Money Matters

How to create and read a restaurant profit and loss statement

How do you know if your restaurant is truly making money? It may be selling well, but could it be leaking cash in hidden ways? Your profit and loss statement will tell you.

We all like to think the motivation behind running a restaurant is passion for food and giving customers a unique experience.

But let’s be realistic—you have to also make a living, which means it has to be profitable.

Whether you’re running a food truck or a full-service dining experience, knowing where your money’s going is the basis for staying afloat.

That’s where your Profit and Loss (P&L) statement comes in.

It’s the financial snapshot that helps you understand performance, control costs, and plan ahead.

Here we’ll walk you through the purpose and structure of a restaurant P&L statement, how to create one, and how to use it to improve your bottom line.

Here’s what we’ll cover:

What is a restaurant profit and loss statement?

A profit and loss statement, also called an income statement, shows how much money your restaurant made and spent during a set period.

When you subtract total costs from your revenue, you will either end up with a positive result (profit) or negative (loss).

The final result reflects how well you’ve managed your sales, costs, and operations.

The P&L document sits alongside your balance sheet and cash flow statement.

The balance sheet shows what you own and owe at a given time.

The cash flow statement tracks how money moves in and out of your business.

P&L, however, focuses on overall financial performance across the timeframe you choose to assess.

It’s essential for staying in control of your financial health and seeing whether your hard work is paying off.

Why profit and loss statements matter in the restaurant industry

Restaurants face unique cost pressures—ingredients are perishable, food prices can swing quickly, and there’s usually a high demand for labor to cover front-of-house and kitchen roles.

On top of that, competition is fierce and customer preferences change fast.

All of this makes it harder to maintain consistent profitability, and keeps your margins tighter compared to many other industries.

That’s why it’s so important to know how profitable you really are.

A profit and loss statement shows you exactly what’s coming in and what’s going out.

It breaks down your earnings and spending so you can see where your money is actually being made—or lost.

This clarity helps you spot problem areas, control costs, and make smarter decisions based on real data, not guesswork.

Your P&L may reveal opportunities to control spending, such as trimming food waste or managing labor more effectively.

It also helps you evaluate your prime cost—your combined labor and Cost of Goods Sold (COGS).

It’s the changes you make here that have most bearing on profitability, since these are your largest controllable expenses.

When used alongside a budget or forecast, it lets you compare actual results to your targets so you can spot shortfalls and quickly correct deviations.

Key components of a restaurant profit and loss statement

The overall structure of a profit and loss statement is similar across most industries—it always tracks revenue, expenses, and profit over a specific period. But the details within each section can vary based on the type of business.

Here’s a breakdown of the key sections you’ll find in a typical restaurant P&L and how they apply to your day-to-day operations.

1. Sales (Revenue)

In this section, you break down sales income by category—food, beverages, delivery, catering, or extras like gift cards.

The more detailed, the better. This helps you spot trends in what sells and what doesn’t.

For accuracy, use data from your POS system and reconcile it regularly—that is, account for any pending amounts, errors, or adjustments.

Inaccurate sales figures can throw off your entire statement and lead to poor decision-making down the line.

2. Cost of Goods Sold (COGS)

COGS covers the cost of the ingredients and supplies needed to make your menu items.

This includes everything from meat and produce to napkins and takeout containers.

It does not include cooking fuel (see operating expenses below).

To calculate it, take your starting inventory, add purchases during the period, then subtract ending inventory.

COGS for restaurants differs from other industries because it’s tightly linked to perishables, waste, and pricing changes.

Keeping a close eye on COGS helps you manage food costs and improve profitability.

3. Labor costs

Labor costs are some of the largest ongoing expenses for a restaurant, and they go beyond just wages.

There are also payroll taxes, health benefits, bonuses, and paid leave to consider.

Furthermore, you should break down this category to cover front-of-house staff, kitchen crew, and managers separately.

Tracking labor separately from other expenses helps you understand your restaurant’s efficiency.

To judge whether these costs are too high or too low, compare them as a percentage of total sales.

Most restaurants aim for labor costs between 25% and 35%. If you’re outside that range, take a closer look to find out why.

High labor costs could mean overstaffing or inefficiencies.

Low labor costs might suggest you’re understaffed, which could hurt service quality and customer satisfaction.

Software that integrates with your payroll system can simplify this tracking, helping you spot trends quickly.

4. Operating expenses

Operating expenses are the day-to-day costs of running your restaurant.

These include utilities, marketing, cleaning supplies, software subscriptions, and repairs.

It’s helpful to separate fixed expenses (like software fees or internet) from variable ones (like marketing or cleaning materials).

This lets you spot which costs fluctuate and gives more control when trimming spending.

5. Occupancy costs

Rent, property insurance, and property taxes are separate from operating expenses because they relate to your physical space, not your daily operations.

These costs often remain fixed over time, but they can take a big chunk of your budget.

Understanding their share of your expenses helps you assess whether your location is financially sustainable.

6. Depreciation and amortization

To set up your restaurant you will have invested in equipment like ovens, freezers, and POS terminals.

These lose value over time, which is captured as a negative figure under depreciation.

Amortization, on the other hand, applies to intangible assets such as licenses (e.g. to sell liquor, to use a franchise, for software), trademarks, or loan fees.

These assets don’t physically wear out, but they still lose value over time as their usefulness decreases.

Recording depreciation and amortization ensures your P&L reflects the true cost of using both tangible and intangible assets.

Also, these figures are often tax deductible—you can subtract these amounts from your taxable income, potentially lowering your tax bill.

Depreciation and amortization figures contribute to an accurate net profit result, which you can confidently use to plan ahead.

7. Net profit or loss

At the bottom of your P&L sheet is the final result—your net profit (or loss).

To get it, subtract COGS, labor, operating, occupancy, and depreciation costs from your total revenue.

This number tells you whether you’re running a profitable operation or if changes are needed.

It’s a key figure for investors, lenders, and your own peace of mind.

Restaurant income statement example: How to create one

The above list of P&L components pretty much dictates how you put together the statement.

Here’s a step by step summary for quick reference.

Step 1: Choose a timeframe

Step 2: Record all sales

Step 3: Input COGS

Step 4: Enter labor costs

Step 5: Add operating and occupancy costs

Step 6: Calculate net profit/loss

A note on Step 1: many restaurants prefer monthly P&Ls so they can stay on top of trends and make quick changes.

For example, you can react sooner to seasonal shifts, cost spikes, or performance dips.

However, there’s nothing stopping you from drafting the statement quarterly or yearly if that suits your workflow or reporting needs.

How to read and analyze a restaurant income statement

Comparing your latest P&L statement with those from previous months or years helps you spot trends, evaluate changes, and measure growth.

But there’s also value in analyzing your latest statement as soon as you put it together—it tells the story of how your restaurant is performing right now.

You might notice rising food costs, slipping margins, or seasonal patterns you hadn’t seen before.

This kind of insight helps you fine-tune pricing, staffing, and purchasing decisions.

First, check your gross profit (sales minus cost of goods sold, or COGS) and calculate your gross margin (gross profit ÷ total sales).

This shows how well you’re controlling your food and beverage costs and whether your pricing and portion sizes are sustainable.

It determines how much is left to cover other costs and serves as a useful benchmark against similar restaurants.

Another important metric that emerges from your P&L is your prime cost, the sum of your labor costs and COGS.

Prime cost is often your largest controllable expense, typically making up 60% to 65% of total sales in the restaurant industry.

Tracking it closely helps you spot where adjustments—like scheduling or food purchasing—can have the biggest impact on your profitability.

Also, look at each section as a percent of total sales. For instance, if labor is 35% of sales, you can compare that to industry averages.

Some operators also create a one-page P&L summary for quick weekly or monthly check-ins, with a more detailed version available if they want to dig deeper.

This approach keeps the focus on the most important figures without overwhelming the team.

Restaurant profit and loss statement template (free download)

Download a free restaurant P&L template below or check out our blog here to help you get started.

It’s simple, customizable, and available as an Excel or PDF file.

Use it to plug in your numbers, calculate your bottom line, and track your progress month after month.

Tips to improve your restaurant’s profitability using P&L data

As you know, the purpose of drafting a P&L statement is to check that you’re running profitably and pinpoint ways to improve results.

Once you’ve got reliable numbers, you can plow those returns back into the venture. Here’s how to make your P&L work harder for your business:

• Track it regularly: monthly or even weekly reviews help you catch problems early and stay in control.
• Compare periods: look at performance month-over-month or year-over-year. This helps you spot seasonal trends, track growth, or flag sudden shifts.
• Monitor key ratios: watch labor and COGS as a percentage of sales. Small changes can signal waste, overstaffing, or pricing issues.
• Adjust your menu: if certain dishes have high food costs or low margins, tweak the recipes or pricing—or consider removing them altogether.
• Evaluate staffing: use labor data to schedule more efficiently. Look at sales patterns and match staffing levels to busy and slow periods. Some overtime might be unnecessary—staff may be staying on longer than needed due to poor shift planning or inconsistent prep routines.
• Negotiate with suppliers: if COGS is creeping up, it may be time to renegotiate contracts, or consider alternative vendors for better pricing.
• Use accounting software: the right software can automate the P&L drafting process, pulling in real-time data from your POS and payroll systems. It can flag anomalies or large changes, making it easier to spot issues or opportunities.

Final thoughts on restaurant financial statements

A profit and loss statement is one of the most valuable tools in your restaurant’s financial toolkit.

It gives you the insights you need to make adjustments in your finances.

Solid business health then builds confidence among your partners or lenders.

Restaurant accounting software makes it easy to perform these analyses consistently by automating P&L statement creation and syncing with POS and payroll systems.

Restaurant profit and loss statement FAQs

Can I use my POS system to generate a P&L?

Some POS systems offer basic P&L reporting, especially if they integrate with your accounting software. Just make sure the data is complete and accurate before using it for decision-making.

What’s a good net profit margin for a restaurant?

A typical net profit margin for a restaurant falls between 3% and 6%, but it can vary widely depending on your concept, location and cost structure.

In terms of concept, Quick-Service Restaurants (QSRs) like burger joints or sandwich shops often have higher margins—sometimes up to 10% or more—because of lower labor costs, faster table turnover, and more streamlined menus.

On the other hand, full-service restaurants usually see slimmer margins due to higher staffing needs, slower service times, and more overhead.

Fine dining may have higher menu prices, but also faces higher costs for ingredients, décor, and skilled staff—so profits can still be tight.