In the past year, I've become obsessed with systemizing. Seriously. Mostly for my business and my clients, but I find myself thinking about it in other areas of my life as well.
Coaching basketball. My kids' homework. Paying my bills. Everything.
Ask my wife.
"If you mention the word 'systemize' one more time in this house," she told me the other day, "I'm going to kick you right in the balls."
Which is comical, because she's actually better at it than me. Systemizing, not kicking people in the balls.
Despite my obsession, there is no denying that systemizing your business breeds gigantic results, from finances to inventory management to your staff to marketing to check lists and job duties.
I'm just going to say it: Systemizing is AMAZING!!! It gives you a clear vision of what you're doing on a daily basis, and it provides everyone with job duties, as well as checks and balances.
In order to help bars and restaurant owners and managers succeed, I have created 4 excel templates designed specifically for bars and restaurants:
1. The Daily Sales & Cash Reconciliation Template
2. The Weekly Sales & Prime Cost Report Template
3. The Weekly Cash Flow Management Template
4. The Monthly Profit/Loss Statement Template
I'm going to provide a separate blog post for each template so you don't get overwhelmed. Small chunks work best for absorbing and digesting information.
Now, on my Youtube channel I started with the daily template and moved up to monthly, which is a logical progression of time, from most frequent (daily) to least frequent (monthly).
For this blog sequence I'm going to start with the Restaurant Profit/Loss Statement because I believe it's the most sought after so I want to get it out first.
Also, I love the profit/loss template we use because it has all 12 months of the year in one template, PLUS it shows prime cost for the month which is awesome, PLUS it has current month and year-to-date data.
If you want the template for yourself (or any of the other templates) you can get it here on the resource page of my other site TheRealBarman.com.
In addition, for your convenience, I am providing this information in both written form and video because I know how particular everyone is and because we live in a day and age when everyone has to be accommodated or I get sued somehow.
Let's get to it.
HOW TO READ A RESTAURANT PROFIT LOSS STATEMENT
WATCH THE VIDEO
HOW OFTEN DO I RUN A PROFIT/LOSS?
The P & L is most commonly used on a monthly basis, but you could run it weekly if you are a mega-on-top-of-things type of owner, or on a yearly basis if you are a mega-lazy-and-apathetic-and-didn’t-give-a-shit-about-your-business type of owner. Your choice.
Weekly is great, but most owners and managers have a thousand chainsaws to juggle, so I recommend monthly, as it gives you a good overview of your business. For weekly analysis we use the Weekly Sales & Prime Cost Report, as well as the Weekly Cash Flow template.
THE BASIC SECTIONS
The P & L is broken down into three main sections:
- The Revenue (money coming in)
- COGS, or Cost of Goods Sold (money going out
The result of those three will give you your profit or loss at the bottom, but it’s important to know that those three sections tell a story about what’s going on in your business, beyond the profit/loss at the bottom.
Hiding in the middle are the reasons WHY your profit or loss is what it is, and that’s what you need to be analyzing.
Let’s quickly breakdown the three main sections, and then for a more detailed look on how all this works, make sure to watch video.
SALES – As I mentioned, this is money coming in, and the more you break it down, the easier it is to spot problem areas. Take a look:
In this example it's broken down as Food and Non-Alcoholic drinks, then four categories of bar products, then Retail and Miscellaneous to cover everything else.
You can break it down however you want, but the more detailed you have it, the easier it is to compare it to the standards you have set so you can see if you're hitting those standards.
From here you will simply run a report from your POS or cash register and enter all of your sales for the month. In this example you can see that sales for the month totaled $103,122 and year-to-date (YTD) is $212,468. The percentage column shows the percentage of overall sales for each category (i.e. 69.3% of their total sales came from food).
COST OF GOODS SOLD (COGS) - Again, this is money going out, or money you spend on the products you are selling. Yes, they are expenses, but they are separate from the Expenses section, which focus on operating expenses.
As you can see, the COGS categories match the Sales categories so we can get cost percentages and compare them to industry standards, which we have listed to the right of each category so you can compare them right on the spot. We also need to remember that industry averages can vary based on the style of restaurant, but this gives us an overall view. Check it out:
As you can see here, we can look at both the current month and the YTD to see how we compare to industry averages. This is only two months worth of data (Jan & Feb) so the YTD is somewhat similar, but let's take a look.
The industry average for food is 28 – 32%, and based on this report, we’re running consistently at 39%. OUCH! We either need to order less, raise our prices, cut down on waste or find new vendors.
For Non-Alcoholic, the industry average is 10 – 15% and in February we were high at 21.6% but overall we are at 14.2%, which is all that matters.
You are going to have fluctuations, but as long as the overall numbers are good, that’s what we’re looking for. This is why it’s so important to have YTD numbers so you don’t have to sift back through the months and try to figure out all out by calculator for every single category.
You can go right down the list here and see how each category compares to the industry averages so you can make adjustments on spending, ordering, pricing and tracking your products.
LABOR EXPENSES – With expenses we start with labor, because now that we have sales and COGS taken care of, once we enter our labor, we can view our Prime Cost, which is one of the most important metrics to track.
Many profit/loss templates don’t include the prime cost calculation, which is a shame because all the information is right there. Prime cost, in a nutshell, is the money you spend on your COGS + Labor. To get a prime cost percentage, divide that total by your sales. As you’ll see in the next example, the prime cost industry standard is 60 – 65%.
Take a look:
If we head directly down to the green bar, we can see right off the bat that we have problems. Prime cost is at 72%.
So checking labor, we again have standards to the right to compare to for Management, Hourly Staff and Employee Benefits. All three of those are within a reasonable amount compared to the standards, so we know labor is ok for now, though we are always looking to improve it still.
Based on earlier analysis, we know that the food cost is the major culprit. Bring food cost down to industry standard will greatly lower our prime cost.
OPERATING EXPENSES - Finally, we move into operating expenses, both controllable (code name for variable costs, for the most part) and uncontrollable (sort of fixed costs).
This template is an overview profit/loss statement which groups a lot of detailed expenses into broader categories. Again, I always preach details, so the more detailed you get on your expenses, the better.
I created this template because many of the average mid-sized bar/restaurants don’t even use a profit/loss statement, so I want them to complete it each month without being too overwhelmed, but you can have one created that’s very similar to this one with all the lines of details you need to track everything.
Here are the expenses as they are tracked in this template:
Again, on the right we have a couple of industry standards for Occupancy Costs and then the most important one, Profit/Loss before taxes.
Sad, isn’t it? The average bar/restaurant is making 3 – 6% profit.
In this example, this business is in the hole nearly $6,000 for the month, which means it’s time to get busy finding ways to start increasing sales and controlling expenses or they will be out of business quickly.
That’s a quick rundown of the profit/loss statement and what areas you need to be looking for in order to maximize your profits each month.
Here is a snapshot of the entire profit/loss template:
Again, if you would like to get this template click here to head to the resource page. But whatever you do, whether you use the one we use or another one, make sure you’re using SOMETHING to track your sales, COGS and expenses each month.
Thanks for hanging out. See you next time.
Tags: how to read a restaurant profit loss statement, how to read a restaurant p & l, restaurant profit loss template, bar profit loss statement, restaurant finances, restaurant financial templates, how to manage a restaurant, how to manage a bar, how to run a restaurant how to run a bar