google Sheets. It takes about 10 minutes to set up, but it’s well worth the time.
Let’s talk about this example. Restaurants typically have food and labor as their two biggest costs. We created this account for labor costs because, by default, you can’t just create a restaurant P&L in QuickBooks. As you can see, payroll expenses are zero by default, but we use a journal entry to move them up here to better see food and labor costs.
For example purposes, I’ll export this to Excel. We want to look at April of last year and last month, so we have two comparisons. Feel free to pause this video whenever you want, get your own P&L ready, and work along with me.
How to read A Restaurant P&L Statement
I’ve got three P&Ls that we’ll use in Google Sheets. If you’re using QuickBooks Online and your last month is ready to go, change this back to last month.
We’re going to add three comparisons: percent of income, previous year’s income, and previous period percent change. Click run, and now we’ve got some data to work with.
In Google Sheets, import your P&L files. It usually imports as Excel files, but you can also use CSV or copy and paste. Importing is usually the easiest. Copy the necessary data into a new sheet and ensure everything lines up properly.
Making Better Decisions Based on P&L Analysis
From here, add formulas to do the comparisons. For percent of income, divide each expense by total sales. For comparing to last year and last month, use the formula (current month – last year) / last year. Format these as percentages.
Highlight significant changes with conditional formatting. For example, highlight increases over 20% in red and decreases over 20% in green. This helps you quickly identify areas that need attention.
By looking at your P&L monthly, you can make quick and better decisions. Many restaurant owners don’t look at this for months, but corporate chains look at these numbers weekly or even daily.
Start by looking at sales and comparing year-over-year and month-over-month. For example, if dining room sales are down, think about why. Economic factors, fewer events, and consumer behavior all play a role.
Food and labor costs are the biggest areas to control. For this restaurant, labor costs are higher than we’d like to see, and food costs include paper products. Compare costs to industry standards and adjust where needed.
Conclusion
Hopefully, this was helpful. If you’re not looking at your P&L like this, try it next month. With QuickBooks, you can create up to 250 accounts, which should be plenty. The more detail you have, the better decisions you can make, leading to a more profitable restaurant.
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